Aaron's profit jumps 60%, largely on reduced lawsuit settlement
Cliff Engel -- Furniture Today, April 26, 2012
Regardless, the company had a strong quarter, with revenues for the period ended March 31 up 10% to $586. 9 million compared with the same period a year ago.
As previously reported, Aaron's settled a lawsuit with a former associate who had claimed she was sexually harassed by a former co-worker in 2006. An earlier judgment in the case led Aaron's to record a $36.5 million charge in the second quarter of 2011. The final settlement was $6 million, much less than the initial award, so Aarons reversed the expense and took back $35.5 million of net income in the first quarter of 2012.
Excluding the lawsuit-related accrual reversal, net earnings for the first quarter would have been $49.2 million, up 11% over the same period in 2011, and earnings per share would have increase 16% to 64 cents over the same period in 2011.
Aaron's President and CEO Ronald Allen called the results an "excellent start for the year."
"Our results exceeded expectations, revenue and customer growth is strong, and the HomeSmart stores are ramping up as anticipated," he said.
HomeSmart is an Aaron's RTO division emphasizing weekly customer payments for merchandise, compared with the monthly plan at Aaron's main Sales & Lease Ownership stores.
"We are optimistic that customer demand for the basic household furnishings we offer, especially with our flexible payment terms, will continue to be quite good in upcoming months," Allen said.
Same-store revenues increased 4.8% during the quarter. Revenues for Aaron's Sales & Lease Ownership division increased 8% to $571 million, and HomeSmart revenues increase to $12.5 million from $330,000 for the same period a year ago, when the division was in its infancy.
Lease revenues and fees increased 9%, and franchise royalties and fees increased 7% in the first quarter compared with the same period last year. Non-retail sales - primarily sales of lease merchandise to Aaron's Sales & Lease Ownership franchisees - increased 15%. The royalties and non-retail sales increases were the result of an increase in revenues of franchisees, which Aaron's said jumped 10% in the quarter to $264.4 million.
Same-store revenues and customer counts for franchised stores were up 6.3% and 8.3%, respectively.
Aaron's opened nine company-owned Sales & Lease stores, six franchised stores, and two HomeSmart stores during the period. It also acquired three franchised stores and the accounts of nine third-party stores. In addition, one store was acquired from a third party operator and converted to HomeSmart. Three company-owned stores closed.
At the end of the quarter, the company had 1,153 company-operated Sales & Lease stores, 710 Sales & Lease franchised stores, 74 HomeSmart stores, 16 company-owned RIMCO stores, and six franchised RIMCO stores. It also operates one Aaron's Office Furniture store for a total count of 1,960 units.
Aaron's said it expects second quarter earning per share in the range of 44 cents to 48 cents and second quarter revenues of about $525 million, excluding franchise revenues. For the year, it's looking for revenues of about $2.2 billion, excluding franchisee results, and earnings per share in the range of $2.24 to $2.36 - or $1.96 to $2.08 excluding the reversal of the lawsuit expense.