Earnings call transcript Q1 2023

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Operator

Welcome to The Aaron's Company First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' prepared remarks, there will be a question-and-answer session. Instructions will be provided at that time. Thank you.

the Affairs to for hand Director Hancock, to Corporate of the like conference Keith over Senior I'd Aaron's Company. Mr. proceed. please Hancock,

Keith Hancock

Thank Welcome everyone. earnings good first And XXXX conference to quarter call. you. our morning,

Olsen; are today Wall. Officer, President, Officer, Chief Joining and me Financial Aaron's Chief Douglas Executive Lindsay; Steve Kelly

for investor.aarons.com. section posted After release our our call on prepared of the after the will we Yesterday remarks Relations our earnings at website market the Investor open questions. closed, we

provides that additional about also posted presentation We full-year slide quarter first outlook. and information results a the XXXX

forward-looking today's those this statements During certain we call, to make for may outlook be including our related year.

see more Safe ended of release. SEC and differ The For XX-K statements. business forward-looking Form forward-looking from the Harbor these provision for actual our risks that our about description may a Safe Harbor for filings year that content the earnings provision found the related other cautionary differ may statements. to the cause including of end results information, Also, to of our identifies cause can actual notes materially to the materially risk to statements, our XXXX, please that XX, the refer with please results be from December important at forward-looking the

adjusted investor the on These earnings tables website. our On financial which and EPS presentation adjusted today's refer measures items included measures, comparability certain we EBITDA, call, the non-GAAP in net and which earnings, supplemental non-GAAP our our free been in to including has and other may adjusted affect reconciliation certain posted a for the release, flow, non-GAAP EBITDA release and non-GAAP cash with of are detailed performance companies. in

the call our will I Douglas over Lindsay. to that, With now CEO, turn

Douglas Lindsay

company despite revenues interest Good morning, consolidated business company. the in internal that expectations, segments. Aaron's ahead quarter in pleased your today for Keith. for lower we to us for delivered that everyone. were earnings the of report I'm Thanks, and first joining you Thank both

the lease ended report pleased business, that a with higher size Aaron's portfolio expected. I’m we In to than the quarter

lease benefited As purchase performance was The in before, leading a and fewer indicator early exercising our and lower carry a and our quarter we've reflect percentage is a noted benefits as write-offs. forward portfolio lease to the from model for portfolio result customers our options revenues expect future of Titan leases of enhancements these strong model the under the we decisioning total in size our to portfolio. initiated year greater

meaningfully cost line first with progress made which initiatives, pleased contributed our very reduction optimization also the to in we've bottom and I'm our the in market quarter.

In continue addition, continues more grow. open we to our GenNext business locations. e-commerce And to

make Aaron's Our than up lease a GenNext more and stores quarter now retail of revenues.

continues demand purchasing cautious who especially controls. and We focused to and big business, actions, savings, on remain enhancing their BrandsMart pricing product ticket discretionary our factors for away in be continued in on remains through customer, cost direct challenging. strategic that this the segment In procurement Macroeconomic categories decisions, carry. profitability we

proposition and announce this Augusta, While store excited Georgia growing enhancing opportunities. plan long-term BrandsMart’s BrandsMart remain I'm value to first its our We in and continuing in business. also in to confident fourth in compelling growth we quarter invest open particular, In of the new the to that year.

the operations, million to $XXX quarter net in reduced I'm result primarily of turning the available strong of by business. from This recurring revenue was our with quarter that results. of debt Aaron's Now flow demonstrating consolidated we ended model the a report cash to million and pleased in advantage company liquidity. the $XX the nearly

BrandsMart. our we and which than for reflects expected expected and for larger earnings the in Aaron's in performance updated business, have earnings higher the our at healthier year, Given the outlook portfolio quarter, QX the and lower lease expected

assume our addition, did higher our free credit want does outlook per note to cash year. not above the updated further that both I outlook and earnings flow share includes any for higher tightening In us.

if business over benefit we demand. that from increased customer were that believe would time However, the to Aaron's occur,

ahead, in both focused profitability remain businesses. on As we look optimizing we

We the and continue our as plan. to for that initiatives our we our as on announced last initiatives well execution make reduction includes of both progress multi-year strategic growth Aarons This BrandsMart, cost quarter.

exceptional to thank quarter value customers. I BrandsMart Aaron's, continued our and hard on this teams in our their at work want focus for for service and their Woodhaven to providing

now Steve. will call turn I to the over

Steve Olsen

good Thanks and everyone. morning, Douglas,

the all made our Douglas to Deliveries As business, lower of Aaron's channels the impacted strategic tighten across expectations. were merchandise down quarter In Aaron's ahead and we results year-over-year. decisioning. by were lease customer internal origination just mentioned, actions deliveries first traffic business delivered mid-single-digits

renewal was company the rate our Aaron This operated points was quarter stores. XX lease XX.X% Our down for for year-over-year. basis

was are QX in we the However, that basis quarter. renewal pleased XXX than rate the lease higher prior points

renewal season. typical refund year, rate the related each As tax improvement QX to lease in we experienced of

experienced lease benefits we ongoing year decisioning. optimization this addition, of further In from

sharing Also, metric to I that first bring renewal attention our to we want activity the time new to for are lease in a your related investor presentation.

rate importantly day the an XXX year who of period. the basis prior the to own X.X%, leased non-renewal of measures are rate one flat points the this non-renewed. of month prior more was first and quarter, more to customers, the from Our number end was At improvement quarter, this or XX-plus

the as As write-offs. we we indicator the see future XX-plus leading look overall for at an day important rate the non-renewal health portfolio, of

of to was exceeded by quarter. quarter Moving year X.X%, our a of We a size prior to with the lease portfolio ending million. lease portfolio the our internal size. compared decrease expectations $XXX.X This

that larger tax are to end. expected the season this comes an portfolio, pleased with lease than refund we However,

about Aaron's Now business. let's important initiatives the our for growth talk

grow than account points to at retail legacy continue our sales, stores quarter. than of percentage store of than GenNext As of prior the average. the in GenNext the rate in higher of our XX% approximately a year more Lease stores compares originations now less end quarter, lease revenues that to for XX% open in one-year approximately XX

stores, opening In to to and execute addition our also hub continue new GenNext children program. we

number the the converted program. total this additional far XX, have So launched to bringing of we year, we showrooms, locations XX since converted

Now turning e-commerce. to our attention

a e-commerce initiated and Aaron's the for total of driver quarter. revenues. compares is new revenues leases year-over-year. vehicle quarter, in a This Our XX.X% generated revenue customer prior from represents In the platform the increased business. for XX.X% platform aarons.com key on now acquisition year the E-commerce XX.X% lease to

our addition, In and tactics marketing momentum. are strategies gaining digital

report the of result quarter. prior portfolio completed decisioning, was tighter the year written volume average Despite and decrease an to volume This the into from of aarons.com increased recurring to compared pleased lower higher lease on a revenue I'm lease X.X%, conversion e-commerce applications, the applications year-over-year. that lease of decreased ticket. lower

enabling focused are our As we the innovate seamlessly in to online platforms. and among our business, move to Aaron's customers continue store we on

macroeconomic remain Now a cautious purchases. discretionary with as turning to customers operate to their BrandsMart, challenging environment in we continue

As and in weaker customer approximately in-store both we to a sales our transaction XX%, were channel, result, as are quarter. and average a compared by down experiencing lower e-commerce the traffic year value. Product prior

In actions points, our quarter. and year gross XX prior Direct environment, by the product profitability. challenging improve as continue pricing helped basis optimizing focus to on we approximately margin face our strategic procurement to savings demand compared of the this

focus optimizing expense we model. reductions continue on In to labor and our addition,

Aaron's achieving synergies channel new first As and e-commerce the platform transaction enhancing opening BrandsMart our we our Similar e-commerce look remains acquire BrandsMart to focused remain to an the store. customers. to on business, future, we important

to are invest digital we shopping continue online in and We marketing experience. the improving

an I'm BrandsMart QX. in excited about Also, mentioned, to first Augusta customer Georgia exceptional opportunity Augusta. as our in product competitive to new Douglas selection, open store we bring service our plan broad to this prices,

and We are that market. proposition customer confident in our new will our value this brand resonate

performance. on further Kelly Now, to financial I'll over turn our call the to provide details

Kelly Wall

with stated up to year-over-year my due acquisition to $XXX.X quarter revenues revenues Aaron's were be on $XXX.X prior BrandsMart at XXXX lower Thanks, offset for otherwise, million, the Unless comparisons million. This is Steve. business. and by the will the of basis. primarily of Consolidated first periods a compared

compared business, $XX.X the in BrandsMart. offset EBITDA due at is million. of adjusted by decline EBITDA mostly contribution with million, the was Consolidated adjusted Aaron’s to down a $XX.X This

As a EBITDA compared revenues, was XX.X%. adjusted percentage X.X%, of total to

share net a we resulting assets. percentages certain have quarter company, for elected in income share. Net expected On to per as or purposes. start treat favorable corporation apportionment were tax as of to this fiscal million $X.X This a remeasurement the deferred $X.XX, earnings the $X.XX basis, state election Effective is Aaron's compared a LLC, tax benefit of subsidiary the diluted earnings a state of our tax in change of per year, non-GAAP included income to $X.XX. of a

our lowered with lower provided business purchases by earnings demand of $XX.X This increase cash and the current by increase million, was adjusted an customer driven to flow free quarter, align XXX%. or cash the higher at over as BrandsMart trends. million operations $XX.X we was the Despite Aaron's in inventory

Declaring to the During dividends. during quarter, shareholders. We did $X.X quarter. shares capital not repurchase continued the any million we to return in

we addition, ended cash X.X million improves QX ratio a of leverage in reduction our adjusted million from debt. with million the $XXX.X and debt first XXXX times. $XX.X net $XX.X the In our end EBITDA to of quarter This to is of and net balance debt

details financial into Now, at segments. dive QX I'll business the the

a X.X% of the lease First, lease rate year primarily smaller revenues quarter. lower purchase early were options the segment. million, the fewer in renewal in prior exercises size, from portfolio total LTO These Aaron’s $XXX.X our revenue the to revenues due lower from decreased customers and business, to lease by lower

and franchise X.X%. new lease $XXX.X and in non-retail renewal attributed retail year-over-year. sales, and smaller size, addition, lower royalties is portfolio were was lower This the lease In million, a fees sales, lease quarter originations. to down profit Gross rates lower

options fewer profit XX XX.X%. purchase gross basis early increased customers exercised to points since their QX However, margin this

mostly partially $X.X operating lease to and expenses. merchandise by personnel was decreased write-offs for offset and Operating million, expenses provision due were costs lower this higher a lower other

compared period. with write-offs. the to in our write-offs in and fees improvement provision to of revenues pleased percentage lease continue merchandise as year X.X%, We X.X% same be lease the was a for prior the The

was point year. a quarter of the Although last improvement basis from XXX fourth flat year-over-year, this

We of believe this three improvement result is things. the

payment customer stronger seasonally First, activity.

and made controls algorithms. store strong fraud teams. lease center store our our third, Second, support decisioning and to execution enhancements by operations And we've

offset Adjusted was a partially the a smaller expenses by EBITDA at lease to These $XX.X decline primarily million. lower were reviewed. the renewal with lower lease and was size just write-offs million, due provision business rates. personnel our I This $XX.X compared decline in portfolio Aaron’s for and

to percentage of XX.X%, adjusted revenue, was a XX.X%. As EBITDA compared

Gross Economy BrandsMart's $X.X or detail Retail million. outlook. the outlook supply compared sales of current and or updated X.X%. financial the credit sales retail our release, any prime results was and full-year complete issued we million environment, quarter also deterioration quarter. were It to Adjusted not was EBITDA million. of tightening which chain, revised for turning U.S. Now EBITDA margin $XXX.X as first earnings profit XXXX was Yesterday, adjusted global $XX.X condition. in consumer. our the current in of includes the This does of no significant the their credit prime retail impact State to reflect near meaningful XX.X% assumes

be outlook $X.XX reflects expectation consolidated that company our for the revenues total This billion billion. $X.XX revised and will between

revenues of to the year. early business at options have BrandsMart. lower includes product sales Aaron's We retail also and to purchased in This lower update sales revenues the remainder lowered QX consolidated expected reflect lower at and the

We earnings outlook BrandsMart. increased and the our for Aaron’s our have lowered earnings business outlook for

consolidated changes, $XXX to million at range outlook $XXX for adjusted million With of unchanged these a our EBITDA for year. the is remaining two

This EPS non-GAAP the includes increased and and remainder I interest expense and We for adjusted of free tax and for depreciation have to of the revaluation flow. deferred EPS benefit $X XXXX. cash $X.XX lower to earlier described raised expected the outlook between our

balance. We are now expecting debt year-end a lower

rate our previous entered rate last swap interest In into portion swap outstanding month, reduces debt, compared interest a outlook. to addition, we of our as an expense this on our

CapEx our flow highlight tax to and for to after continued for wrap to free This in capital outlook. flow and the increase cash management adjusted inventory higher full-year want million $XX a our up, range the to to strong QX, it And I working lower $XX the cash year. million earnings, of reflects increase

I that, operator over the now with for Q&A. the And to will turn call

Operator

[Operator Thank you. our is ahead. today first Jefferies. line please of Kyle Joseph Instructions] from And question of the Kyle, go

Kyle Joseph

taking Thanks guys. morning, good questions. Hey, my

performance, the outperformed you initial On expectations obviously, lower refunds. the your guys credit tax despite

about at from Are how your give you that? us thinking to underwriting they thinking a how How's are inflation kind Just sense here? adjusting So consumer? of this point? for you're about

Douglas Lindsay

Hey, Kyle. It’s Douglas.

know, fairly said before, stance I've we've defensive You there. as taken a

of, you really And the I really mid-X% from, think as to last this a wait continues see, encouraging. a see, day delinquencies. it new X.X% gave be quarter and over XX-plus encouraged. decreased we're which range that's kind the metric We is XX-months, to

I consumer, state believe been we're at in. been we last It that I of environment we a have the optimization the, the appears I the that sort consumers of, we're changes say. look benefiting the as us. that with inflationary really made transition, of in still in acclimating decisioning year think the do that It's and ongoing. would

but do as say stress. is you happy generally like we improved to be state really continue rates to remain go we've be and continues say, and continues you improved would make, look that. But of under see we're in to the what I and write-offs, we'll environment In with to you internally. Demand pressure, make continue this the any And done loss assessment customer, I that cautious would delinquencies going at your decisions there. forward where tend to of

Kyle Joseph

I And got that questions and EBITDA EPS going mentioned Very a few swap then If changes then terms the to delevering it. a function versus in up, How expectations? is helpful. on a -- just delevering EPS you And point? quarter. about the thinking good at the you guidance. Got of of just that help then of, are you interest initial versus balance obviously, leverage job control, the sheet did was this expense should in kind

Kelly Wall

Kelly. it's Kyle, Yes,

I we detail. had item called related We think the tax right. there, you're $X.XX out that some in spot on

expense So influencing the lower as obviously of as full-year the well that's remainder the outlook, interest year. for

having of lower assumptions taken through We as depreciation the coming down have well. the also CapEx our expense year, remainder

to of debt of a free race. lower that QX, had will strong stronger of free from continued in cash flow the EPS be remainder our then absent the view is cash, flow cash with some expectation as our contributing through yes, the we continue year, to perspective, that And the the also use debt of that that balances

Kyle Joseph

And it. there. just then got Okay, one follow-up

the about rate going think we tax forward? should how So

Kelly Wall

Yes.

QX. the give XX% of of tax full-year each will QX, So this QX the going forward And for it of remainder year, call I effective you kind an XX% XX%. for and of for would use that between rate and

Kyle Joseph

it it. Thanks answering for a my That's lot Got questions. me. for

Kelly Wall

welcome. you. You're Thank

Operator

go question please from of Loop Capital. Our Chukumba Anthony, today ahead. line of Anthony next is the

Your line is open.

Anthony Chukumba

first my internal for first and beat on about on quarter the taking you expectations for guess stock Thanks my questions. a How just valuation free do about question cash and your thinking how given basis? fact depressed is allocation, raised capital your I particularly obviously you're you guidance you that the is think your flow that?

Douglas Lindsay

Yes, Anthony.

you capital So described, really what remains allocation I'd say strategy our unchanged from last quarter. know, we've

a coming right? ratio improve So -- leverage on at ratio we're of times, between that a leverage right? which profile times between did in and X clearly to returns, we're low-end range where and of we QX continue our the we out achieving targeted quarter. X.X leverage we're of focused on business EBITDA we're just reminder, conservative appropriate maintaining specifically focused the quick First, investing Second, into more the

Third, is through combination have in while capital repurchase share the last. strategy shareholders. a And that the to our had that third do dividends QX, under authorization before didn't the share leg of in we shares past year Board repurchase repurchases. million the returning $XXX.X and approved our We've done of any capital remaining we allocation

guidance cash, we question quarter-to-quarter. going will that make on M&A. go to we but finally, specific use don't we're more your to give opportunistic bit specifically, decisions To then answer use selectively right, as a at And framework how look we the exactly we

helpful. hopefully that's So

Anthony Chukumba

just update want the is quick stores. sort integrating that some into to just you lease-to-own follow-up. refinements if That terms is in give BrandsMart know I Can make Thank to just I get -- but you. an solution it's stores, Aaron's So helpful. us in it? I of we one can my you And if then was wondering an there. understanding the update of

Steve Olsen

key like Sure. and expectations on Hi, into would things demand Today, coming and say internal pleased the we're portfolio with metrics, size, rate, Anthony. is our just performance This of the leasing. Steve. renewal overall the ahead BrandsMart we're we LTO

Just last it rolled in to out remind you, year. of May we

that about credit and we're continuous and a into rollout we just systems year positioned from and in well when making tightening us above process improvements So feel both the the occurs. standpoint we're a if we're

Douglas Lindsay

of I but there's about done future team synergy. we're to the streamline the market Yes, add, believe of just fantastic We're and on that additional launch operational Anthony, has I'd to job and mean, we gain that, innings more a there that, the process. enhancements early optimistic share sort

Anthony Chukumba

That's you. very helpful. Thank

Operator

The next Please is Griffin line James. your from Raymond open. question today of the Bobby now Bobby, is proceed. of line

Bobby Griffin

first just you taking Thanks changes of higher my just guidance, over guess core the little the the just for during report? nine Was unpack Aaron's the Kelly, everybody. for morning, the a guidance that for to guys the bit upside segment the I quarter more. questions. to trying did now Good on expectations the or business remaining upside change the that months have with

Kelly Wall

Yes.

reflects increase there on QX, carrying of the side but reflect does that remainder expectations. portfolio And it going to initial the QX. also lease have earnings of beginning the our the we through year size the into larger the relative So

benefit two updated but right. we've on one Great, thing over on The last also of well, year. view momentum hit know, other I continued write-offs. Douglas you this hit if decisioning as -- changes have I areas our it, our the in where lease the

and it prior compared so XX-plus over as And that clearly in the that disclosing day year, you non-renewal last tracking rate see the if to now the we're year.

seeing we're good So of to initiatives in, is this we're leaned we've continued cost control benefit factor as results what the as that well year continuing write-offs the part into of really there.

increase business side. together contribute of three those put to on all Aaron’s that helping is the So

Bobby Griffin

in I side coming tough very down. some is is still moving offset write-offs consumer control don't cost in trade it conservatism to happen -- only $X then the just obviously million. the better, with or quite any know coming guess counter We going the there Is the to portfolio better, with what's is there Now the and predict.

leasing the to to over last if of trends kind does like good taking unpack, core business months? XX trying the developments seem XX Just versus now some it place has

Douglas Lindsay

I it's to pressure. offset would Yes, demand I mean, Douglas. the Bobby, that hey, say is

in We has April. that through see the pressure demand persisted first continue quarter to and

speaking. leaving think, From incrementally. year-over-year, slight the the So the we continue we have year. our how assumptions at We -- forward be of and look Alone second-half the while first-half our we the data to demand so persist are year outlook, long to will in relatively the look data. be as what down tweaked industry second-half the year life year that original and to far But our seeing of of we're will much this product assessing will cycle. relative there's how at the improvement in demand will down there pull

So that into we've taken all account.

So and say pressure business Aaron’s. Kelly I would And on the that's BrandsMart now. outlined a three the pressure there's the on on positives, right

Steve Olsen

point, that assuming happen to We credit, And kind could, trade at your Douglas to Bob, so we're had balance not before. Yes. mentioned in any right? pressure that demand down are of, counteract that

thing upside another of in mind just So of going forward? to in terms keep kind potential

Douglas Lindsay

continue, original to to and points would rates the opportunity we is say is loosen that reduced also extent several to the for an there low extent us. Yes, lease our year-over-year. write-offs by and hundred And lower affordable Speakers] I [Multiple -- basis we the to is were write-offs, thing see questions on we continue If those based last Kyle's

Bobby Griffin

actually of like tighten be your down, -- an demand a might you that that anything on forward. too. we're hopes maybe tiny signs in see from this that that or guess to Thank either or or bit period of And kind going you are standpoint it application you entering trade gives any That's a is going credit some did customer helpful applying that? coming assumed Have Kelly, none seen little you. bit XQ subject the I that

Douglas Lindsay

decision not going BrandsMart, seems this tougher at us now, to on Douglas. Yes, external and we're increase tightening coming rates committee run would an at tough is said, things tighten seeing credit or near through that prime getting get it’s Bobby, It From are credit say us, default prime We data believe will credit what's we consumer. the increase really demand. right And and above Aaron's restricted, and of get our as expand. looking to market either that I into should our our we're in We every as with now. funnel. day. what's Kelly gauge right me above lease

evidence say, evidence necessarily seen some We coming our I approval group, not from from but rates, with not slight in lower that. peer have of We of would see above us. demand

that [Technical BrandsMart do through as and we're We Difficulty] in BrandsMart leasing. looking well comes that data

gas to housing our focus may going influence important factors on continue diminish near to their So of those But for we food savings consumer And increases, keep and major the factors rates prices will you how continue on and we'll customer. prices, be external are updated course, factors. the prime prices, they forward that that. is credit

Bobby Griffin

of luck Well, details. Best I the appreciate here going Absolutely. forward.

Douglas Lindsay

you. Thank

Kelly Wall

Bobby. Thanks,

Operator

[Operator the Truist. Ciccarelli from question please Scot ahead. Scot, Instructions] line go the next is And of of

line open. is Your

Joe Chalhoub

guys. longer And kind XXX Hi, how just into Joe I guidance? for last good improvement Thanks should deeper I getting of, to wanted sequential X% X.X% on think for you This point back a my this year, in about and X% we for the time write-offs? range. then basis full-year to said morning, to think the question. little dive taking guys X.X% term, the Scot. to is Chalhoub

Just at wanted those all? to see changed if

Kelly Wall

several that But I just non-renewal Yes, move of over confident charge in based quarters, seen volatility decisioning right four tighten as X% we've the results right seeing Joe. management there, not on More the guide is the kind last for end months. X% rates increasingly X.X%. the for last the of at that X.X% our to to, over beyond. and write-offs certainly for into so ready lease you the XX-plus our given the write-offs range But question, of Thanks It's that day Kelly. to the lower some XXXX in mean unchanged are and full-year in outlook what trending of we the towards from we're we're now. we're seeing of, range. terms offs and the or

Joe Chalhoub

Got it. on follow-up one Great. And that. then

then like for in off expected, you table decide If year? you come than Or loosen lower standards keep this the credit would seeing again? that write-offs is to

Douglas Lindsay

Yes, I this off it's constantly Douglas. would say is table, lease not the we're our decisioning. optimizing

committee have a lease We that recurring to do in we'll the assess seeing make environment we the that and in we're future to continue meeting what current and those decisions.

So tightening or in business. loosening time happens at real our

is And sure. so that not table off for the

Joe Chalhoub

Got Thanks. it, great.

Steve Olsen

Joe. Thanks,

Operator

we you. Thank no have questions today. in queue And further the

to for it's to Douglas remarks. Lindsay So my pleasure hand back closing some

Douglas Lindsay

Thank you, operator.

by As wrap encouraged Difficulty]. I [Technical how execution start just to we want to up, our I reiterate am

we tax excited efforts really Our and BrandsMart. our us to season, efforts really at up pleased Despite well with larger lower transaction size set by lease combined the and future. Augusta, the for with team portfolio as in our to the in I'm year healthier larger delinquencies to softer store a the and Georgia achieve I'm open our synergies first consolidate our business BrandsMart this integrate said

you first team again, a to franchisees members, want us to and thank look joining thank forward soon. speaking for So today. for I our great We our you quarter with

Operator

for your and joining the may this concludes lines. you everyone, you now Thank today, call disconnect

The Aaron's Company, Inc. (AAN) 25 Apr 232023 Q1 Earnings call transcript