Aaron Rents, Inc. Reports Third Quarter Results

Furniture World Magazine

Aaron Rents, Inc., a leader in the sales and lease ownership, specialty retailing and rental of residential and office furniture, consumer electronics and home appliances and accessories, announced revenues and earnings for the three and nine months ended September 30, 2008. As previously announced, the Company has entered into an agreement to sell substantially all of the assets of its Aaron's Corporate Furnishings division. Beginning with the results reported in this release, the Company no longer includes the revenues and expenses of the Aaron's Corporate Furnishings division on the Company's statement of earnings, and reports net earnings of the division as discontinued operations. Prior periods are restated to reflect this change in accounting treatment and the assets of the division will be reflected as assets held for sale on the Company's balance sheet until the transaction closes. For the third quarter of 2008, revenues increased 16% to $388.0 million compared to $333.7 million for the same period a year ago. Net earnings rose 32% to $21.1 million versus the $15.9 million recorded in the third quarter last year. Diluted earnings per share were $.39 compared to $.29 per share in 2007, a 34% increase. For the first nine months of this year, revenues advanced 15% to $1.188 billion compared to $1.030 billion for the same period of 2007. Net earnings for the nine months were up 7% to $69.1 million versus $64.8 million for the corresponding period a year ago. Diluted earnings per share for the first nine months increased 8% to $1.28 for 2008 versus $1.18 for 2007. For the third quarter diluted earnings per share from continuing operations increased 42% over the same period in 2007 and 12% for the comparable nine month period. "We are very pleased with the third quarter results from both our Company- operated and franchised stores," said Robert C. Loudermilk, Jr., President and Chief Executive Officer of Aaron Rents. "Even though economic times are tough and our stores in the southern and central United States were affected in September by business disruption and property damage as a result of Hurricanes Gustav and Ike, we still managed to have an outstanding quarter as customers continue to come into our stores seeking basic home furnishings." "Our same store revenue growth accelerated in the quarter and margins improved, even though over 100 of our stores were adversely impacted by the hurricanes," continued Mr. Loudermilk. "Although difficult to estimate, we feel that the hurricanes negatively affected earnings in the quarter by at least $.01 to $.02 per diluted share, including the value of our merchandise that was destroyed in the homes of our customers. In addition, start up expenses associated with new stores also reduced third quarter earnings by approximately $.05 per share. We feel we are in an outstanding position to continue the growth of our business during the remainder of 2008 and on into 2009." The Company's other revenues in the third quarter of 2008 included a $2.6 million gain from the sale of 11 Company-operated stores to three different franchisees. Excluding this gain, net earnings on a non-GAAP basis for the third quarter of 2008 would have been $19.5 million, or $.36 per diluted share. The Company has realized a total of $8.4 million in gains in other revenues during the first nine months of 2008 relating to similar store sales. The Company's other revenues in the first nine months of 2007 included a $4.9 million gain from the sale of a parking deck at the Company's corporate headquarters in last year's first quarter. See the attached table for a reconciliation of revenues, net earnings, and diluted earnings per share to non-GAAP revenues, earnings, and diluted earnings per share excluding the aforementioned asset sales. Revenues in the Aaron's Sales & Lease Ownership division in the third quarter increased 17% to $382.6 million compared to $328.1 million last year. The first nine months sales and lease ownership revenues went up 16% to $1.170 billion compared to $1.007 billion a year ago. Same store revenues (revenues earned in Company-operated stores open for the entirety of both periods) in the Aaron's Sales & Lease Ownership division increased 5.7% during the third quarter of 2008 compared to the third quarter of last year. On September 15, 2008, the Company announced that it had entered into an agreement to sell substantially all of the assets of its Aaron's Corporate Furnishings division to CORT Business Services Corporation and to transfer certain liabilities of the division to CORT. As consideration for the sale, the Company anticipates receiving approximately $72 million in cash plus payments for certain accounts receivable, subject to certain adjustments. Subject to customary closing conditions, it is anticipated that the transaction will close in November. It is not expected that the Company will record a material gain or loss on the sale. The Aaron's Corporate Furnishings division revenues, which are not included in the Company's revenues, declined 4% during the third quarter to $24.6 million compared to $25.7 million a year ago. Corporate furnishings revenues were $73.5 million for the nine months compared to $76.0 million in 2007, a 3% decrease. After the sale of the Aaron's Corporate Furnishings division, the Company will continue with the operations of the Aaron's Office Furniture division. Consolidated rentals and fees increased 13% for both the third quarter and first nine months compared to the previous year periods. In addition, franchise royalties and fees increased 25% for the third quarter and 16% year- to-date compared to the same periods a year ago. Non-retail sales, which are primarily sales of rental merchandise to Aaron's Sales & Lease Ownership franchisees, increased 22% to $70.7 million for the third quarter from $58.1 million in the comparable period in 2007, and 20% to $222.2 million for the first nine months compared to $185.0 million for the same period last year. The increases in the Company's franchise revenues and non-retail sales are the result of the increase in revenues of the Company's franchisees, who collectively had revenues of $166.0 million for the third quarter and $493.7 million for the first nine months of 2008, a 26% and 19% increase, respectively, over the comparable prior year periods. Same store revenues for franchised stores were up 18.4% for the third quarter of 2008 compared to the third quarter of 2007. Revenues of franchisees, however, are not revenues of Aaron Rents, Inc. During the third quarter the Aaron's Sales & Lease Ownership division opened four new Company-operated stores, 12 new franchised stores, and one franchised RIMCO store. The Company sold 11 Company-operated sales and lease ownership stores to franchisees, and closed four Company-operated sales and lease ownership stores. In addition, during the quarter the Company acquired one franchised store and purchased the accounts of three third party stores. For the three months and nine months ended September 30, the Company awarded area development agreements to open 46 and 125 additional franchised stores, respectively. At the end of September there were a total of 303 franchised stores awarded that we expect will open over the next several years. At September 30 the Aaron's Sales & Lease Ownership division had open 983 Company-operated stores and 502 franchised stores, 30 Company-operated RIMCO stores, and eight franchised RIMCO stores. In addition, the Company operated 47 Aaron's Corporate Furnishings stores and 13 Aaron's Office Furniture stores. The total number of stores open at the end of September was 1,583. "We anticipate in the fourth quarter of 2008 to have revenues in excess of $410 million and diluted earnings per share between $0.32 to $0.37," Mr. Loudermilk added. "For the 2008 fiscal year we anticipate Company revenues to be approximately $1.6 billion (excluding revenues of franchisees) and diluted earnings per share in the range of $1.60 to $1.65, excluding any gain or loss recorded on the sale of the Aaron's Corporate Furnishings division. By the end of 2008 we expect to have approximately 1,600 Company-operated and franchised stores open. We continue to expect to increase the store base 10% to 13% over the next several years, for the most part an equal mix between Company-operated and franchised stores. Our initial earnings guidance for 2009 is to achieve diluted earnings per share in the range of $1.65 to $1.80." Aaron Rents, Inc., based in Atlanta, currently has more than 1,585 Company- operated and franchised stores in 48 states and Canada. The Company's MacTavish Furniture Industries division manufactured approximately $73 million at cost of furniture, bedding and accessories at 12 facilities in five states in 2007. The entire production of MacTavish is for shipment to Aaron Rents stores.