Aaron's, Inc., a  leader in the sales and lease ownership and specialty retailing of residential furniture, consumer electronics, home appliances and accessories, today announced revenues and earnings for the three months ended March 31, 2013.

For the first quarter of 2013, revenue increased 2% to a record $595.1 million compared to $586.0 million for the first quarter in 2012.  Net earnings were $51.0 million versus $71.2 million last year.  Diluted earnings per share were $.67 compared to $.92 per share a year ago.

During the first quarter of 2012, the Company recognized $35.5 million of income related to the settlement of a lawsuit. Excluding the reversal of the lawsuit-related accrual, diluted earnings per share would have increased 5% to $.67 versus $.64 in the same period a year ago.

Lease revenues and fees were up 8% for the first quarter of 2013 compared to the same period last year.  Non-retail sales, which are primarily sales of lease merchandise to Aaron's Sales & Lease Ownership franchisees, decreased 21% for the quarter compared to the first quarter last year due to less demand for products by franchisees.

"While revenues and Non-GAAP earnings are above last year's first quarter results, we expected more growth. Demand by customers in both our Company-operated and franchised stores has been less than anticipated," said Ronald W. Allen, Chairman, President and Chief Executive Officer of Aaron's. "We believe results for the quarter were affected by the overall difficult economic environment for our middle to lower income customers, including increases in their payroll taxes and delays in their income tax refunds.  Although same store revenue and customer count growth remains very good, this growth was less than planned which resulted in the first quarter operating results being below expectations.  Based upon these results and current market conditions, we are reducing our revenue and earnings guidance for the year."

"We are pleased to report that the results of our Black Friday promotion last November have been good, and the retention of customers and lease agreements have been in line with historical customer behavior," Mr. Allen continued.  "In addition, our HomeSmart weekly rental business grew revenues during the quarter to $16.9 million, and recorded a loss of $188,000, well below an expected loss of $1 million.  We believe the HomeSmart results for the rest of the year will continue to improve and, as we have previously stated, a decision on further new store openings will be made in the latter half of this year.  If current operating trends and expectations remain positive, we can anticipate adding a significant number of new HomeSmart stores in 2014 and beyond."

Same store revenues (revenues earned in Company-operated stores open for the entirety of both quarters) increased 3.4% during the first quarter of 2013 compared to the first quarter of 2012, and customer count on a same store basis was up 4.1%.  For Company-operated stores open over two years at the end of March 2013, same store revenues increased 1.8% during the first quarter of 2013 compared to the first quarter of 2012.  The Company had 1,108,000 customers and its franchisees had 592,000 customers at the end of the most recent quarter, a 6% increase in total customers over the number at the end of the first quarter a year ago (customers of franchisees, however, are not customers of Aaron's, Inc.). 

During the first quarter of this year, the Company generated over $103 million of cash flow from operations, and had $210 million of cash on hand at the end of March 2013.  The Company did not reacquire shares during the first quarter, but has authorization to purchase an additional 4,044,655 shares.

Division Results

Aaron's Sales & Lease Ownership division revenues increased $4.5 million in the first quarter to $575.3 million compared to $570.8 million in revenues in the first quarter of 2012.

Revenues of the HomeSmart division increased in the first quarter to $16.9 million, a $4.4 millionincrease over the $12.5 million in revenues in the first quarter of 2012.

Components of Revenue

Consolidated lease revenues and fees for the first quarter ended March 31, 2013 increased 8% over the comparable previous year period.  In addition, franchise royalties and fees increased 4% in the first quarter compared to the same period in 2012.  Non-retail sales decreased 21% for the quarter compared to the first quarter last year. The increases in the Company's franchise royalties and fees are the result of an increase in revenues of the Company's franchisees, which collectively had revenues of $269.5 million during the first quarter, a 2% increase over the comparable 2012 period.  Same store revenues and customer counts for franchised stores were up 2.6% and 6.6%, respectively, for the first quarter compared to the same quarter last year.  Revenues and customers of franchisees, however, are not revenues and customers of Aaron's, Inc.       

Store Count

During the first quarter of 2013, the Company opened four Company-operated Aaron's Sales & Lease Ownership stores, seven franchised stores, and one RIMCO store.  The Company also acquired one franchised store.  Two Company-operated Aaron's Sales & Lease Ownership stores were closed during the quarter. 

Through the three months ended March 31, 2013, the Company awarded area development agreements to open four additional franchised stores. At March 31, 2013, there were area development agreements outstanding for the opening of 176 franchised stores over the next several years.

At March 31, 2013, the Company had 1,230 Company-operated Aaron's Sales & Lease Ownership stores, 748 franchised Aaron's Sales & Lease Ownership stores, 78 Company-operated HomeSmart stores, one franchised HomeSmart store, 20 Company-operated RIMCO stores, and six franchised RIMCO stores.  The total number of stores open at March 31, 2013 was 2,083.

Second Quarter and Full Year 2013 Outlook

The Company is updating its guidance for 2013 and expects to achieve the following:

• Second quarter revenues (excluding revenues of franchisees) of approximately $565 million.
• Second quarter diluted earnings per share in the range of $.45 to $.49 per share, which includes approximately $.04 per share in one-time charges relating to the retirement of the Company's Chief Operating Officer and a change in vacation policies.
• Fiscal year 2013 revenues (excluding revenues of franchisees) of approximately $2.35 billion, a decrease over the previous guidance of approximately $2.4 billion.
• Fiscal year 2013 diluted earnings per share in the range of $2.11 to $2.23, which includes the above mentioned one-time charges, a decrease from the previous guidance of $2.25 to $2.41.
• EPS guidance does not assume any significant repurchases of the Company's Common Stock.
• New store growth of approximately 4% to 6% over the store base at the end of 2012, for the most part an equal mix between Company-operated and franchised stores, and including a small number of HomeSmart stores.  This will be a net store growth after any opportunistic merging or disposition of stores.
• The Company will continue, as warranted, to consolidate or sell stores not meeting performance goals.
• The Company also plans to continue to acquire franchised stores or sell Company-operated stores to franchisees as opportunities present themselves.