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 months ended March 31, 2012.
For the first quarter of 2012, revenues increased 10% to $586.9 million compared to $532.7 million for the first quarter in 2011. Net earnings increased 60% to $71.2 million versus $44.4 million last year. Diluted earnings per share were $.92 compared to $.55 per share a year ago, a 67% increase.
During the first quarter of 2012, the Company settled a lawsuit with a former Aaron's associate who claimed she was sexually harassed by a former co-worker in 2006. The Company recorded a charge of $36.5 million in the second quarter of 2011, which represented an accrual for the judgment and associated legal fees and expenses of $41.5 million, less insurance coverage of $5.0 million. The Company's final settlement related to this matter was $6 million, and accordingly, the Company recognized $35.5 million of income in the first quarter of 2012 operating results.
Excluding the lawsuit-related accrual reversal, net earnings for the first quarter would have been $49.2 million, up 11% over the same period in 2011, and diluted earnings per share would have been $.64, a 16% increase over the same period in 2011.
"We are quite pleased with the results for the quarter and feel we have an excellent start for the year," said Ronald W. Allen, President and Chief Executive Officer of Aaron's. "Our results exceeded expectations, revenue and customer growth is strong, and the HomeSmart stores are ramping up as anticipated. We are optimistic that customer demand for the basic household furnishings we offer, especially with our flexible payment terms, will continue to be quite good in upcoming months."
Same store revenues (revenues earned in Company-operated stores open for the entirety of both periods) increased 4.8% during the first quarter of 2012 compared to the first quarter of 2011. Same store revenues also increased 2.6% for Company-operated stores open for over two years at the end of March 2012. The Company had 1,043,000 customers at the end of the most recent quarter, a 14% increase over the number at the end of March 2011. The customer count on a same store basis for Company-operated stores was up 8.6% in the first quarter of 2012 compared to the same quarter last year.
During the first quarter of this year the Company generated over $90 million of cash flow from operations, which includes the reversal of the accrued lawsuit expense, and had $234 million of cash on hand at the end of March 2012.
Revenues in the Aaron's Sales & Lease Ownership division increased in the first quarter to $571.0 million, an 8% increase over the $529.9 million in revenues in the first quarter of 2011.
Revenues of the HomeSmart division increased in the first quarter to $12.5 million, a $12.2 million increase over the $330,000 in revenues in the first quarter of 2011.
Components of Revenue
Consolidated lease revenues and fees increased 9% for the first quarter compared to the same period in the previous year. In addition, franchise royalties and fees increased 7% in the first quarter compared to the same period last year. Non-retail sales, which are primarily sales of lease merchandise to Aaron's Sales & Lease Ownership franchisees, increased 15% for the quarter compared to the first quarter 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, which collectively had revenues of $264.4 million during the first quarter, a 10% increase over the comparable 2011 period. Same store revenues and customer counts for franchised stores were up 6.3% and 8.3%, respectively, for the first quarter of 2012 compared to the first quarter of 2011. Our franchised stores had 564,000 customers at March 31, 2012, a 13% increase over the number at the end of the first quarter of 2011. Revenues and customers of franchisees, however, are not revenues and customers of Aaron's, Inc.
During the first quarter of 2012, the Company opened nine Company-operated Aaron's Sales & Lease Ownership stores, six franchised stores, and two HomeSmart stores. The Company also acquired three franchised stores and the accounts of nine third party stores. In addition, one store was acquired from a third party operator and converted to a HomeSmart store. Three Company-operated stores were closed during the quarter.
During the first quarter of 2012, the Company awarded area development agreements to open 11 additional franchised stores. At the end of March 2012, area development agreements were outstanding for the opening of 223 franchised stores over the next several years.
At March 31, 2012, the Company had 1,153 Company-operated Aaron's Sales & Lease Ownership stores, 710 Aaron's Sales & Lease Ownership franchised stores, 74 HomeSmart stores, 16 Company-operated RIMCO stores, and six franchised RIMCO stores. The Company also had one Aaron's Office Furniture store. The total number of stores open at the end of March 2012 was 1,960.
Second Quarter and Full Year 2012 Outlook
The Company is updating its guidance for 2012 and expects to achieve the following at this time:
- Second quarter revenues (excluding revenues of franchisees) of approximately $525 million.
- Second quarter diluted earnings per share in the range of $.44 to $.48 per share.
- Fiscal year 2012 revenues (excluding revenues of franchisees) of approximately $2.2 billion, an increase over the previous guidance of approximately $2.15 billion.
- GAAP fiscal year 2012 diluted earnings per share in the range of $2.24 to $2.36.
- Non-GAAP fiscal year 2012 diluted earnings per share in the range of $1.96 to $2.08 which excludes the first quarter reversal of the accrued lawsuit expense, an increase over the previous guidance of $1.88 to $2.04.
- EPS guidance for the second quarter and fiscal year 2012 does not assume any significant repurchases of the Company's Common Stock. The Company has authorization to acquire an additional 5,281,344 shares of Common Stock, and may repurchase shares from time to time.
- 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. 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, convert independent operator's stores to Aaron's franchised stores, or sell Company-operated stores to franchisees as opportunities present themselves.
Aaron's, Inc., based in Atlanta, currently has more than 1,960 Company-operated and franchised stores in 48 states and Canada. The Company's Woodhaven Furniture Industries division manufactured approximately $89 million, at cost, of furniture and bedding at 14 facilities in eight states in 2011. The entire production of Woodhaven is for shipment to Aaron's stores.
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