What happened
Shares of Aaron's(NYSE: AAN) were down 9% as of 12:26 p.m. ET on Tuesday after the retailer issued its second-quarter earnings report.
Revenue fell 13% versus the year-ago period. While reported earnings, or profits, more than tripled, adjusted (non-GAAP) earnings declined 50% year over year.
So what
The lease-to-own seller of home goods delivered results that were ahead of management's internal estimates, but the persistent weak sales trends took the spotlight. While there were bright spots, the company is still dealing with a prolonged slump in the market for home goods, including appliances, electronics, and furniture.
Aaron's recurring revenue from its lease-to-own model led to positive cash flow generation in the quarter, which is helping the company pay down debt on its balance sheet. Management also noted that it ended Q2 with a larger lease portfolio than expected, and it is executing well on reducing costs to improve profitability. The negative was that the lease portfolio was still down 8.6% versus the year-ago quarter.
Still, anemic demand will likely persist in the near term. Management lowered its full-year outlook. It now expects revenue to be between $2.12 billion and $2.22 billion, down slightly from the previous range.
Now what
Aaron's stock is up 20% year to date but still trades at a low forward price-to-earnings ratio of 11.8. It could be a bargain looking ahead to long-term expansion in new markets and growing e-commerce sales.
Management also maintained its full-year outlook for pre-tax earnings and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). This indicates that cost-cutting measures are on track and should position the company to return to profitable growth as soon as the economy is on stronger footing.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
