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AC

Aaron's Company, Inc. (AAN)·Q1 2024 Earnings Summary

Executive Summary

  • Consolidated Q1 2024 revenue was $511.5M, down 7.7% YoY; adjusted EBITDA was $22.7M, down 50.4% YoY; GAAP diluted EPS was a loss of $0.46 and non-GAAP diluted loss per share was $0.15, consistent with management’s “in line with guidance” message .
  • Management reaffirmed full-year 2024 revenue and adjusted EBITDA, but raised the non-GAAP EPS outlook (to $0.00–$0.25) on a lower estimated effective tax rate (~38%, −12ppt vs prior), while lowering GAAP diluted EPS and net income guidance ranges .
  • Aaron’s Business showed strong omnichannel traction: lease merchandise deliveries +6.8% YoY, e-commerce recurring revenue written +94.1%; April deliveries +18.6% YoY with e-commerce +116.3% (momentum continuing into Q2) .
  • BrandsMart comparable sales were down 9.4% (sequential improvement of 460bps), with adjusted EBITDA negative ($−2.6M), as demand remained pressured and customers traded down; gross margin contracted 220bps YoY .
  • Write-offs were 5.9% (up 50bps YoY on higher e-commerce mix but down 60bps sequentially vs Q4), and renewal rate declined 110bps YoY; management expects full-year write-offs to be within 6%–7% .

What Went Well and What Went Wrong

What Went Well

  • “We are seeing strong positive momentum… our first quarter results were in line with our guidance… omnichannel lease decisioning and customer acquisition program… driving significant growth in lease merchandise deliveries… expect mid-single digit lease portfolio growth by the end of 2024.” — CEO Douglas Lindsay .
  • E-commerce recurring revenue written +94.1% and April e-commerce deliveries +116.3%, supporting lease portfolio stabilization; same-store lease portfolio ended Q1 down only 1.4% YoY (vs down 4.4% at start of Q1) .
  • Aaron’s Business gross margin improved 90bps YoY to 64.2%, with adjusted EBITDA of $37.7M despite advertising investment and lower renewal rates .

What Went Wrong

  • Consolidated revenues declined 7.7% YoY and adjusted EBITDA fell 50.4% YoY, reflecting lower lease revenues/fees and lower retail sales at BrandsMart .
  • BrandsMart’s comparable sales decreased 9.4% and adjusted EBITDA margin fell 390bps YoY to −2.0%, driven by weaker traffic and trade-down behavior, plus advertising and new store costs .
  • Credit metrics mixed: write-offs rose 50bps YoY to 5.9% and renewal rate fell 110bps YoY (higher e-commerce mix), though write-offs improved sequentially (−60bps vs Q4) .

Financial Results

Consolidated Performance (Oldest → Newest)

MetricQ3 2023Q4 2023Q1 2024
Revenue ($USD Millions)$525.7 $529.5 $511.5
GAAP Diluted EPS ($)$(0.13) $(0.41) $(0.46)
Non-GAAP Diluted EPS ($)$0.01 $(0.26) $(0.15)
Adjusted EBITDA ($USD Millions)$25.3 $22.4 $22.7

Segment Revenues and Margins (Oldest → Newest)

MetricQ3 2023Q4 2023Q1 2024
Aaron’s Business Revenue ($USD Millions)$376.2 $369.2 $381.1
Aaron’s Business Gross Margin (%)63.1% 62.8% 64.2%
BrandsMart Revenue ($USD Millions)$152.4 $164.1 $132.5
BrandsMart Gross Margin (%)22.9% 23.8% 22.2%

Key Operating KPIs — Aaron’s Business (Oldest → Newest)

KPIQ3 2023Q4 2023Q1 2024
Lease Portfolio Size ($USD Millions)$116.4 $117.7 $116.1
Lease Renewal Rate (%)86.2% 85.2% 87.4%
Write-offs (% of lease revenues/fees)6.1% 6.5% 5.9%
E-commerce Share of Lease Revenues (%)18.5% 20.6% 24.0%
Same-store Lease Portfolio Size YoY (%)n/an/a−1.4%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Consolidated Revenue ($B)FY 2024$2.055–$2.155 $2.055–$2.155 Maintained
Adjusted EBITDA ($M)FY 2024$105–$125 $105–$125 Maintained
GAAP Diluted EPS ($)FY 2024$(0.30)–$(0.05) $(0.40)–$(0.25) Lowered
Non-GAAP Diluted EPS ($)FY 2024$(0.10)–$0.25 $0.00–$0.25 Raised
Net (Loss) Earnings ($M)FY 2024$(12)–$0 $(19)–$(7) Lowered
Cash Provided by Operating Activities ($M)FY 2024$100–$115 $99–$114 Slightly Lower
Capital Expenditures ($M)FY 2024$85–$95 $85–$95 Maintained
Adjusted Free Cash Flow ($M)FY 2024$15–$30 $15–$30 Maintained
Effective Tax Rate (%)FY 2024Prior rate (implied) ~38% (−12ppt vs prior) Lowered (benefit to non-GAAP EPS)

Segment guidance (unchanged): Aaron’s Business revenue $1.460–$1.520B, adjusted EBITDA $137.5–$152.5M; BrandsMart revenue $610–$650M, adjusted EBITDA $7–$12M .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2023, Q4 2023)Current Period (Q1 2024)Trend
Omnichannel lease decisioning & e-commerceQ3: Decisioning enhancements lowered write-offs; e-commerce 18.5% of lease rev . Q4: Launched new omnichannel program; e-commerce recurring revenue written +60% .E-commerce recurring revenue written +94.1%; April e-commerce deliveries +116.3%; continuing momentum .Accelerating adoption and portfolio impact
Credit quality (write-offs/delinquency)Q3: Write-offs 6.1%, −140bps YoY; improved 32+ day non-renewal rate . Q4: Write-offs 6.5%, −60bps YoY .Write-offs 5.9% (+50bps YoY; −60bps vs Q4); renewal rate −110bps YoY; full-year guide 6–7% .Mixed: higher e-comm mix raises write-offs, but sequential improvement
BrandsMart demand/attachQ3: Comp sales −17%; margin +50bps; opened Augusta store . Q4: Comp sales −14%; margin +320bps .Comp sales −9.4% (sequential improvement); margin −220bps; attach rate and portfolio grew with integrated financing waterfall rollout .Gradual improvement; still demand pressure
Cost structure & personnelQ3: On track $35–$40M 2023 savings . Q4: Exceeded $40M; additional actions in Q1 .Personnel cost improvements offset by higher advertising; management reiterates focus on efficiencies .Sustained cost discipline; targeted reinvestment
Tax rate & EPS guidanceQ4: Non-GAAP EPS outlook $(0.10)–$0.25 .Tax rate revised to ~38% (−12ppt), raising non-GAAP EPS to $0.00–$0.25 .Positive EPS impact from lower tax
Macro/consumer healthQ3/Q4: Weaker traffic, trade down across categories .Consumer still challenged; conversion rising via omnichannel tools .Stabilization contingent on macro

Management Commentary

  • CEO Douglas Lindsay: “Our new omnichannel lease decisioning and customer acquisition program… is driving significant growth in lease merchandise deliveries, and we continue to expect mid-single digit lease portfolio growth by the end of 2024… BrandsMart comparable sales improved sequentially… focused on improving operational performance, streamlining our cost structure, and innovating our business” .
  • CFO Kelly Wall (Q&A): Q2 expected to represent ~20%–25% of full-year revenue and ~25% of full-year adjusted EBITDA; quarterly tax rate cadence with Q4 ~300bps lower than Q2/Q3 post revision .
  • Call logistics and investor materials were furnished via 8-K and webcast links (earnings release, presentation) .

Q&A Highlights

  • Credit/write-offs trajectory: Management reaffirmed full-year write-offs of 6%–7%; increasing e-commerce mix raises write-offs modestly but trends (32+ day delinquency and write-offs) improved sequentially from Q4 .
  • BrandsMart integration and attach rate: Integrated financial decision waterfall rolled out to all stores in February; attach rate and portfolio growth cited; continued focus on operational efficiency and customer experience .
  • Opex mix: Higher advertising (Aaron’s) and new store costs (Augusta) drove YoY OpEx increase, offset by personnel efficiencies from cost actions .
  • Tax rate guidance: Lower effective tax rate supports higher non-GAAP EPS outlook; quarterly phasing noted by CFO .

Estimates Context

  • Wall Street consensus (S&P Global) for Q1 2024 EPS/revenue/EBITDA was unavailable due to missing CIQ ticker mapping; therefore, direct beat/miss vs S&P consensus cannot be assessed at this time [Tool error: SpgiEstimatesError].
  • Management stated results were “in line with our guidance,” with full-year revenue and adjusted EBITDA reaffirmed and non-GAAP EPS raised on tax rate revision .
  • Implication: Absent consensus, investor focus should center on guidance adherence, margin/credit trajectory, and omnichannel-driven volume momentum; revisit beat/miss once S&P mapping is resolved.

Key Takeaways for Investors

  • Aaron’s omnichannel execution is a core driver of volume and portfolio stabilization; monitor e-commerce mix impacts on write-offs and renewal rates as growth continues .
  • BrandsMart remains cyclical and demand-sensitive; sequential comp improvement is encouraging, but profitability is still pressured—watch attach rate improvements and margin mix as macro conditions evolve .
  • Guidance mix-shift: Non-GAAP EPS raised on lower tax rate; GAAP EPS/net income lowered—focus on adjusted EBITDA consistency and cash generation ($99–$114M CFO; $15–$30M adj. FCF guide) .
  • Credit normalization continues within guidance; sequential improvement vs Q4 supports growth thesis, but higher e-comm mix may keep write-offs near the upper half of the 6%–7% range in the near term .
  • Balance sheet/liquidity: Cash $41.0M, net debt $171.9M, revolver availability ~$211M as of Q1; conservative leverage and dividend ($0.125/share payable July 3) provide support while executing growth initiatives .
  • Near-term trading lens: Positive momentum into Q2 (deliveries/e-comm), raised non-GAAP EPS outlook, and sequential credit improvement are constructive; offset by BrandsMart demand and lower GAAP EPS guide—expect stock reaction to hinge on Q2 trajectory and margin resiliency .

Additional Q1 2024 Documents and Prior Quarter References

  • Q1 2024 earnings release, investor presentation, and dividend declaration furnished via 8-K (Ex. 99.1, 99.2, 99.3) .
  • Earnings call webcast details (May 7, 2024) ; call announcement PR also noted externally .
  • Q4 2023 results and 2024 initial outlook (for trend analysis) .
  • Q3 2023 results and 2023 updated outlook (for trend analysis) .