Aaron’s Inc. (AAN) registered an earnings per share growth of 7.0% in the third quarter of 2010, climbing to 32 cents a share from the year-ago quarter earnings of 30 cents and on the higher end of its earnings guidance range of 29 cents to 33 cents per share. Aaron also outpaced the Zacks Consensus Estimate of 30 cents a share.
Quarterly Details
Aaron’s top line jumped 9.0% to $452.2 million from $415.3 million in the year-ago quarter. The company has been witnessing positive trends in comparable-store sales. After a 2.4% increase in the second quarter of fiscal 2010, comparable-store sales climbed 3.2% in the quarter under review. Total revenue also beat the Zacks Consensus Estimate of $440.0 million.
Aaron’s Sales & Lease Ownership division’s revenue increased to $448.4 million thereby contributing 9.0% to total top-line growth. However, Aaron’s Office Furniture stores negatively impacted total revenue growth by declining 2.8% to $2.5 million.
Consolidated lease revenues and fees jumped 6.0% and franchise royalties and fees increased 13.0% for the third quarter of fiscal 2010. Non-retail sales, which are primarily sales of lease merchandise to Aaron’s Sales & Lease Ownership franchisees, surged 21.0% to $84.3 million for the third quarter of 2010 from $69.5 million in the comparable period in 2009.
Financial Position
Cash and cash equivalents, in the reported quarter, came in at $100.1 million and total shareholder equity was $967.9 million.
Store Update
In the quarter under review, Aaron’s Sales & Lease Ownership division opened 29 new company-operated stores and 18 new franchised stores thereby bringing the total to 1,116 company-operated stores, 631 franchised stores, 12 company-operated RIMCO stores, and six franchised RIMCO stores.
The company commenced the shut down of the operations of its Aaron’s Office Furniture division in June 2010. In the quarter, the company shuttered two additional Office Furniture stores with two stores remaining that are expected to continue operations in 2011 to liquidate merchandise.
Management Guidance
Sales Outlook: The company expects to report total revenue of $470 million and $1.86 billion in the fourth quarter and fiscal year 2010, respectively.
Store Outlook: Management expects new store growth for both the company-operated and franchised stores to be 7% to 9% for 2010. For 2011, new store growth is estimated in a range of 5% to 9%.
Earnings Guidance: Aaron expects to deliver fourth-quarter 2010 earnings per share between 32 cents and 36 cents. Fiscal 2010 earnings per share are expected between $1.39 and $1.43. In fiscal 2011, the company expects to earn in the range of $1.54 and $1.70.
Zacks Estimate Trend
The Zacks Consensus Estimate on Aaron’s earnings for the fourth quarter of fiscal 2010 is currently pegged at 33 cents a share and for the fiscal year ending December 2010 at $1.38 per share .
Aaron’s shares maintain a Zacks #4 Rank, which translates into a short-term ‘Sell’ recommendation. Our long-term recommendation for the stock remains ‘Neutral’.
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