Aaron's, Inc., a leader in the sales and lease ownership and specialty retailing of furniture, consumer electronics, home appliances and accessories, today announced revenues and earnings for the three months ended March 31, 2015.

For the first quarter of 2015, revenues increased 40.4% to $821.8 million compared with $585.4 million for the first quarter of 2014.  Net earnings increased 28.4% to $49.2 million compared with $38.3 million in the prior year period.  Diluted earnings per share were $.68 compared with $.53 a year ago. Non-GAAP earnings per share were $.73 compared with $.53 last year.

"We're encouraged by the contributions of the core business and Progressive," said John Robinson, Chief Executive Officer of Aaron's, Inc. "The core business performed as expected. Inventory and pricing initiatives are gaining traction, and significant benefits are being realized from the cost reductions previously outlined.  Progressive continues to deliver solid profitability on growing revenues."

"Profitability in the core business stabilized in the quarter, and we believe our strategies can ultimately restore growth in this segment," continued Mr. Robinson. "At Progressive, we plan to add new doors to the system while maintaining our focus on product and process innovation to drive higher invoice volume in existing retail locations. We are making progress on realizing synergies between Progressive and the core business and will continue to look for new integration opportunities. Looking forward, we believe our strategic plans will result in a much stronger and more profitable organization," Mr. Robinson said.

Financial Summary

On a non-GAAP basis, excluding the $6.6 million of amortization expense related to the acquisition of Progressive, net earnings for the first quarter of 2015 were $53.4 million compared with $38.3 million in the first quarter a year ago, and diluted earnings per share were $.73 compared with $.53. 

EBITDA for the Company was $103.7 million for the first quarter of 2015 compared with $76.3 million in the prior year period. EBITDA is calculated as the Company's earnings before interest, depreciation on property, plant and equipment, amortization of intangible assets and income taxes.  

The Company ended the first quarter of 2015 with $129.8 million in cash compared with $3.5 million at the end of 2014. Debt was reduced to $520.7 million at March 31, 2015 from $606.1 million at December 31, 2014.  

Core Results

Aaron's Sales & Lease Ownership revenues decreased $12.8 million, or 2.3%, in the first quarter of 2015 to $552.5 million compared with $565.3 million in revenues in the first quarter of 2014. 

HomeSmart revenues were $16.8 million in the first quarter of 2015, a 2.9% decrease from $17.3 million in the first quarter of 2014.

EBITDA for the core business in the first quarter of 2015 was $75.4 million compared with $76.3 million a year ago.  As a percentage of total revenues, EBITDA was 13.2% compared with 13.0% for the same period in 2014.

Write offs for damaged, lost or unsaleable merchandise were 3.0% of revenues in both periods.

Same store revenues (revenues earned in Company-operated stores open for the entirety of both quarters) decreased 3.8% during the first quarter of 2015 compared with the first quarter of 2014, and customer counts on a same store basis were down 4.2%. Company-operated Aaron's stores had 1,047,000 customers and franchised stores had 576,000 customers at the end of the quarter, a 3.5% decline in total customers from the end of the first quarter a year ago (customers of franchisees are not customers of Aaron's, Inc.). 

During the first quarter of 2015, the Company revised the methodology for calculating same store revenues and same store customer counts to reflect a full lifecycle for customer retention after stores are closed. As a result, revenues for stores that have been consolidated/merged are now included in the comparable same store calculation after 24 months. Previously, merged stores were included in the same store calculation after 15 months. The change in the same store calculation had an immaterial impact on comparable store revenues and customer counts for the first quarters of 2015 and 2014.  

Progressive Results

Progressive's revenues in the first quarter of 2015 were $251.6 million and EBITDA was $28.3 million. As a percentage of revenues EBITDA was 11.3%. Write offs for damaged, lost or unsaleable merchandise were 6.4% of revenues. Progressive's results of operations were not included in the Company's financial statements in the first quarter of 2014. Progressive had 453,000 customers at March 31, 2015. Progressive's results of operations were not included in the Company's financial statements in the first quarter of 2014. 

Progressive's revenue growth was driven by a diverse and broadening base. Business with merchant partners across small, medium and large retailers all grew at double-digit rates in the quarter compared to the previous year. Results were supported by a mix of gross margin expansion and leverage on operating expenses.

Components of Revenue

Consolidated lease revenues and fees for the first quarter of 2015 increased 51.2% over the prior year period, due to the inclusion of Progressive revenues in the first quarter of 2015. Franchise royalties and fees decreased 6.0% in the first quarter of 2015 compared with the same period a year ago. The decrease in the Company's franchise royalties and fees is primarily the result of a decrease in revenues of the Company's franchisees, which collectively had revenues of $260.8 million during the first quarter of 2015, a decrease of 3.9% from the same quarter last year. Same store revenues and customer counts for franchised stores were down 3.0% and 3.8%, respectively, for the first quarter of 2015 compared with the same quarter last year (revenues and customers of franchisees are not revenues and customers of Aaron's, Inc.). Non-retail sales, which are primarily sales of merchandise to Aaron's Sales and Lease Ownership franchisees, increased 4.8% for the first quarter compared with the prior year period.

Store Count

During the first quarter of 2015, the Company opened one Company-operated Aaron's Sales & Lease Ownership store and four franchised stores. The Company also sold nine Aaron's Sales & Lease Ownership stores to a franchisee and five Aaron's Sales & Lease Ownership franchised stores were closed during the quarter. 

At March 31, 2015, the Company had 1,235 Company-operated Aaron's Sales & Lease Ownership stores, 788 franchised Aaron's Sales & Lease Ownership stores, 83 Company-operated HomeSmart stores, and two franchised HomeSmart stores.  The total number of stores open at March 31, 2015 was 2,108.

2015 Outlook

The Company is updating its guidance for the full year 2015 to increase its outlook for Progressive's lease revenues and EBITDA. The Company's expectations for the core business remain unchanged from the previously published guidance on February 6, 2015. Diluted earnings per share is presented both on a GAAP basis and on a non-GAAP basis that excludes Progressive-related intangible amortization. The Company currently expects to achieve the following:

Progressive

• Lease revenues for 2015 are now expected to be in the range of $1.05 billion to $1.15 billion compared with the previous guidance of $1.00 billion to $1.10 billion. 
• EBITDA is expected to be in the range of $105 million to $115 million compared with the previous guidance of $95 million to $105 million.

Consolidated Results

• Revenues for 2015 are now estimated to be in the range of $3.10 billion to $3.30 billion compared with the previous guidance of $3.05 billion to $3.25 billion. 
• EBITDA expectations are being increased to a range of $305 million to $335 million compared with the previous guidance of $295 million to $325 million. 
• GAAP diluted earnings per share are expected to be in the range of $1.78 to $1.98 compared with the previous guidance of $1.68 to $1.88. 
• Non-GAAP adjusted diluted earnings per share have been increased to a range of $2.01 to $2.21 compared with the previous guidance of $1.90 to $2.10.