When an economy goes bad, one of the first things to suffer is credit. It’s this market, where securing credit is so difficult, that rent-to-own furniture giant Aaron’s (AAN) has found a niche.
Aaron’s and its main rival Rent-a-Center (RCII) have been hit in recent quarters by high gasoline prices, which put pressure on supply chains and the pockets of their credit-strapped customers. But Aaron’s has a new concept that looks like it may move the company to the forefront.
Rather than focusing on more high-ticket items in its traditional stores, such as computers, electronics and furniture, Aaron’s new HomeSmart stores will offer furniture and electronics rentals on a pay-by-the-week basis.
With just a few HomeSmart stores among its more than 1,860 company-operated and franchised stores in 48 states and Canada, the company seems confident enough with the new concept that it is using acquisitions to expand the brand. Over the summer, the Aaron’s bought up Tennessee-based Crusader’s, with 29 of the 30 stores converted to HomeSmart.
Shortly after the Crusader’s buy, Aaron’s snapped up Buzz’s Lease Purchase Sales stores in Louisiana and Texas, meaning that by year’s end it will have another 30 HomeSmart stores open.
Across the pond
Though Aaron’s is confident in the future of credit-challenged Americans, it is not blind to the possibilities that the same exists in other markets. It is with that in mind that it recently purchased 11.5 percent of Perfect Home Holdings, a privately held U.K. rent-to-own company, for $14.5 million.
“We are very excited about this investment in PerfectHome,” said Robert C. Loudermilk, Jr., president and chief executive officer of Aaron’s. “Not only will it provide PerfectHome growth capital, it will also enable Aaron’s to learn about the U.K. market for possible future expansion there and perhaps provide an eventual gateway into other European markets.”
KeyBanc Capital Markets analysts are excited about these prospects, having recently initiated coverage with a buy rating and $34 price target. “We believe longer term AAN is poised to benefit from the company’s maturing store base, a healthy unit growth rate and steady improvement in profitability,” they said.
Aaron’s third quarter earnings saw revenues up 7 percent to $485 million and same-store sales up 5.3 percent. Diluted earnings per share were $1.04 versus $1.07 a year ago.
The company next reports on Jan. 23.
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