Aaron's (AAN) Lowers Q2 Outlook

Aaron's (NYSE: AAN) announced it is revising the Company's 2014 second quarter revenue and earnings guidance.

Updated Guidance

Based on preliminary results, the Company is expecting revenues for the second quarter of approximately $672 million, slightly below the previous guidance of $675 million, as a result of Progressive's strong revenue growth offset by revenue declines in Aaron's core business. The Company expects GAAP diluted earnings per share in the range of $.09 to $.12. Due to lower than expected performance of its core business, the Company is revising its adjusted diluted earnings per share guidance to a range of $.34 to $.37 from the previous range of $.43 to $.48. Adjusted diluted earnings per share is on an adjusted basis that excludes Progressive-related amortization expense, Progressive-related transaction costs, and other one-time costs and expenses.

*** The Street sees Q2 revs of $678 million and EPS of $.46.

"We are extremely pleased with the performance of our recently acquired Progressive business, which will exceed expectations in the second quarter in both revenues and earnings," said Ronald W. Allen, Chief Executive Officer of Aaron's, Inc. "Our teams are working together and making good progress on realizing the attractive e-commerce, customer relationship and other operational synergies between our businesses. We're very enthusiastic about Progressive's bright future. With that said, we are disappointed with our core business results and are taking aggressive action to respond to the challenging economic environment and the evolving industry in which we operate."

"We recently undertook a comprehensive and detailed review of opportunities for shareholder value creation and continue to believe that by implementing targeted strategies, we can grow the core business," said Allen. "While our results show there is still work to be done, we are continuing to reshape and sharpen our focus on Aaron's core business, and are executing on our five key initiatives to position the Company for long-term growth and profitability. These include:

• A renewed focus on same-store revenue growth;
• Refining and growing our online platform;
• Driving cost efficiency to recapture margin;
• Moderating new store growth with the targeting of high-growth areas; and
• Strengthening and growing our franchisee network."

Cost Reduction InitiativesAs previously communicated in April, Aaron's is fundamentally changing its store growth expectations and will structure its operating expense levels accordingly.

Some of these previously announced cost cutting initiatives include:

• A rigorous evaluation of the Company-operated store portfolio, which will result in the closure of 44 underperforming stores in the third quarter 2014;
• Specific targets and actions on reducing costs throughout the organization;
• Long-term SG&A cost saving initiatives in all aspects of the business including procurement and distribution; and
• Improved inventory management and analytics with the expected result of better store operational performance.

"For the core business, driving revenue and executing on our cost cutting initiatives, including a thorough review of our operating expenses, is our top priority," said Allen. "We expect 44 store closures by the end of the third quarter and store rationalization will continue to be a key focus for the Company over the next few years."

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