Q2 2022 Aaron's Company Inc Earnings Call
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Okay.
Yes.
Good morning, My name is Shirley and I'll be the conference operator today at this time I'd like to welcome everybody to the second quarter of 2022 covenants Cool Islands company all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a Q&A session.
It was lots whilst good question. During this time simply press star followed by one on your telephone keypad. If you like the jewelry a question. Please press star followed by two thank you.
Mr. Hancock you may begin your conference.
Thank you and good morning, everyone welcome to the Aaron's Company second quarter 2022 earnings Conference call.
Joining me. This morning are Douglas Lindsay, our Chief Executive Officer, Steve Olsen, our President and Kelly Wall, Our Chief Financial Officer.
After our prepared remarks, we will open the call for questions.
Many of you have already seen a copy of our earnings release issued yesterday afternoon.
For those of you that have not it is available on the Investor Relations section of our website at Investor thought Aaron's dotcom.
During this call certain statements, we make will be forward looking including forward looking statements related to our financial performance outlook for 2022.
I want to call your attention to our safe Harbor provision for forward looking statements that can be found at the end of our earnings release, the safe Harbor provision identifies risks that may cause actual results to differ materially from the content of our forward looking statements.
Also.
Please see our Form 10-K for the year ended December 31st 2021, and other subsequent periodic filings with the SEC for a description of the risks related to our business that may cause the actual results to differ materially from our forward looking statements.
On today's call, we will be referring to certain non-GAAP financial measures, including EBITDA and adjusted EBITA non-GAAP net earnings non-GAAP , EPS and free cash flow, which had been adjusted for certain items, which may affect the comparability of our performance with other companies.
These non-GAAP measures are detailed in the reconciliation tables included in our earnings release, and the supplemental investor presentation posted to our website.
With that I will now turn the call over to our CEO Douglas Lindsay.
Thanks, Keith Good morning, everyone. Thank you for joining us today and for your interest in the Aaron's company.
We are pleased to report consolidated company results for the first time since our acquisition of brand Smart USA, which closed on April one.
As a result of the acquisition consolidated revenues increased in the second quarter.
<unk> is off to a strong start.
And we are encouraged by the performance of this new business segment.
In the second quarter, the Aaron's business faced a challenging economic environment.
As high inflation, but significant financial pressure on the lower income customer that we serve.
With gas food and housing prices rising.
More of our customers' income as needed to cover these basic necessities.
Less available for leasing new merchandise, our renew and lease agreements.
Customer demand and payment activity progressively worse through the quarter, leading to second quarter revenues earnings and earnings per share for the Aaron's business coming in lower than prior year quarter and below our expectations.
In light of these trends, we now expect additional pressure on the company's financial performance in the back half of the year.
And as a result, we have lowered our 2022 outlook.
We have already taken a number of actions to optimize performance and reduce expenses in light of the changing market conditions.
We have reduced operating expenses and staffing levels, and our Aaron's stores and store support center.
We have announced the closure of one of our corporate office locations and.
And we plan to close and consolidate additional aaron's stores by year end.
Also we have reduced inventory purchases to align with current demand trends.
Despite the challenging macroeconomic environment, we remain confident in the resiliency of the Aaron's business.
Since 1955 of our business model has repeatedly proven that it can withstand economic downturns. Thanks to the loyalty of our more than 1 million active customers.
Count on us to be there for them when times are tough.
We are leveraging our deep expertise and our strong relationships in the communities we serve to navigate this challenging environment.
Further we believe that the investments we've made over the past five years to transform the Aaron's business are allowing us to provide our customers with even better service and greater value.
For example.
Our lease decisioning platforms enable us to optimize our lease origination activity.
We have already tightened lease decisioning in response to the declining customer payment trends and.
And we will continue to monitor our portfolio performance and assess our lease approval rates as the economic landscape evolves.
Meanwhile, our innovations and our e-commerce channels and our Gen. <unk> program allows us to meet our customers, where they prefer to shop, whether in a beautiful aaron's store or online.
We remained very encouraged by the growth of our e-commerce channels and the high performance of our Gen next door strategy.
And we will continue to invest in these initiatives.
We will also continue to invest in brand smart, which we believe is the low price leader and retailer of choice for appliances and consumer electronics in the markets we serve.
This new segment performed well in the second quarter exceeding our internal expectations and increasing our optimism about the additional value creation opportunities available through this acquisition.
Together with our strong balance sheet and liquidity, we believe that our focus on innovation and the Aaron's and brand smart businesses will enable us to continue delivering a market leading value proposition to a large and diversified customer base and will position us for future growth.
Now I'd like to welcome Steve Olsen, our president to discuss the operational performance of both Aaron's and brand smart.
Kelly Wall provides additional details on our financial performance.
Thank you Douglas I want to begin by extending a warm welcome to our brand smart team members I have truly enjoyed working with all of you over the last several months and I'm excited about building the future together.
I also want to thank our team members across Aaron's Woodhaven and brand smart for your focus and commitment on customer service continued.
Innovation and winning in the marketplace.
Our efforts have been outstanding.
As Douglas mentioned, the Aaron's business faced challenges in the second quarter due to inflationary and other economic pressures on our customers.
Customer demand with volatile in the first quarter and as we discussed in our last earnings call we saw.
The Choppiness in April .
That trend continued.
And beginning in mid May progressively worsening through the quarter.
Likewise.
Lease renewal rates declined in the second quarter beyond the originally anticipated normalization.
While performing above pre pandemic level through early May we began to see deterioration in lease renewal rates as the quarter progressed.
In the second quarter, our customer lease renewal rate was 88, 5% for all company operated Aaron's stores compared to 92, 4% and the government stimulus aided second quarter of 2021.
We also experienced higher leased merchandise returns and an increase in charge offs, which Kelly will discuss in a few minutes.
The lower customer demand combined with higher charge offs and higher lease merchandise returns led to a decline in the lease portfolio size.
We ended the second quarter with our lease portfolio size for all company operated Aaron's stores of $138 million, a decrease of one 5% as compared to the prior year quarter.
On a positive note in the Aaron's business, we continue to see strong momentum in our E Commerce channel and Gen. Next door strategy E. Commerce remains a key customer acquisition channel revenue driver for the Aaron's business.
We have continued to improve our digital marketing strategies.
Enhanced online shopping experience and expand the product assortment offered on Aaron's dotcom.
These efforts are attracting more customers and improving our conversion rates, leading to a 28, 9% increase in e-commerce lease originations in the second quarter versus the prior year quarter.
This increase in e-commerce lease originations led to a 4% growth in E Commerce revenues in the second quarter of 2022 as compared to the second quarter of 2021.
Also it's important channel continues to represent an increasing percentage of our total lease revenues.
In the second quarter E. Commerce represented 15, 4% of total lease revenues up from a 13, 9% in the second quarter of 2021.
Now shifting to our <unk> strategy.
This strategy continues to deliver meaningful financial performance through the transformation of our in store customer experience and operating model in the second quarter. We continued to see lease originations and our Gen. Next stores opened less than one year grow at a rate of more than 20% higher than our average legacy stores.
In the quarter, we opened 36 Gen X locations, bringing our total to 171 company operated Gen next doors, which now account for more than 17, 4% of revenues up from six 7% in the second quarter last year.
As we discussed in our last earning call. We remain committed to this important strategy and look forward to adding approximately 45 more gen net locations this year.
Turning to the brand smart business.
Brand smart is a value oriented retailer with a wide assortment of competitive prices that appeal to our loyal customer base across the entire credit spectrum.
And each market, we serve brand smart has knowledgeable salespeople strong brand awareness and an established local delivery and service network.
Each of our 10 brands Smart stores offers nearly 15000 items and average store size of approximately 100000 square feet.
In the second quarter brand Smart delivered 181 $4 million in revenues.
This strong performance was primarily driven by higher average ticket.
Revenue growth in appliances, and double digit growth in commerce.
Also as we described last quarter one of the key synergies for the brand Smart acquisition is to implement in house lease to own solution.
I am pleased to report that we have successfully launched our new brand smart leasing product in the second quarter, which has replaced the lease to own solution previously provided by a third party.
Our customers and team members are excited about brand smart leasing, which brings a faster and improve customer experience.
While our new solution represents a small portion of the brand smart business. Today. We are excited about this opportunity and believe it has significant growth potential in the future.
In addition to our lease to own solution, we remain focused on capturing other key synergies and investing in people process and technology for growth opportunities following the brand smart acquisition.
These include.
Leverage the buying power of our combined companies to reduce our product costs.
Expand the product assortment offered on Aaron's dotcom.
Grow the brand Smart E Commerce channel.
And opened new brand smart stores in adjacent markets with that I would like to hand over the call to Kelly.
Thank you Steve as.
As we detailed in the recently filed second quarter 10-Q. In addition to the consolidated company. We are now reporting on two business segments, the Aaron's business and brand smart.
The Aaron's business segment includes our company operated Aaron's stores, the Aaron's dotcom ecommerce platform Aaron's franchise operations brand smartly scene in Woodhaven, our furniture manufacturing operations.
The brand Sports segment includes our 10 brands Smart USA retail stores and the brand smart USA Dot com platform.
The two business segments are not burdened by unallocated corporate expenses, which include but are not limited to equity based compensation restructuring separation and acquisition related costs interest expense and certain other corporate functions.
For all prior year periods I will discuss we have adjusted the financial results presented to align with the new reportable segments.
Consolidated total revenues in the second quarter of 2022 or $610 $4 million.
Compared with $467 5 million for the second quarter of 2021.
An increase of 36%.
This year over year increase was primarily due to the brand smart acquisition, which was offset by lower revenues at the Aaron's business.
Gross profit was $293 $1 million in the quarter $1 $5 million lower than the prior year quarter.
The decline was primarily due to the lower revenues at the Aaron's business offset by the addition of brands Mark which was not included in the prior year period.
Gross profit margin was also lower year over year, primarily due to the acquisition of brand smart, which operate at a lower gross profit margin in the Aaron's business.
Our consolidated operating expenses for the second quarter of 2022 were.
We're higher than 2021 due to increases in personnel expense other operating expense and the provision for lease merchandise write offs.
Personnel costs increased $8 $8 million in the second quarter as compared to the prior year, primarily due to the addition of brands Mark.
This was partially offset by lower performance based incentive compensation at both the Aaron's business and within functions included in unallocated corporate expenses.
Total other operating expenses, excluding restructuring expenses spin related costs and acquisition related costs increased $22 $3 million in the quarter as compared to the prior year period.
This increase is primarily the result of the acquisition of brand smart and higher occupancy shipping and handling and other miscellaneous expenses at the Aaron's business.
Which was partially offset by lower advertising cost at the Aaron's business.
Adjusted EBITDA in the second quarter of 2022, with $48 $1 million compared with $65 $3 million for the same period in 2021.
As a percentage of total revenues adjusted EBITDA was seven 9% compared to 14% last year.
This decline in adjusted EBITDA and adjusted EBITDA margin was primarily due to the decline in adjusted EBITDA at the Aaron's business offset by the addition of brand smart and lower on allocated corporate costs.
On a non-GAAP basis diluted earnings per share for 79 cents compared with non-GAAP diluted earnings per share of $1 and <unk>.
In the same quarter in 2021.
EPS for this year's second quarter includes a deferred income tax benefit of <unk> 15 per share.
Which was generated by the re measurement of state deferred tax assets and liabilities in connection with the brand Smart acquisition.
Free cash flow was $3 7 million, a decrease of $20 million year over year.
This decline was primarily due to changes in working capital and higher capital expenditures in the current year quarter, partially offset by lower purchases of lease merchandise.
At the end of the quarter. The company had a cash balance of $28 2 million and total debt of $310 $3 million.
Total liquidity, including availability under our revolving credit facility was $273 4 million at June 30th.
During the quarter, we paid a quarterly cash dividend and purchased 254000 shares of the company's common stock.
Turning to the business segments.
A decrease of 8%.
This decline was primarily due to the lower lease revenues, which we attribute to the lower customer payment activity, Steve discussed earlier.
Same store revenues were down six 7% in the quarter compared to an increase of 11, 2% for the prior year quarter.
Operating expenses at the Aaron's business increased $8 million in the quarter as compared to the prior year period.
Higher other operating expenses and provision for lease merchandise write offs were partially offset by lower personnel expenses.
The provision for lease merchandise write offs as a percentage of lease revenues and fees for the second quarter was five 7% compared to two 9% in the prior year period.
This increase in the provision expense was primarily due to a higher frequency of charged off lease agreements and an increase in the average net book value of the lease merchandise that was charged off.
Both of which have been impacted by the current high inflationary environment.
Additionally, the increase in write off percentage was impacted by the lower lease revenues in the quarter.
In the second quarter of 2022, adjusted EBITDA for the Aaron's business was $48 million compared with $78 $6 million for the same period in 2021.
As a percentage of total revenues adjusted EBITDA was 11, 2% compared to 16, 8% last year.
At brand Smart retail sales in the second quarter of 2022 for 181 $4 million, which is approximately 7% lower than the same quarter of the prior year.
This expected decline was due primarily to the normalization of customer demand following a strong second quarter in 2021.
Which we believe benefited from last year's government stimulus.
We are not currently providing our same store sales comp percentage given that all brands smart USA stores have been opened for more than 13 months.
Gross profit, excluding a noncash inventory fair value adjustment related to the acquisition was $45 $9 million or 25, 3% of retail sales.
In the second quarter of 2022.
Adjusted EBITDA for brand Smart was $10 $5 million.
Yesterday, we issued our second quarter earnings release, which includes the full detail of our updated 2022 outlook.
This lower outlook reflects our expectation that the current high inflationary environment, we will continue to adversely impact customer demand.
<unk> portfolio size lease renewal rates.
Provision for lease merchandise write offs and other company expenses.
With that I will now turn the call over to the operator, who will assist with your questions.
Thank you at this time I would like to remind everyone in order to ask your question. Please press the number one probably star followed by one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Our first question comes from Kyle Joseph with Jefferies. Your line is now open.
Hey, good morning, guys. Thanks for.
Taking my questions Kelly.
You touched on it I've been getting a lot of questions on kind of the on the on the write off side, but in auto finance you talk about the frequency and the severity, but can you give us a sense for.
For how both of those are changing.
Yeah happy to call so in the quarter right.
Signage was five 7%.
And.
Of that the majority of that was wasn't account that increase that some of the bridge you actually from last year to this year, which I think would be very beneficial to help you understand. This so we were at two 9% last year.
Five 7% this year.
About 175 basis points or so is the frequency.
Right.
The rest is.
The increase in the net book value as well as the increase in the reserve for that period.
As well because we can give them higher amount of charge offs, we're seeing.
Towards the end of Q2, and how that has continued into Q3, where office reserving for those future anticipated write offs as well. So it's a combination of those three things which are have led to the year over year increase.
Got it that's very helpful.
And then on the on the demand side.
Obviously, we recognize that the macro environment, but.
Do you think you know some of it was a.
A bit of a pull forward in 2020 one in terms of demand.
Stimulus out there and kind of stay at home and just kind of how it's a crystal ball question is difficult in this macro environment, but like how quickly would you anticipate demand recovering and when did you see any catalysts for that.
Yeah.
Cali is Douglas I mean.
I think youre exactly right on 2020. One there was a lot of liquidity in the market a lot of folks had money and were made.
Making retail purchases and entering into more leases right now we're in a really unique market environment. As we said in our comments, we've seen deterioration beyond normalization in demand and in customer payments that is primarily focused on the aaron's business and I just want to be clear on that.
Rich, which serves a lower income customer as opposed to brand smart, which as customers across the credit spectrum.
Where we're seeing and brands were at more normalization deterioration beyond normalization.
There is no doubt and it's widely publicized low income customers under pressure gas food housing less liquidity to buy a large items for the household but also.
Struggling to pay their bills, we've mentioned and Steve said in his prepared remarks customer demand and payment activity progressively worsened in the Aaron's business through the quarter.
As you recall in our Q1 earnings call, we say customer demand was volatile in the first quarter as we had a resurgence of COVID-19 than a delayed tax season, and we saw a choppiness.
Going into April I would say you know as we look forward we are assuming.
Run rate of demand that similar to what we're experiencing now in our outlook.
For the rest of the year and we would also say that the trend that we saw in lease renewal rates beginning in mid may the progressively worse and through the end of June .
That trend would continue as well and we would consider that beyond normalization encouragingly we have been.
Utilizing the investments we've made over the past five years to adjust to this macro environment, we have centralized lease decisioning, we've been tightening lease decisioning.
That is going to have an impact on the demand side of the business a bit as we're tightening and managing.
Setting the customer for success in sizing the rightsize deal for their ability to pay but we are encouraged by that but our outlook reflects all those pressures in the back half of the year I'd be remiss, if I didn't mention our ecommerce business that despite these demand trends.
It has been a strong point for us E com grew in the quarter.
Sales really what we put into the portfolio by 28% and that's coming off of a 21% growth in the first quarter. So that's positive last thing I would say on this demand environment in a renewal environment is.
Inflation is also putting pressure on our cost structure, we have been purchasing items.
A higher cost than historically, but we've been able to pass that cost on to our customer average ticket is up little over 8% in the quarter and we have been preserving the margin, we're writing into our portfolio through cost increases, which our customer has been it's been taking so the customer has been taking the cost increases, but we are seeing.
That dynamic with pull forward of demand there unless liquidity impacting us right now.
Very helpful. That's it for me thanks for taking my questions.
Thank you. Our next question comes from Jason Haas of Bank of America, Jason Your line is now open.
Hey, good morning, and thanks for taking my questions. The first one I was curious if you're starting to see hey, good morning, guys.
Hey, good morning are.
Are you seeing any any form of a trade down in the Aaron's business in terms of when you typically think in terms of when we go into an economic downturn that you'll see.
Sorry to see credit tightening and Buffy which could pushing people into lease to own and I'm also curious with.
All the inflation folks are seeing if that's causing people to need to use lease Joan.
More and if not yet.
Any thoughts as to whether that could be a positive in the coming quarters.
Yeah, Hey, Jason It's Douglas, it's tough to gauge right now.
We are definitely keeping an eye on it should interest rates continue to rise and access to credit get restricted in the future. We believe the market for at least the earned will expand I think we've said before in a normalized environment.
And I would say this is a very unique moment that we're in right now, but in a normalized environment. We believe that inflationary increases would have.
The customer looking for smaller payments on big ticket items.
But we are continuing to monitor that first of all we're not in a normal environment and secondly, we have not begun to see customer trading down with the credit any kind of credit tightening our interest rate pressure. We're following external data on that and clearly have our ears to the ground to see if that is happening in the marketplace.
In addition.
We have the ability to look into our internal data in the Aaron's business to see if we're seeing higher credit scores entering our space as well as the composition of our new customers. So while we haven't seen it where we're watching carefully and monitoring going forward.
Thanks, Good to hear and then as a follow up also for you just you might I think you mentioned it briefly about store closure strategy I know that was a topic following the spin off.
To try to I guess.
EBIT on lower revenues, so I'm curious if you're starting to.
Desktop that playbook, a little bit more and look back into that and then alongside that I'm. Also curious are we still should we still expect our brand smart store opening next year in one to two per year thereafter.
Sure just on the generic strategy as you recall at the time of our spin.
Had articulated a strategy, where we were going to reduce the number of stores.
And service the same markets that we serve now with fewer stores in bigger E com with the strength of stimulus driven economy over the last two years, we had pulled back.
Okay.
As our stores and the markets there was a surge in demand and we just didn't think it was prudent at the time.
While the pace of store closures has been slower we are beginning to revert back to our closed merged strategy.
In the second half of this year and I noted that in my comments about store closures in the back half of the year, we expect to close stores, but it is important to note those stores will be closed mergers, where we're just getting more efficient in the market. We have the benefit of a recurring revenue business, where we can port our portfolio of leases into another store.
<unk>, our cost structure and drive profitability in those markets and with our E com platform and our digital servicing platforms. We can service those customers very efficiently, we have many customers making payments.
Sitting with us outside of physical visits to the store so that's encouraging.
We believe fewer more profitable stores.
As an efficient way to run the business and we will assess market by market, where we'll actually be physically repositioning of store versus just merging customers into an existing store importantly, and we said this at the time of the spin. We believe this strategy frees up working capital will help us drive earnings and create stronger cash flow in the business.
And then in terms of brands, but I would just let Steve take that question, Yes, I'll, let Steve take that yes. Good morning. This is Steve as.
As we mentioned in the prepared remarks, we see opening of brand smart store, one or two a year as a key growth strategy for the business.
And with that Sei as we stand right now where we're early in the process. We're doing our market research both on the customer both both on the competitive positioning in these adjacent markets and we still believe that and hope to open a store next year.
Great. Thank you.
Okay.
Thank you Jason.
Our next question comes from Scott secretly of true Securities. Scott. Your line is now open.
Good morning, Scot Ciccarelli.
So your renewal rate ended the quarter at $8, 88.5%, but deteriorate throughout the quarter can you guys give us any idea of what the exit rate was and is that.
What you're anticipating for the back half of the year.
Yes, Scott Hey, it's Kelly.
You may recall in prior calls we've kind of <unk>.
Outlined that are for the full year kind of pre pandemic, our renewal rates are between 87% 89%.
Typically in a normal period the back half of the year would be about 100 basis points lower than that.
And what we're seeing right now as we exited.
Q2, and in the early parts of a COO.
Q3, what we're anticipating is through the back half of the year, we're going to be about 101 hundred to 150 basis points lower.
Then our pre pandemic levels.
<unk>.
That puts us lower than where we were we kind of averaged for the quarter, but can't give you a bit of a guide for the rest of the year.
Very helpful. And then can you guys provide also some color just.
Regarding how much you're tightening your approval process and maybe I don't know Kelly. However, you would think about it in terms of impacting the portfolio growth rate.
Yeah, Hey, Scott, It's Douglas I'll talk about a tightening as we communicated were now and I think we've previously so that we're now decisioning the vast majority of our customers through centralized decisioning both on our stores.
And then her E com channels really what we're trying to do there is score our customer the size of their lease and aligned their payment amount that they paid us their ability to pay and we think that model is.
Ridiculous and since slopes outcomes very well, we've adjusted our model over the course of the last.
Six months or really over the last 12 months to adapt to this ever evolving environment, we expect.
Our lease approval rates to be about 5% lower than they were last year. At this time at the end of the second quarter of 2021 and that tightening of Decisioning as reflected in our full year outlook.
Got it okay. Thank you very much guys.
Yep. Thank you Scott.
As a reminder, if you wish to submit your question. Please press star followed by one on your telephone keypad now.
Our next question comes from Anthony <unk> of loop capital markets. Anthony Your line is now open.
Good morning, Thanks for taking my questions first question.
I know historically, you know basically you've sort of guided merchandise write off rate in the 4% to 6% range.
This is my first question.
Based on your updated guidance for 2020, so what is implied I guess.
And that is where it operates well for them in that 4% to 6% range is a little bit higher.
Given the.
Sort of unprecedented macroeconomic environment that we're in right now.
Yeah, Hey, Anthony it's Kelly.
Listen I think given like you said, we're in a pretty unique situation here right. Now our view is that we are going to be higher for the full year relative to what we had provided before our current thinking right now is that for the full year 2022.
<unk>, 6% and 7% that's the lease write offs as a percentage of lease revenue.
But.
Okay.
That's helpful. And then just one real quick housekeeping question and I apologize if this has involved.
10-Q, an idea.
Yes.
Can you just give a store numbers for the Aaron's business for company operated and franchise stores.
Yes, Anthony as Douglas Your company owned stores is 1060 stores when I was CFO and our franchise stores or 234 stores at the end of the quarter.
Got it thank you so much.
Welcome. Thank you.
Okay.
As another reminder, if you wish to submit a question. Please press star followed by one on your telephone keypad now.
Our next question comes from Bobby Griffin of Raymond James Bobby Your line is now open.
Yes, good morning, everybody. Thanks for taking my questions.
I guess my first question really is more just kind of high level. One on your end market and inside the space itself, but the space has gone through a wide variety of economic cycles, but why do you think it's performing differently. This one.
In terms of being able to control the write offs or the <unk> side of the business or anything like that why why exactly you think this one's finding it tougher to manage through than prior cycles and get through and the write down space.
Yes, Bobby it's interesting you know this is a unique period of time where sei.
<unk>.
Current market conditions, and we've experienced in the past if you look back to <unk>.
And we've seen some.
Credit tightening in the past certainly it's been it's been decades since we've seen inflation like this but like our most recent data point on credit tightening I would say would be the 2008 2009 period.
Credit scores during that time decrease during the recession in our market expanded.
Which is what we would expect same store revenue during that time did increase as that market expanded.
Due to the macroeconomic conditions, but we also have a lot of unit expansion going on at the time I would say today, we've got much better analytics.
To be able to deal with that and we've got much better touch points with the customer what's different this pull forward in demand right. Now did not proceed the financial crisis back then and so that is different unemployment was also a lot higher back then inflation's a lot higher now so we've got some different.
Things happening at the same time and as we said that's putting a lot of pressure on our customer the pull forward or not.
Shopping as much as you are hearing from other retailer and their ability to pay is a little bit more challenge.
We've reflected all of those dynamics and our full year guidance and we'll continue to assess as we move forward.
Okay I appreciate that and then I guess lastly, the switch over to <unk>.
I think you mentioned down on a quarter over quarter, I mean year over year basis around 7% mid single digits was that pretty stable throughout the quarter and is that kind of trend held up where we can get a good feel that that business isn't as volatile as what's going on in the other side of the rigs owned business.
Hey, Bobby it's Steve I'll be glad to answer that.
If you kind of break down the quarter on sales.
I would say.
It did pretty much hold out a hold up throughout the quarter, even to the point, where we saw some nice improving trends through through.
The recent holiday promotions both in May.
And leading up.
June leading up to July four so.
We're excited about the business, where optum optimistic about about the trends.
The strong management team.
The growth in appliances that we saw throughout Q2.
He was very promising.
And we're excited about where we think we can take the e-commerce business.
And where the future trends hold.
Yes, Bobby I'd I'd say, we're very encouraged about about brand smart the growth opportunities and value creation opportunities just one last word on Aaron's.
We're in a unique market situation right now.
What's encouraging for me is we have long tenured operators, who have been through many cycles and have worked with our customers at a local level through market disruptions. The other benefit we have is a recurring revenue model. Unlike retail.
It allows us to continue to service.
Service, our customers over time and recognize revenue over time, we're really encouraged and believe in our current strategy and.
And our value.
Proposition in the market and these expanding channels that we have like brand smart like our Gen next doors and our growing ecommerce business are very very encouraging and we're managing the business right now for the long term and managing through the short term disruptions and were.
We're very encouraged about our outlook in terms of the.
The growth channels that we have.
I appreciate the detail best of luck here in the second half.
Thanks, Bobby.
Thank you Bob we have a follow up question from Anthony <unk> of loop capital markets. Your line is now open.
Thank you so much for allowing me the Ah <unk>.
Great.
Real quick question.
Obviously, you brought the <unk>.
Increase your free cash flow guidance I'm, assuming that's just sort of working capital benefit from the credit tightening, but just wanted to confirm that or if there's anything else you could speak to in terms of that change. Thanks.
Yeah, Anthony that Youre correct right.
Our expectations for demand.
We've brought those down to the back half of the year. We're also as you'd expect and are lowering our large lease merchandise inventory purchases.
Managing that.
Very tightly as we go through the course of the back half of the year.
Got it thank you.
Thank you for your questions at this time, we have no further questions. So I'll hand back over to Mr. Lindsay for any closing remarks.
Thank you operator, and thank you for joining us today, although we're navigating challenging economic environment.
Our team members remain focused on delivering exceptional value and service to our customers and on innovating our business.
We're encouraged by the strong performance of our growth initiatives.
And we continue to invest in those strategies to drive future growth. Thank you again for being with US today, and we look forward to speaking with you soon.
Okay.
Ladies and gentlemen. This concludes today's conference call you may now disconnect your lines.
Yeah.
Yes.
Okay.
Yeah.
Okay.
Yes.
Okay.
Sure.
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