Aaron’s Inc. (AAN) registered an earnings per share growth of 23.0% in the fourth quarter of 2010, climbing to 38 cents a share from the year-ago quarter earnings of 31 cents. Aaron also outpaced the Zacks Consensus Estimate of 34 cents a share.

For the fiscal 2010, earnings per share came in at $1.44, ahead of the Zacks Consensus Estimate of $1.41 and prior-year earnings of $1.37 per share.

Quarterly Details

Aaron’s top line jumped 9.0% to $484.4 million from $446.3 million in the year-ago quarter. The company has been witnessing positive trends in comparable-store sales. After a 3.2% increase in the third quarter of fiscal 2010, comparable-store sales climbed further to 6.2% in the quarter under review.  Total revenue also beat the Zacks Consensus Estimate of $472.0 million.                              

Aaron’s Sales & Lease Ownership division’s revenue increased to $481.7 million thereby contributing 9.0% to total top-line growth. However, Aaron’s Office Furniture stores adversely affected total revenue growth with sales plummeting 60.9% to $1.6 million in this business.

Consolidated lease revenues and fees jumped 9.0% and franchise royalties and fees increased 10.0% for the fourth quarter of fiscal 2010.  Non-retail sales, which are primarily sales of lease merchandise to Aaron’s Sales & Lease Ownership franchisees, surged 11.0% to $108.3 million for the fourth quarter of 2010 from $97.7 million in the comparable period in 2009.  

Financial Position

Cash and cash equivalents, in the reported quarter, came in at $72.0 million and total shareholder equity was $979.4 million.   

Store Update

In the quarter under review, Aaron’s Sales & Lease Ownership division opened 31 new company-operated stores and 25 new franchised stores thereby bringing the total to 1,138 company-operated stores, 658 franchised stores, 11 company-operated RIMCO stores, and six franchised RIMCO stores.

The company commenced the shut down of 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

The company expects to report total revenue of $530 million and earnings per share of 48 cents to 52 cents a share in the first quarter of fiscal 2011. For fiscal 2011, the company sees total revenue at $2.0 billion and expects to earn in the range of $1.61 to $1.77 per share.  

Management targets new store growth for both the company-operated and franchised stores to be 5% to 9% for 2011. 

Zacks Estimate Trend

The Zacks Consensus Estimate on Aaron’s earnings for the first quarter of fiscal 2011 is currently pegged at 49 cents a share and for the fiscal year ending December 2011 at $1.61 per share.

Aaron is a rent-to-own operator in the United States and has a low price provider strategy.  The company is involved in the rental and specialty retailing of consumer electronics, residential and office furniture, household appliances, and accessories.

The company is in direct competition with Rent-A-Center Inc. (RCII)

Aaron’s shares maintain a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Our long-term recommendation for the stock remains ‘Neutral’.

 
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