Aaron's, Inc. Reports Fourth Quarter and Year End Results

Total Revenues Down 2% for Quarter; Up 1% for Year
GAAP Diluted EPS of $.30 for Quarter; $1.58 for Year
Non-GAAP Diluted EPS of $.30 for Quarter; $1.86 for Year

ATLANTA - Feb. 7, 2014 // PRNewswire //  - Aaron's, Inc. (NYSE: AAN), a leader in the sales and lease ownership and specialty retailing of residential furniture, consumer electronics, home appliances and accessories, today announced revenues and earnings for the three and twelve months ended December 31, 2013.

"As we previously announced on January 13th, the Company's financial results in the fourth quarter did not meet expectations," said Ronald W. Allen, Chairman, President and Chief Executive Officer of Aaron's. "2013 has been a year of challenges and change for Aaron's and growing revenues and adding customers has been difficult with the ongoing economic pressures on low to middle income consumers."

For the fourth quarter of 2013, revenues decreased 2% to $553.9 million compared to $565.4 million for the fourth quarter of 2012. Net earnings were $22.7 million versus $36.6 million a year ago. Diluted earnings per share were $.30 compared to $.48 per share last year.

For the twelve months ended December 31, 2013, revenues increased 1% to $2.235 billion compared to $2.213 billion for the twelve months ended December 31, 2012. Net earnings were $120.7 million versus $173.0 million last year. Diluted earnings per share for the twelve months were $1.58 for 2013 compared to $2.25 in 2012.

Included in 2013 pre-tax earnings was an accrual of $28.4 million related to a pending regulatory investigation by the California Attorney General into Aaron's leasing, marketing and privacy practices. In addition, during 2013, $4.9 million of charges were recorded related to retirement expenses and a change in vacation policies. In 2012, a $10.4 million charge to earnings was recorded for costs associated with retirement expenses along with recognition of $35.5 million of income related to the settlement of a lawsuit.

On a non-GAAP basis, excluding from all periods the 2013 regulatory investigation accruals, the 2013 retirement and vacation related charges, the 2012 retirement expenses, and the 2012 reversal of a lawsuit-related accrual, net earnings for the twelve months ended December 31, 2013 would have been $142.4 million compared to $157.4 million in 2012, and earnings per share assuming dilution would have been $1.86 versus $2.04 last year.

"Our customer count grew only slightly in 2013 and due to the nature of the sales and lease ownership business it will take several quarters of increasing our customer base to significantly grow revenues and earnings," Mr. Allen continued. "We have spent substantial effort during the year strengthening our management team and operating practices and procedures, and believe the corporate infrastructure is now in place to produce solid and sustainable future financial performance. With better focus and execution our core business should return to more normal trends. We remain optimistic and look forward to better performance in 2014."

Same store revenues (revenues earned in Company-operated stores open for the entirety of both quarters) decreased .9% during the fourth quarter of 2013 compared to the fourth quarter of 2012, and customer count on a same store basis was down 1.4%. For Company-operated stores open over two years at the end of December 31, 2013, same store revenues decreased 1.9% during the fourth quarter of 2013 compared to the fourth quarter of 2012. The Company had 1,138,000 customers and its franchisees had 613,000 customers at the end of the most recent quarter, a 1% increase in total customers over the number at the end of the fourth quarter a year ago (customers of franchisees, however, are not customers of Aaron's, Inc.).

Due to the recognition of income tax benefits primarily related to the Company's furniture manufacturing operations and increased federal and state tax credits being applied to lower than expected earnings, the effective tax rates for the fourth quarter and twelve months of 2013 were 33.5% and 34.8%, respectively.

During 2013, the Company generated approximately $307 million of cash flow from operations and at December 31, 2013 had $231 million of cash on hand and $112 million in investments. In the fourth quarter of 2013 the Company acquired 3.5 million of its common stock under a previously announced $125 million accelerated share repurchase program. In February 2014 the program was completed and the Company will receive an additional 1.0 million shares of common stock upon settlement.

Division Results

Aaron's Sales & Lease Ownership division revenues, which include non-retail sales, decreased $7.7 million, or 1%, in the fourth quarter of 2013 to $537.9 million compared to $545.6 million in revenues in the fourth quarter of 2012. Sales and lease ownership revenues for the twelve months of 2013 increased 1% to $2.168 billion compared to $2.150 billion for the same period a year ago.

Revenues of the HomeSmart division were $15.2 million in the fourth quarter of 2013, a 2% increase over the $14.8 million in revenues in the fourth quarter of 2012. HomeSmart revenues for the twelve months of 2013 were $62.7 million versus $55.2 million for the same period a year ago, a 14% increase.

Components of Revenue

Consolidated lease revenues and fees for the fourth quarter and twelve months of 2013 increased 2% and 4%, respectively, over the comparable previous year periods. In addition, franchise royalties and fees decreased .1% in the fourth quarter and increased 3% for the twelve months of 2013 compared to the same periods in 2012. The changes in the Company's franchise royalties and fees are primarily driven by increases in store front revenues of the Company's franchisees, which collectively had revenues of $247.8 million during the fourth quarter and $1.011 billion for the twelve months of 2013, an increase of 2% and 4%, respectively, over the comparable 2012 periods. Same store revenues and customer counts for franchised stores were up .5% and .7%, respectively, for the fourth quarter 2013 compared to the same quarter last year (revenues and customers of franchisees, however, are not revenues and customers of Aaron's, Inc.). Non-retail sales, which are primarily sales of merchandise to Aaron's Sales and Lease Ownership franchisees, decreased 14% for the fourth quarter and 13% for the twelve months compared to the same periods last year due to less demand by franchisees.

Store Count

During the fourth quarter of 2013, the Company opened 19 Company-operated Aaron's Sales & Lease Ownership stores, 16 franchised stores, three HomeSmart stores and four RIMCO stores. The Company also acquired one Aaron's Sales & Lease Ownership franchised store and two franchised stores closed during the quarter.

Through the three and twelve months ended December 31, 2013, the Company awarded area development agreements to open 14 and 39 additional franchised stores, respectively. At December 31, 2013, there were area development agreements outstanding for the opening of 159 franchised stores over the next several years.

At December 31, 2013, the Company had 1,262 Company-operated Aaron's Sales & Lease Ownership stores, 773 franchised Aaron's Sales & Lease Ownership stores, 81 Company-operated HomeSmart stores, three franchised HomeSmart stores, 27 Company-operated RIMCO stores and five franchised RIMCO stores. The total number of stores open at December 31, 2013 was 2,151.

Subsequent to December 31, 2013, the Company sold its 27 Company-operated and the rights to five franchised RIMCO stores.

First Quarter and Full Year 2014 Outlook

The Company is updating its guidance for 2014 and expects to achieve the following:

  • First quarter revenues (excluding revenues of franchisees) of approximately $600 million.
  • First quarter diluted earnings per share in the range of $.57 to $.62 per share.
  • Fiscal year 2014 revenues (excluding revenues of franchisees) of approximately $2.3 billion.
  • GAAP fiscal year 2014 diluted earnings per share in the range of $1.80 to $2.00. EPS guidance does not assume any additional share repurchases after the completion of the Company's previously announced accelerated share repurchase program.
  • New store growth of approximately 1% to 2% over the store base at the end of 2013, for the most part an equal mix between Company-operated and franchised stores, and including a small number of HomeSmart stores. This will be a net store growth after any opportunistic merging or disposition of stores.
  • The Company also plans to continue to acquire franchised stores or sell Company-operated stores to franchisees as opportunities present themselves.
  • The Company will also continue, as warranted, to consolidate or sell stores not meeting performance goals.

Conference Call

Aaron's will hold a conference call to discuss its quarterly financial results on Friday, February 7, 2014, at 10:00 a.m. Eastern Time. The public is invited to listen to the conference call by webcast accessible through the Company's website, www.aaronsinc.com, in the "Investor Relations" section. The webcast will be archived for playback at that same site.

Aaron's, Inc., based in Atlanta, currently has more than 2,115 Company-operated and franchised stores in 48 states and Canada. The Company's Woodhaven Furniture Industries division manufactured approximately $104 million, at cost, of furniture and bedding at 14 facilities in seven states in 2013. Most of the production of Woodhaven is for shipment to Aaron's stores.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this news release regarding Aaron's, Inc.'s business that are not historical facts are "forward-looking statements" that involve risks and uncertainties which could cause actual results to differ materially from those contained in the forward-looking statements. These risks and uncertainties include factors such as changes in general economic conditions, competition, pricing, litigation, customer privacy, information security, customer demand and other issues, and the other risks and uncertainties discussed under "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2012. Statements in this release that are "forward-looking" include without limitation Aaron's projected revenues, earnings, and store openings for future periods, and other statements under the heading "First Quarter and Full Year 2014 Outlook," statements regarding planned share repurchases and statements regarding legal and regulatory accruals for loss contingencies.

Aaron's, Inc. and Subsidiaries

Consolidated Statements of Earnings

(In thousands, except per share amounts)

               
                             
   

(Unaudited)
Three Months Ended

 

(Unaudited)
 Twelve Months Ended

               
                             
   

 

December 31,

 

 

December 31,

               
   

2013

2012

 

2013

2012

               

Revenues:

                           
                             

  Lease Revenues and Fees

 

$     418,173

    $     411,827  

    $     1,748,699

    $     1,676,391                

  Retail Sales

 

8,258

8,336

 

40,876

38,455

               

  Non-Retail Sales

 

109,140

126,755

 

371,292

425,915

               

  Franchise Royalties and Fees

 

17,011

17,027

 

68,575

66,655

               

  Other

 

1,270

1,421

 

5,189

5,411

               

Total

 

553,852

565,366

 

2,234,631

2,212,827

               
                             

Costs and Expenses:

                           

  Retail Cost of Sales

 

5,023

4,575

 

24,318

21,608

               

  Non-Retail Cost of Sales

 

99,246

115,785

 

337,581

387,362

               

  Operating Expenses

 

263,143

243,035

 

1,022,684

952,617

               

  Legal and Regulatory Investigation

 

 

28,400

(35,500)

               

  Retirement and Vacation Charges

 

 

4,917

10,394

               

  Depreciation of Lease Merchandise

 

152,189

146,635

 

628,089

601,552

               

  Other Operating Expense (Income), Net

 

366

(1,263)

 

1,584

(2,235)

               

Total

 

519,967

508,767

 

2,047,573

1,935,798

               
                             

Operating Profit

 

33,885

56,599

 

187,058

277,029

               

  Interest Income

 

757

833

 

2,998

3,541

               

  Interest Expense

 

(1,097)

(1,503)

 

(5,613)

(6,392)

               

  Other Non-Operating Income, Net

 

566

1,263

 

517

2,677

               

Earnings Before Income Taxes

 

34,111

57,192

 

184,960

276,855

               
                             

Income Taxes

 

11,437

20,560

 

64,294

103,812

               
                             

Net Earnings

 

$     22,674

$     36,632

 

$     120,666

$     173,043

               
                             

Earnings Per Share

 

$           .30

$           .48  

$           1.59

$           2.28                

Earnings Per Share Assuming Dilution

 

$           .30

$           .48  

$           1.58

$           2.25                
                             

Weighted Average Shares Outstanding

 

75,227

75,556

 

75,747

75,820

               

Weighted Average Shares Outstanding Assuming Dilution

 

75,752

76,402

 

76,390

76,826

               
 

Certain prior year amounts have been reclassified to conform to the current year presentation.

 

Selected Balance Sheet Data

(In thousands)

(Unaudited)

           
                 
                 
 

December 31, 2013

    December 31, 2012

           
Cash and Cash Equivalents $               231,091

$               129,534

           

Investments

112,391

85,861            

Accounts Receivable, Net

68,684

74,157            

Lease Merchandise, Net

869,725

964,067

           

Property, Plant and Equipment, Net

231,293

230,598            

Other Assets, Net

313,992

328,712

           
                 

Total Assets

1,827,176

1,812,929

           
                 

Senior Notes

125,000

125,000            

Total Liabilities

685,848

676,803            

Shareholders' Equity

$             1,141,328

$            1,136,126            

 

Use of Non-GAAP Financial Information:

This press release presents the Company's net earnings and diluted earnings per share excluding (i) third quarter 2013 charges of $13.4 million related to a pending regulatory investigation, (ii) second quarter 2013 charges of $15 million related to the same regulatory investigation and (iii) second quarter 2013 retirement and vacation related charges of $4.9 million. Excluded from 2012 are a $10.4 million charge to earnings in the third quarter for costs associated with the retirement of the Company's founder and Chairman of the Board and the reversal of a $35.5 million charge recorded in the first quarter related to a lawsuit verdict against the Company, including associated legal fees and expenses. These measures are not presented in accordance with generally accepted accounting principles in the United States ("GAAP").

Management regards the circumstances of these special charges as not arising out of the ordinary course of business.  The adjustments include matters that are not entirely susceptible to prediction or effective management, and consequently management believes that presentation of net earnings and diluted earnings per share excluding these adjustments is useful because it gives investors supplemental information to evaluate and compare the performance of the Company's underlying core business from period to period. Non-GAAP financial measures, however, should not be used as a substitute for, or considered superior to, measures of financial performance prepared in accordance with GAAP, such as the Company's GAAP basis net earnings and diluted earnings per share, which are also presented in the press release. Please refer to our Current Report on Form 8-K furnishing this earnings release to the SEC on the date hereof for further information on our use of non-GAAP financial measures.

Reconciliation of Net Earnings and Earnings Per Share Assuming Dilution to Non-GAAP

Net Earnings and Non-GAAP Earnings Per Share Assuming Dilution

(In thousands, except earnings per share)

                   
                             
                             
   

(Unaudited)
Three Months

Ended December 31,

 

(Unaudited)
 Twelve Months Ended December 31,

                   
                                 
   

2013

2012

 

2013

2012

                   

Net Earnings

 

$     22,674

    $     36,632

 

$     120,666

$     173,043

                   
                                 

Add Regulatory Investigation Accrual, Net of Taxes (1)

 

  18,528                    

Add Retirement and Vacation Related Charges, Net of Taxes (2)

 

  3,208 6,496                    

Deduct Accrued Lawsuit Income, Net of Taxes (3)

 

 

  (22,187)                    
                                 

Non-GAAP Net Earnings

 

$     22,674

$     36,632

 

$     142,402

$     157,352

                   
                                 

Earnings Per Share Assuming Dilution

 

$          .30

$          .48  

$          1.58

$          2.25

                   
                                 

Add Regulatory Investigation Accrual

 

  .24                    

Add Retirement and Vacation Related Charges

 

  .04

.08

                   
                                 

Deduct Accrued Lawsuit Income

 

  (.29)                    
                                 

Non-GAAP Earnings Per Share Assuming

Dilution (4)

 

$          .30

$          .48  

$          1.86

$          2.04

                   
                                 

Weighted Average Shares Outstanding Assuming Dilution

 

75,752

76,402

  76,390 76,826                    

 

(1)

Net of taxes of $9,872 for the twelve months ended December 31, 2013 calculated using the effective tax rates for the twelve months ended December 31, 2013.

(2)

Net of taxes $1,709 for the twelve months ended December 31, 2013 and net of taxes of $3,898 for the twelve months ended December 31, 2012 calculated using the effective tax rates for the twelve months ended December 31, 2013 and December 31, 2012, respectively.

(3)

Net of taxes of $13,313 for the twelve months ended December 31, 2012 calculated using the effective tax rate for the twelve months ended December 31, 2012.

(4)

In some cases the sum of individual EPS amounts may not equal total EPS calculations.

 

SOURCE Aaron's, Inc.

Contact:

Gilbert L. Danielson
Executive Vice President
Chief Financial Officer
404-231-0011

###

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