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Jay McIntosh

Aaron's cuts third-quarter earnings guidance

ATLANTA — Aaron's announced today it is slashing its third-quarter earnings projections because of weaker business in the period and an additional $13 million it will set aside for a pending regulatory investigation by the California Attorney General.

The rent-to-own merchant also said it has authorized a stock repurchase program of as many as 15 million shares.

Aaron's said it is now expecting earnings in the range of 25 to 29 cents per share in the third quarter, down from previous guidance of 48 to 52 cents and below the third-quarter 2012 EPS of 38 cents. Ron Allen, chairman, president and CEO, said revenue and customer growth in the period were below expectations.

The approximately $13 million to be set aside for the California investigation accounts for about a 12 cents per share reduction in earnings, according to Aaron's. The company said the pending regulatory investigation involves leasing, marketing and privacy practices, but didn't give details.

Another $15 million had already been accrued in the second quarter for possible losses in the proceedings. The company said it anticipates no further accruals will be necessary and expects to resolve the issue without litigation.

Meanwhile, Allen said the company continues to work to gain customers.

"Our customers continue to struggle in the current economic environment, and although traffic remains good in most stores, we are having challenges gaining customers. Both same-store revenue and customer growth in company-operated stores were basically flat during the quarter, and shipments of products to our franchisees were less compared to the third quarter a year ago," he said.

"We initiated several new promotions in the latter half of the third quarter and have additional broader product promotions scheduled for the fourth quarter and beyond, and believe these and similar initiatives along with better execution at the store level will help return us to more historical revenue and customer growth."

Allen added, "Although not yet positively reflected in our financial results, we are very encouraged with the progress being made in our HomeSmart weekly business. We continue to believe HomeSmart will be a substantial future growth contributor to the company and expect to open a significant number of new stores in 2014."

HomeSmart stores offer rent-to-own merchandise on a weekly payment basis, while most Aaron's stores work with monthly payments.

Allen said that while the company is "obviously disappointed" with current business trends and financial results, "We believe Aaron's superior business model and large consumer base will result in excellent growth and returns to shareholders in future periods. As a reflection of this confidence, we plan to resume our share repurchase program."

The company said the new earnings projection of 25 to 29 cents per share for the third quarter is on a GAAP basis. On a non-GAAP basis, which excludes the additional accrual for the California investigation, diluted EPS is projected at 37 to 41 cents per share.

Based on preliminary results, the company said it expects revenue of about $540 million for the quarter, down from previous guidance of $550 million.

Aaron's will hold a conference call on Oct. 25 to discuss complete third-quarter results.


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