Aaron posts rare loss as RTR division shrinks
By Furniture Today Staff -- Furniture Today, November 4, 2001
ATLANTA — Aaron Rents posted a rare net loss in the third quarter as it took a one-time charge related to closing several rent-to-rent stores.
But revenues continued to grow as the company opened more rent-to-own units and reported a 6.9% same-store gain in its RTO business, compared with the same quarter a year ago.
Aaron had a net loss of $2 million in the quarter, compared with earnings of $6.7 million a year ago. Excluding the $5.6 million in one-time charges, the company said it earned $1.5 million or 8 cents per share, down about 78% from a year ago.
Changing market conditions have led Aaron to move out of rent-to-rent and into RTO, which it now calls its Sales and Lease Ownership division. Several years ago, the company reached a peak of 186 rent-to-rent stores, but that number is down to 78 today. The third-quarter charge applies to 15 stores closed during the quarter.
"Even though the rent-to-rent division has lost revenue this year, it has generated over $20 million of cash flow during the first nine months of the year, and this has allowed us to re-deploy our resources to the adding of Aaron's Sales and Lease Ownership stores," said Charlie Loudermilk, chairman and chief executive officer.
Total revenues for the quarter grew 6% to $132.5 million, with revenues in the Sales and Lease Ownership division rising 20% from a year ago to $96 million. Systemwide revenues in the division, including franchised stores, also rose 20% to $141.9 million.
Aaron's opened 54 new RTO stores and three franchised stores in the third quarter, mainly in locations acquired from retailer Heilig-Meyers, which is downsizing under a Chapter 11 bankruptcy. Aaron's also acquired five of its franchised stores. In the fourth quarter, another 15 company-owned and 10 franchised stores are set to open.
Start-up expenses associated with the rapid pace of store openings negatively affected earnings by 15 cents per share in the third quarter, the company said.
Earnings per share in the fourth quarter are projected at 10 to 15 cents, which includes 10 to 15 cents per share in startup expenses, Loudermilk said.
After this year's flurry, the company will limit store openings next year, he said. The preliminary expectation for 2002 is that Aaron's revenues will top $600 million, and $800 million systemwide, with earnings in the $1.30 to $1.40 per share range.
| Quarter ended 9/30 | 2001 | 2000 | Change |
|---|---|---|---|
| Revenues(a) | $132,516,000 | $124,850,000 | 6.1% |
| Operating income(b) | (1,443,000) | 12,212,000 | — |
| Net income | (c)(1,961,000) | 6,706,000 | — |
| Earnings per share | (0.10) | 0.34 | — |
| 9 months ended 9/30 | 2001 | 2000 | Change |
| Revenues(a) | $406,696,000 | $372,132,000 | 9.3% |
| Operating income(b) | 21,689,000 | 37,674,000 | (42.4%) |
| Net income | (c)10,335,000 | 20,913,000 | (50.6%) |
| Earnings per share | 0.51 | 1.05 | (51.4%) |
| (a) Includes non-rental revenues of $33.2 million in the 2001 quarter, $35.4 million in the 2000 quarter, $104.7 million in the 2001 nine months and $105.9 million in the 2000 nine months. (b) Revenues minus cost of sales, operating expenses and depreciation of rental merchandise. (c) Includes a $5.6 million pretax charge in both periods for future real estate obligations of closed rent-to-rent stores and the writedown of inventory and assets. The quarter also includes a $1.2 million income tax benefit. | |||
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