Aaron’s, Inc. AAN appears well poised for growth, thanks to continued strength in its Progressive segment that covers the virtual lease-to-own business. Robust growth in invoice volumes and a solid customer base are driving the segment’s performance. In addition, the company’s concerted efforts to revive the Aaron’s Business unit have started reaping benefits.

As a result, shares of this Zacks Rank #3 (Hold) company have surged 44.8% so far this year, outperforming the industry’s 23.4% rally. Its impressive long-term earnings growth rate of 15% and a VGM Score of A further substantiate the fact that Aaron’s currently deserves to retain a place in your portfolio. Let’s delve deep.

Factors Narrating Aaron’s Growth Story

Aaron’s Progressive segment has been performing exceedingly well since last several quarters, which continued in second-quarter 2019. In the reported quarter, revenues at this segment increased 6.7% driven by invoice volumes growth of 20.4% owing to 23.4% increase in invoice volumes per active door, offset by a 2.5% reduction in active doors. Notably, the segment’s revenues have doubled from $1 billion in 2015 to $2 billion in 2018, while consistently generating strong profits.

As of Jun 30, 2019, this division had 909,000 customers, reflecting 19.9% growth year over year. Further, the EBITDA margin expanded 30 basis points (bps). This Atlanta, GA-based company expects the segment’s momentum to continue in 2019, with estimated revenues of $2,100-$2,175 million and adjusted EBITDA of $275-$285 million. This guidance represents an improvement from revenues of $1,999 million and adjusted EBITDA of $65.5 million last year.

Backed by transformational initiatives, Aaron’s Business segment is delivering solid results, which keeps it on track to deliver sustainable long-term growth. The transformational efforts are meant to improve customer experience, operating efficiencies and employee engagement. Driven by the success of the pilots carried out in 2018, the company plans to expand the next generation concept to 40-50 locations by this year. These new store concepts are poised to boost in-store traffic and the top line. However, higher write-offs and ongoing investments related to transformation initiatives are hurting the segment’s adjusted EBITDA.

Nevertheless, the e-commerce business has been experiencing significant growth for a while and contributing to the top line. In fact, lease revenues are benefiting from consistent investments in the e-commerce business.

Further, same-store sales (comps) increased 170 bps in the second quarter of 2019, driven by the improvement in trends. For in the current year, the company expects comps to be flat to up 2% on the back of higher pricing and product mix as well as gains from transformation efforts. Driven by these strengths, management expects revenues at the Aaron’s Business segment to come in the band of $1,775-$1,855 million in 2019 compared with $1,792.6 million recorded last year.

The aforementioned positives and a strong first-half 2019 have compelled management to raise outlook for the year.

Upbeat View for 2019

Aaron’s projects total sales for 2019 to be between $3,905 million and $4,065 million, up from $3,828.9 million recorded last year. Moreover, adjusted EBITDA is now anticipated to be $430-$452 million, up from the prior view of $415-$442 million and $386.2 million in 2018.

Further, management expects adjusted earnings in the range of $3.85-$4.00 per share, reflecting growth of 15-19% year over year. Earlier, management anticipated adjusted earnings of $3.65-$3.85 per share. Overall, it anticipates witnessing slightly higher revenues, adjusted EBITDA and adjusted earnings per share in the second half of 2019 compared with the first half.

3 Better-Ranked Retail Stocks

Boot Barn Holdings, Inc. BOOT has an impressive long-term earnings growth rate of 17% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Zumiez Inc. ZUMZ has a long-term earnings growth rate of 12% and a Zacks Rank of 1.

Fossil Group, Inc. FOSL delivered positive earnings surprise of 79% in the last four quarters. The stock currently has a Zacks Rank #2 (Buy).

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