Aaron's, Inc., a leader in the sales and lease ownership and specialty retailing of residential furniture, consumer electronics, home appliances and accessories, today announced record revenues and earnings for the three and nine months ended September 30, 2012.
For the third quarter of 2012, revenues increased 9% to $529.5 million compared to $484.7 million for the third quarter in 2011. Net earnings were $28.9 million versus $28.0 million last year. Diluted earnings per share were $.38 compared to $.36 per share in 2011.
For the first nine months of this year, revenues advanced 10% to $1.654 billion compared to $1.500 billion for the first nine months of 2011. Net earnings were $136.4 million versus $83.2 million a year ago. Diluted earnings per share for the first nine months were $1.77 for 2012 compared to $1.04 in 2011.
During the third quarter of 2012 the Company recorded a $10.4 million, or $.08 per diluted share, charge to earnings for costs associated with the retirement of the Company's founder and Chairman of the Board. Additionally, as previously reported, the Company recorded a charge of $36.5 million in the second quarter of 2011 related to a lawsuit with a former Aaron's associate. In the first quarter of 2012 the Company settled this lawsuit and reversed into income $35.5 million of this charge.
Excluding from all periods the third quarter retirement-related charge and the 2011 lawsuit-related charge and subsequent 2012 reversal, net earnings for the third quarter of 2012 would have been $35.4 million compared to $28.0 million for the same period in 2011, and earnings per share assuming dilution would have been $.46 compared to $.36 a year ago, a 28% increase. Net earnings for the nine months of 2012 would have been $120.8 million compared to $105.8 million a year ago, up 14% over the same period in 2011, and earnings per share assuming dilution would have been $1.57 versus $1.32 last year, a 19% increase.
"We are pleased with our third quarter results of operations. Excluding the charge related to the retirement of our founder, earnings exceeded expectations. Revenue growth remains very strong and our planned new store openings are on schedule," said Ronald W. Allen, President and Chief Executive Officer of Aaron's. "Demand for the high-quality, basic home furnishings we offer, with superior service and flexible payment terms, continues in these difficult economic times, and we expect 2012 will be another record year for the Company in both revenues and earnings."
"Our HomeSmart stores are ramping up in revenues as anticipated and we remain quite optimistic that this weekly pay concept will substantially contribute to our future growth. However, we still have some work to do in perfecting the store business model, and do not currently plan to open a significant number of additional HomeSmart stores until after the first half of next year," Mr. Allen continued. "We feel we still have substantial opportunity for adding additional Aaron's Sales & Lease Ownership stores, and expect our overall new store growth in 2013 to be comparable to the number of stores added in 2012."
"Finally, I join the management team and all Aaron's associates, both past and present, in wishing our founder Charlie Loudermilk a very long and well deserved retirement. The vision, leadership, knowledge and other contributions Charlie gave to Aaron's over 57 years, as well as the impact he has had in the business and civic community, are too many to mention. He certainly will be missed," Mr. Allen concluded.
Same store revenues (revenues earned in Company-operated stores open for the entirety of both quarters) increased 6.5% during the third quarter of 2012 compared to the third quarter of 2011, and customer count on a same store basis was up 8.2%. For Company-operated stores open over two years at the end of September 2012, same store revenues increased 4.8% during the third quarter of 2012 compared to the third quarter of 2011. The Company had 1,090,000 customers and its franchisees had 572,000 customers at the end of the third quarter of 2012, a 12.2% increase in total customers over the number at the end of the third quarter a year ago (customers of our franchisees, however, are not customers of Aaron's, Inc.).
During the first nine months of this year the Company generated over $86 million of cash flow from operations and had $156 million of cash on hand at the end of September 2012. The Company reacquired 872,908 shares of Common Stock in the third quarter of 2012 and 1,236,689 shares during the first nine months of the year, and has authorization to purchase an additional 4,044,655 shares.
The Aaron's Sales & Lease Ownership division increased its revenues in the third quarter of 2012 to $513.6 million, a 7% increase over the $478.0 million in revenues in the third quarter of 2011. Sales and lease ownership revenues for the first nine months of 2012 increased 8% to $1.608 billion compared to $1.488 billion for the same period a year ago.
Revenues of the HomeSmart division increased in the third quarter to $14.2 million, compared to $5.7 million in revenues in the third quarter of 2011. HomeSmart revenues for the first nine months of 2012 were $40.4 million versus $6.7 million for the same period a year ago.
Components of Revenue
Consolidated lease revenues and fees for the third quarter and first nine months of 2012 increased 12% and 11%, respectively, over the comparable previous year periods. In addition, franchise royalties and fees increased 1% for the third quarter and 5% year to date compared to the same periods in 2011. Non-retail sales, which are primarily sales of merchandise to Aaron's Sales & Lease Ownership franchisees, increased 1% to $87.2 million for the third quarter from $86.1 million in the comparable period in 2011, and increased 10% to $299.2 million for the first nine months compared to $271.2 million for the first nine months of last year. The increases in the Company's franchise royalties and fees and non-retail sales are the result of an increase in revenues of the Company's franchisees, who, collectively, had revenues of $231.6 million during the third quarter and $733.6 million during the first nine months of 2012, a 3% and 7% increase, respectively, over the prior year periods. Same store revenues and customer counts for franchised stores increased 3.2% and 9.9%, respectively, for the third quarter compared to the same quarter last year. Revenues and customers of franchisees, however, are not revenues and customers of Aaron's, Inc.
During the third quarter of 2012, the Company opened 14 Company-operated Aaron's Sales & Lease Ownership stores and 13 franchised stores. The Company also acquired four franchised stores and the accounts of three third party stores which were added to Aaron's Sales & Lease Ownership stores. In addition, the accounts of two third party stores were acquired and transferred to a HomeSmart store. The Company also sold two Company-operated stores to franchisees and the one remaining Aaron's Office Furniture store was sold to a third party. Two Company-operated stores were closed during the quarter.
Through the three months and nine months ended September 30, 2012, the Company awarded area development agreements to open seven and 36 additional franchised stores, respectively. At the end of September 2012, there were area development agreements outstanding for the opening of 201 franchised stores over the next several years.
At September 30, 2012, the Company had 1,190 Company-operated Aaron's Sales & Lease Ownership stores, 717 Aaron's Sales & Lease Ownership franchised stores, 78 HomeSmart stores, one franchised HomeSmart store, 17 Company-operated RIMCO stores, and six franchised RIMCO stores. The total number of stores open at the end of September 2012 was 2,009.
Fourth Quarter and Full Year 2012 Outlook
The Company is updating its guidance for 2012 and expects to achieve the following:
- Fourth quarter revenues (excluding revenues of franchisees) of approximately $575 million.
- Fourth quarter diluted earnings per share in the range of $.48 to $.52 per share.
- Fiscal year 2012 revenues (excluding revenues of franchisees) of over $2.2 billion.
- GAAP fiscal year 2012 diluted earnings per share in the range of $2.25 to $2.29.
- Non-GAAP fiscal year 2012 diluted earnings per share in the range of $2.05 to $2.09, which excludes the first quarter reversal of the accrued lawsuit expense and the third quarter retirement charge.
- Our initial earnings guidance for fiscal year 2013 is to achieve diluted earnings per share in the range of $2.25 to $2.41 per share.
- EPS guidance does not assume any additional significant repurchases of the Company's Common Stock.
- New store growth of approximately 5% to 7% over the store base at the end of 2011, for the most part an equal mix between Company-operated and franchised stores, and including a small number of HomeSmart stores. We expect overall new store growth in 2013 in the range of 4% to 6% over the store count at the end of 2012. This will be a net store growth after any opportunistic merging or disposition of stores.
- The Company will continue, as warranted, to consolidate or sell stores not meeting performance goals.
- The Company also plans to continue to acquire franchised stores or sell Company-operated stores as opportunities present themselves.
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