Rent-to-own giant Aaron’s posted a 21.8% jump in third quarter profit on a slight gain in revenues as its Progress leasing continued to power the business while the company worked to weed out the weakest of its core stores.

Revenues for the period ended Sept. 30, increased 0.2% to $769.0 million from $767.7 million for the same period a year ago. Net earnings increased to $29.5 million, or 40 cents per share, from $24.2 million, or 33 cents per share, in the prior year period.

Aaron’s Progressive unit, which provides lease-to-own options at non-Aaron’s furniture stores, was the star, as third quarter revenue increased 15.9% to $308.4 million. The number of Progressive customers jumped 12% to 540,000 people from the same time last year.

Earnings before income taxes for Progressive were $24.7 million and $75.7 million for the three and nine months, respectively, compared with $5.6 million and $44.8 million for the same periods a year ago.

Aaron’s core business, its traditional rent-to-own stores operating as Aaron’s Sales & Lease Ownership, continued to struggle. Overall revenues for the business decreased 9.5% to $454.1 million from $501.7 million in the third quarter last year. Revenues for the first nine months decreased 6.5% to $1.483 billion compared with $1.585 billion for the same period a year ago.

Excluding the sale of its HomeSmart division in May this year, revenues for the core business decreased 6.7% and 5.2% for the three and nine months, respectively.

Earnings before income taxes for the core business decreased to $23.2 million and $118.2 million for the quarter and nine months, respectively, compared with $30.9 million and $134.0 million for the same periods a year ago.

Same-store revenues at company-operated stores decreased 4.6% during the third quarter.

“Our third quarter results benefited from strong lease portfolio performance at Progressive and disciplined execution in our core business,” Aaron’s CEO John Robinson said in a release. He added the slight increase in total revenue for the period was “impacted by a soft environment for our core business.”

“Progressive,” he said, “is achieving solid revenue growth with consistent profitability. The strong increase in new doors demonstrates our compelling value proposition for customers and retailers.”

Robinson said the core business remains challenging, but that ongoing efforts to manage costs and control inventory levels helped offset the same-store-revenue decline, and “we’re taking additional steps to right size our store base.

“We believe these actions will better position the core business for long-term profitability.”

Aaron’s said it will close 56 stores by the end of October, and additional stores are expected to close next year. The restructuring expense and store closings resulted in a pre-tax charge of about $4.7 million in the quarter, and Aaron’s expects additional pre-tax charges of about $13 million in the fourth quarter related to closings.

During the third quarter, five company-operated Sales & Lease Ownership stores, four franchised Sales & Lease Ownership stores and one franchised HomeSmart store were consolidated or closed. The company acquired 15 franchised stores and sold three company-operated stores to franchisees which were merged with existing stores.

At the end of the quarter, Aaron’s had 1,228 company-owned stores and 703 franchised Aaron’s stores.

For the first nine months of the year, Aaron’s revenues increased 2.3% to $2.413 billion. Net earnings were $117.7 million, or $1.61 per share, up from $114 million, or $1.56 per share, last year.

Aaron’s said same-store revenues are expected to be down 3% to 5% for the rest of the year. Earnings per share now are expected to be in the $1.79 to $1.93 range, compared to earlier guidance of $1.92 to $2.12.

(Source: furnituretoday.com  Author: Clint Engel)