Why is this tough competitor in diversified services worth investing in: Aarons Holdings Company, Inc. (NYSE:AAN)?
Aarons Holdings Company, Inc. (NYSE: AAN) is a publicly traded holding company that owns and operates several subsidiaries in the retail and financial services industries. Its subsidiaries include Aaron’s, Inc., which is a lease-to-own retailer of furniture, electronics, and appliances, Progressive Leasing, which provides lease-purchase solutions for consumers who do not have established credit, BrandsMart U.S.A., BrandsMart Leasing, and Woodhaven. Aaron’s offers a direct-to-consumer lease-to-own solution through its approximately 1,300 Company-operated and franchised stores in 47 states and Canada, as well as on its e-commerce platform.
BrandsMart U.S.A. is one of the leading appliance retailers in the country with ten retail stores in Florida and Georgia. BrandsMart Leasing offers lease-to-own solutions to customers of BrandsMart U.S.A. and Woodhaven is their furniture manufacturing division.
Aaron’s Holdings Company was formerly known as Progressive Leasing Holdings, Inc. and changed its name in June 2021. The company was founded in 1955 by R. Charles Loudermilk and is headquartered in Atlanta.
Highlights and News Updates
- On March 02nd, 2023, Aarons Holdings Company, Inc. joined Raymond James investment conference.
- On November 15th, 2022, Aaron donated 225 mattresses to people who relocate from the forest cove community to Atlanta in honour of their founder Charlie Loudermilk. Aarons has a long history of supporting the communities where its customers and team members live and work.
- On October 19th, 2022, Aaron celebrated opening of their 200th GenNext store in Flint, Michigan with US $10,000 donation to the boys & girls clubs of greater Flint.
- On April 01st, 2022, Aarons completed the acquisition of Brandsmart USA for US $230 million.
- On March 02, 2022, Directors of Aaron increased the authorised share purchase to US $250 million from US $150 and extended the maturity plan by one year to December 31st, 2024.
- On April 16th, 2021, Aarons appointed Laura N. Bailey, Timothy A. Johnson, and Marvonia P. Moore as three independent directors.
Key Data
Fourth Quarter 2022 Highlights
- Consolidated revenues grew 32.5% to US $589.6 million compared to last year’s fourth quarter.
- lease and retail revenues increased 37% in the reported quarter to $554.6 million.
- Non-retail sales, which mainly include merchandise sales to franchisees, declined 13.7% year over year to $29.1 million.
- Franchise royalties and fees in the quarter decreased 6.4% to $5.8 million from the year-ago quarter.
- Aaron’s gross profit rose 3.2% to $285.9 million, while the gross margin contracted 1,380 bps to 48.5%.
- The operating loss was $6.2 million against the prior-year quarter’s earnings of $19.9 million.
- Adjusted EBITDA declined 33% year over year to $27.7 million due to the lower gross profit and a higher provision for lease merchandise write-offs at the Aaron’s Business, partly offset by gains from the BrandsMart buyout and reduced personnel costs at the Aaron’s Business.
- Aarons ended the quarter with cash and cash equivalents of $27.7 million, debt of $242.4 million and shareholders’ equity of $695.4 million. In the fourth quarter, the company generated operating cash flow of $46.6 million.
- Capital expenditure was $24.3 million in the reported quarter. Adjusted free cash flow amounted to $24.7 million in the quarter. Capital expenditures are expected in the band of $95-$115 million for 2023.
Financials
On yearly basis revenue of the company is stable and growing at CAGR of 4.6% but, profits are not high due to low profit margin and high operating expenses which varies from 44%-47.8% of revenue.
Total debt of the company as on December 31st, 2022, was US $242.4 Mn and asset worth US $1.858 Bn. It also has retained earnings of US $79 Mn. The company had taken debt previously which it paid off efficiently.
Quarterly revenue of FY2022 grew but profit was negative. The company did manage to book profit in first quarter which help them to cover the losses
Currently, EPS of the company is US $-0.17 down by 105% compared to last year’s EPS. In FY2020 also, EPS was negative due to negative earning. But overall EPS of the company stayed positive in last 5 years.
Forecast
- The stock has corrected more than 44% in 3 months and now it has made bullish W-pattern.
- Right now, RSI (48) indicator is below 50 which show it is under value so, it is good time to invest in this stock.
- The stock has potential to bounce back up to 58% from current market price. Analysts are bullish on this stock.
- The stock is also going to touch 50-day EMA and it is expected to take support above it.
Indicators Summary – Buy
- The price action analysis of the stock is indicating a positive uptrend in the stock. Market sentiments are bullish.
- MACD (-0.17) indicator is giving bullish signal.
- VWAP (9.69) indicator is bullish on the stock.
Risk factors
- Operating expenses of the company are quite high eating away at profits.
- Company is into leasing business so there is high cost of repair involved.
- In FY2022 company written off goods worth US $96 million, and US $67 million in FY2021 and FY2020 each.
- Company also operates is reselling of goods such as electronics, furniture and more. This reselling segment faces fierce competition from brands such as Amazon, Walmart and many more.
Stock Recommendation
The decision to acquire BrandsMart U.S.A. has impacted the company positively. It helped the company to increase their customer base and helped them to counter their loss from lease business.
Company is expected to grow more in future because of their vast customer base and their expansion in different segments. The donations and charitable work done by the company has helped them to build a good image in the society.
MarketFacts gives a “Buy” rating on the stock at the closing price of US $10.15 as of April 21st, 2023.
| CMP (USD) (April 21, 2023) | US $ 10.15 |
| Target Price | US $ 13.50 |
| Recommendation | Buy |
