Q2 2023 The Aaron's Company Inc Earnings Call
Ladies and gentlemen, welcome to the Aaron's company in Cooperation, second quarter, 2023, earnings conference call. My name is Glenn and RBD, or part of today's call. If you'd like to ask questions during the presentation, you may do so by pressing star one on Teflon keypad.
I will now hand over to your host, Mark Levy, VP Finance and Investor Relations to begin. Mark, please go ahead. Thank you. Good morning, everyone. Good morning, everyone.
After our prepared remarks, we will open the call for questions. Yesterday after the market closed, we posted our earnings release on the investor relations section of our website at investor.arons.com. We also posted a slide presentation that provides additional information about our second quarter results and full year 2023 outlook.
During today's call, certain statements we make may be forward-looking, including those related to our outlook for this year.
For more information, including important cautionary notes about these following looking statements.
Please refer to the safe harbor provision that can be found at the end of the 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 10K for the year end of December 31, 2022, and other filings with the SEC for a description of the risks related to our business that may cause actual results to differ materially from our forward-looking statements.
On today's call, in the release and in the Supplemental Investor presentation, we refer to certain non-GAAP financial measures, including EBITDA and adjusted EBITDA, non-GAAP net earnings, non-GAAP EPS, adjusted free cash flow, and net debt, which have 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 on our website.
With that, I will now turn the call over to our CEO , Deborah Flinty. Thanks, Mark. Good morning, everyone. Thank you for joining us today and for your interest in the Ernst Company. I'm pleased to report that we delivered consolidated company earnings for the second quarter that were ahead of internal expectations driven in part by our ongoing focus on cost controls.
We also benefited from a healthier lease portfolio, resulting from optimization of our lease decisioning model and prior quarters.
Recurring revenue nature of our errands business.
and its strong cash flow dynamics continue to be an advantage. During the quarter, we generated $53 million in cash flow from operations.
dynamics continue to be an advantage. During the quarter, we generated $53 million in cash flow from operations and improved the strength of our balance sheet.
by reducing net debt by over $30 million. Over the last four quarters, we have cut our net debt nearly in half, while continuing to invest in our strategic growth initiatives.
now turning to thegoads and segment.
In the Aaron's business, I'm pleased to report that we ended the quarter with a larger than expected lease portfolio size.
We've also made great progress on our market optimization initiatives.
by adding more GenNext and Hub & Showroom stores.
We are executing well on the cost reduction initiative.
we previously announced.
And our least decisioning enhancements continue to improve portfolio performance.
These items contributed significantly to our strong bottom-line performance in the second quarter, offsetting continued challenging customer demand trends.
As we look to the back half of the year, we expect these demand trends to persist.
made in the back half of last year. Now turning to BrandSmart. Macroeconomic factors continue to impact our customers' retail purchasing decisions at BrandSmart to a greater extent than in the errands business. Meanwhile, we are focused on managing profitability through enhanced cost controls and strategic procurement and pricing actions. We recently celebrated our one year anniversary of the BrandSmart acquisition.
We remain confident in brand smarts compelling value proposition in our long-term strategic growth opportunities, including expanding into new markets.
and growing our e-commerce channel. As we discussed, the customer demand environment remains challenging in both business segments. This is reflected in the updated outlook we provided yesterday and our earnings release. We lowered our consolidated revenues for the year but maintained our adjusted EBITDA and non-GAAP EPS outlook. We have also increased our adjusted free cash flow outlook for the year. As we look ahead, we remain focused on optimizing profitability in both businesses.
and we continue to make progress on the execution of our multi-year strategic plan. We are confident that the investments we are making will continue to enhance our distinct competitive advantages and allows us to increase market share at both Aarons and BrandsMart.
Before I turn the call over to Steve, I want to let you know that we've posted new videos on our investor website, this showcase both our errands, ginnext and brand-farm stores.
I encourage you to watch these videos. Our stores have a unique retail format.
Our stores have a unique retail format, a broad product assortment.
and an enhanced in-store shopping experience.
We believe our errands and brands from our stores provide the most compelling customer value proposition.
and the markets we serve.
Now I'll turn the call over to Steve.
Thanks, Douglas, and good morning, everyone. Darren's business delivered second quarter earnings ahead of our internal expectations.
As Bubba mentioned, we executed well in our cost reduction initiative, which more than offset continued challenges in customer demand.
These merchandise deliveries were down approximately 10% year-over-year. This was largely due to fewer of these applications in the quarter. Actions we took to tighten these decision in prior quarters, and approximately 4% fewer company operated stores as compared to the beginning of the prior year quarter. Our restorations started this may be a big milestone of SEUS due to illicit pollution.
end of the quarter with a value of $119.6 million. This was 8.6% lower than the prior year quarter, but larger than we expected. Now moving to our key lease renewal metric.
The lead to no rate for the quarter would 88.2% for our company operated Aaron Stores. The lead to no rate for the quarter would 88.2% for our company operated Aaron Stores.
This rate was down 30 basis points year-to-year, but in line with pre-pandemic averages for the second quarter.
Our 32-plus day non-renewable rate was 2.5% at the end of the second quarter. This rate increased 10 basis points year-over-year and reflects a sequential increase of 90 basis points from Q1 of this year.
primarily due to normal seasonal trends. We continue to be pleased with improvement in our write-offs.
The provision for lease merchandise write-offs at the percentage of lease revenues is 5.4% for the second quarter.
This reflects a 30 basis point improvement year over year.
Now let's talk about our important strategic growth initiatives for Yale's business.
Our Gen Next Source Strategy continues to deliver meaningful financial performance through the transformation of our in-sort customer experience in operating model.
At the end of the quarter, these stores accounted for approximately 29% of lease revenue in retail sales.
That compares to just over 17% in the prior year quarter. Lease originations in GenNext stores, open less in one year, continue to grow at a rate of more than 20 percentage points higher than our legacy store average.
Our Gen X stores have stronger revenue performance than our traditional stores, and we look forward to opening new Gen X stores in the future.
In addition, we continue to execute our new hub and children program.
Now turning to the Aarons e-commerce channel. We continue to focus on improving our digital marketing strategies, enhancing the online shopping experience, and expanding the assortment with over 10,000 products on Aarons.com. In the quarter, revenues generated from leases initiated on Aarons.com increased 5.5% year over year and now represents 17.9% of total lease revenues.
as compared to 15.4% in the prior year quarter. We are also pleased that we experienced a year-to-year increase in both the volume of these applications completed on aarons.com in the conversion of these applications.
However, recurring revenue written into the portfolio from e-commerce decreased 10.7% compared to the prior year quarter.
This decrease was the result of title lease decision in prior quarters and lower average ticket.
During the quarter, we also launched a weekly payment option on Aarons.com. As a reminder, we wrote about weekly payments in stores in Q3 of last year.
We are pleased that we can now offer our customers the flexibility to choose a low weekly payment option wherever they prefer to shop.
Now turning to Brand Smart.
As Douglas mentioned, we recently celebrated our one-year anniversary of operating the Branslock business. I am proud of our team as we work to achieve our synergies and implement our strategic initiatives to drive future growth.
Starting this quarter, we will be reporting a comparable sales metric, which reflects sales and stores open for the last 15 months.
Please see our 10 cues for a more detailed definition. The total sales for the second quarter were down 20.9% as compared to the prior year quarter.
This is the result of ongoing weaker customer traffic and customer trade down to lower priced products across our major categories.
Throughout the quarter, comparable sales improved, especially during two promotional periods Memorial Day on July 4.
As we seek to attract new brand smart customers, we continue to invest in our e-commerce channel and digital marketing strategies.
Consistent with overall sales performance, we experienced pressure in the e-commerce channel.
E-commerce product sales represented 8.1% of total product sales.
down to 9.0% in the prior year quarter.
For the second quarter, our product close margin improved by approximately 50 basis points as compared to the prior year quarter. This was the result of direct procurement savings and strategic pricing actions. Finally, I am excited to report that we are on track to open our first new BrandSmart store in Augusta, Georgia in Q4. We are confident that our brand and customer value proposition will resonate in this new market.
Now, I'll turn the call over to Kelly to provide further details on our financial performance. Thanks Steve. We filed our Form 10-Q , earnings release, and investor presentation yesterday after the market closed, and these documents can be found on our Investor Relations website.
Please refer to these documents for additional detail regarding our financial performance and outlook for the consolidated company of the two business segments.
Also, unless stated otherwise, any comparisons I make to prior periods will be on a year-over-year basis.
The solidity revenues for the second quarter of 2023 were $530.4 million compared with $610.4 million.
This year of a year decrease is primarily due to lower lease revenue from feed and retail sales at the Aarons Business and lower retail sales at BrandsMart.
Consolidated adjusted feedback was $42.4 million paired with $51.2 million.
The sheer value of decrease is primarily due to the lower revenue that most businesses
partially offset by lower personnel costs and other operating costs.
In addition, as Steve mentioned, ride offs were lower at the errands business.
As a percentage of total revenues, adjusted EBITDA was 8% compared to 8.4%.
on a non-GAAP basis.
diluted earnings per share were 39 cents compared to 79 cents.
Despite the lower adjusted DPDOT in the quarter, we were very pleased with our adjusted free task flow.
It was $36 million, an increase of over $30 million.
This increase is driven by higher cash provided by operations as we manage merchandise inventory levels at both businesses to reflect the current demand environment.
A justice retest flow also benefited from improvements to working capital efficiency and lower capital expenditures.
During the quarter, we continued to return capital to shareholders, declaring $3.9 million in dividends and purchasing 66,000 shares of the company's common stock.
In addition, we ended the second quarter with $38.4 million of cash and $186.1 million of cash payment.
Our net debt balance at the end of the quarter was $147.7 million.
a $30.2 million dollar reduction from the end of Q1, 2023.
Since the end of the second quarter of last year, we have reduced our net bet by over $130 million.
As a result, our net debt-to-adjust-to-deep-at-disease leverage ratio ended the quarter at less than five.
Turning to our updated outlook.
In the second quarter earnings release, we provided an update to our full year of 2023 outlook.
We have lowered revenues to reflect our consolidated results in the first half of 2022 and to also reflect expected lower product sales at BrandsMart in the back half of the year as compared to our prior outlook. We have maintained our outlook for adjusted EBITDA and non-GAAP EPS for the consolidated company. We have also maintained our adjusted EBITDA at both business segments as we continue to invest in our growth and cost-efficiency initiatives. In addition, we currently expect that earnings in the second half of the year will be weighted more heavily in the fourth quarter.
This is in part due to additional investments in marketing and other initiatives designed to further drive new lease origination activity in the errands business segment.
And finally, we have increased our adjusted free cash flow outlook.
This increase reflects our strong cash flow in the first half of the year and continued inventory and working capital efficiency improvements in the last two quarters of the year.
And with that, I will now turn the call over to the operator for Q&A.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star followed by 1 on your telephone keypad now.
If you change your mind, please press star followed by 2 to withdraw the questions.
When preparing to ask your question, please ensure your phone is unmuted locally.
With our first question comes from Kyle Joseph from Jeffries.
Kyle, your lines now open.
Hey, good morning, guys. Thanks for taking my questions. Just wanted to get a sense for the consumer behavior during the quarter. I think last quarter you guys highlighted that there were fewer early buyouts and that benefited margins. I can see that numbers have decreased a line or two.
Despite that, you saw stable credit. Obviously, we saw stable credit continue this quarter. Can you give us a sense for what buyout trends were and expectations for the rest of the year? Can you give us a sense where you think margins will go on the errands business?
Yeah, I'll start. I mean, demand trends, as you noted from our call, have been challenging. We saw that in the quarter, this down 10% at Aaron's and down 20% at BrandsMart. I think when you look within the Aaron's business, that 10% is really a real negative 5%.
really encouraged about is the
At least owned businesses really holding up better than retail, I would say. And I think that's because of the.
payment price points, which our customers are shopping. We're not seeing as much trade down in the least owned business as we are in retail. And Steve can talk a little bit more about that. But you know the customer continues to adjust to this inflationary environment. Early buyouts were lower in the first quarter and they continue to be slightly lower in the second quarter. But as you know, the second quarter is not a huge early buyout quarter.
I'd say generally in terms of the consumer, the consumer has remained resilient and I think is acclimating to this challenging economic environment.
If you look at our renewal rate, the renewal rate was pretty strong relative to pre-pandemic levels coming in right where we would expect in Q2 for pre-pandemic.
And importantly, we really haven't seen any sign of a trade down yet. We are seeing a slightly higher quality customer coming into Aarons, but we have not detected either through our Brandsmart waterfall or through our data at Aarons a significant trade down. We still continue to believe that happens.
it will benefit us. Last thing I was going to say, and I'll let Steve touch a little bit on
Brand Smart is really focused right now on getting our shop in order, right sizing and innovating our cost structure. We believe if we do that going forward and the actions we've taken over the last 12 months, we've positioned ourselves really well, particularly with this direct-to-consumer, high operating leverage business.
to enjoy the benefits of the rebound when that does occur. So, you know, challenging demand trends, pull forward in demand. Steve will talk about that a little bit, but we feel good about what we can control and how we set up the business for future.
Great. Thanks, Doug. We'll sit down. Good morning, Kyle. Just quickly touch on a brand smart. You know, we believe that the retail customer, obviously, in these large ticket discretionary purchases, obviously, is more sensitive to macro trends. When you think about demand on the brand smart side, that negative 20 percent.
It really can be broken down into about half that is related to just transactions. So transactions down approximately 10% and the other half is our average transaction value down about 10% as well. So what we're facing is not only a demand trend challenge truly on transactions.
but just a step back in our average transaction value, versus what we saw last year. Average transaction value is still well ahead of pre-pandemic averages, double digits well ahead of that. We're just facing a little bit step down, especially in appliances.
In addition, I just say that we are really focused on profitability in the brand smart business and not chasing those unprofitable sales that sometimes happen in, you know, especially in the consumer electronics category. So we still believe in the business and teams focused really hard to find ways to continue to define growth.
I'll just reiterate that we're super excited about the long-term potential of brands tomorrow. We are going through a cycle and Steve and his team are doing a great job controlling calls.
Then just follow up on Brandspark, can you give us a sense for what the two-year stack of the comp looks like and then give us a sense for what the two-year stack looks like.
When you anticipate the comp really easing, if I recall, Brand Sport had a very strong 2-Q-22. Do those comps get a little bit easier in the back half of this year?
Hey Kyle, it's Kelly. I'll answer the first part of that. So as it relates to a two-year comp, you may recall we've acquired the company just over a year ago. And so we've not provided detailed financials on the period prior to us owning them. So we don't have a two-year stat comp to provide two years.
we'd expect a lot of operas are going to to drink here for.
Sure, yeah, so as Douglas referenced and I referenced, we expect continued demand challenges in the back half of the year. With that said, we do believe we will see sequential improvement in comparable sales into Q3 and Q4 as we lap some numbers.
Thanks a lot for answering my question.
Thank you.
Our next question comes from Vincent Katic from Stadt Stevens. Vincent, your line is now open.
Good morning. Thank you for taking my question. Nice to see the additional counts of the hub and spoke model and the GenNext storage. I was just wondering from a productivity perspective, if you can talk about the benefits of that hub and spoke and GenNext model as it relates to when we think about say, for example, EBITDA margins. Thank you.
Thanks, Douglas. We opened 11 Gen Next
I believe we open.
And
72 showrooms since the end of 2022, 59 of which were in this quarter. So we're right on track for 100 showrooms this year. The beauty of the hub and showroom model is all this innovation we've put in place over the last five years building larger, more relevant Gen Next stores.
and then creating digital platforms for our customer to interact with us where they want to be served has allowed us to build this platform in which we can optimize the markets we serve. And so we're serving the same markets, but we're doing it with a more efficient cost structure. I think at the time of SPIN we articulated...
Fewer larger stores and bigger e-comm. And I think what I'd add to that now is potentially having further reach within the markets of these showrooms. Showrooms are effectively just sales stores. They're typically staffed with two people. They're smaller box. They don't have a warehouse. cereal for redisesville.
The hubs that feed them are larger stores. Many of them are GenNext, but there are some legacy stores. Those stores house our distribution, our logistics and delivery, and returns. They also house all of our servicing for the market. We are able to put a central hub in place and the county seat.
have one or two showrooms around it to gain greater productivity in the market. In terms of cost effectiveness, it is EBITDA enhancing for that group of stores. We're typically taking out a few headcounts when we do that, but it's between 100 and 120,000 a year per store that we keep.
showroom in terms of cost efficiency. So some of what you're seeing coming through this quarter in our cost efficiency is the benefit of hub and showroom. There's also obviously benefits of marketing analytics and supply chain that are in there as well coming through.
Okay, great. Thank you for that. It's nice to see the expense efficiency in this quarter's results. This second question, just if – so you highlighted you're not really seeing the maybe trade-down activity yet, but if you could maybe talk about – supplement, why not?
How you expect that to play out over time and maybe what sort of consumer behaviors you expect to see as we go through the next couple of quarters in tough times. Thank you.
Yeah, hey, Vincent, it's Kelly. I'll speak to the trade down and then how it impacts the outlook that we've provided. So similar to the last quarter, we've not assumed that we'll see any, any significant trade down in the numbers that we've put out. So that would be upside to our outlook if we do see that continue to happen.
I mean, we do continue to believe that the customer is a bit constrained relative to what they were certainly during the pandemic. From a renewal rate perspective, we are seeing improvement year over year and we expect to see that in the back half of this year. So, slightly better renewal rates than what we saw in Q3 and Q4 last year.
but not quite back to the levels that we'd expect going into 2024.
I would say that is squarely on the back of the decisioning we put in place and the customer acclimating as I mentioned earlier. I do want to say one last thing. We have not assumed a trade down and we are not prognosticating on that. We do think it would benefit us.
This pull forward of demand will release at some point, and particularly in the brand smart business where we're down 20%, 55% of our sales mix is appliances, which is an important household category that has a regular replacement cycle. And so that we expect to drive.
future revenue. That has a little longer tail than the replacement cycle for computers and electronics, but we feel like both of those businesses will return.
And we've got a competitive advantage in those brands. OK, great. Thanks very much.
And we've got a competitive advantage in those. Okay, great. Thanks very much. Yep.
Great, great, thank you. Thank you. We have our next question, comes from Scott Sicarelli from The Truist. Scott, your line is now open.
Hey guys, this is Joe on for Scott. Thanks for taking my questions. Given that you're seeing some of the demand hold up better in the LTO side of the business, can you talk about integrating that solution into the BrandsMore channel?
Sure. Hi, this is Steve Olson. Be glad to answer that. So just a reminder, we implemented our brand smart leasing solution last year in the May time period. And we continue to be very pleased with the results of that and the continued improvement growth.
on the team's integration, the Brands March SOAR team with the Brands March Leasing team, as well as process and technology improvement.
From a performance standpoint, we continue to see the portfolio grow on the brand smart leasing side as well as the customer payment activity. So it's a key focus for us and one that we hope and expect to drive further growth.
Gotcha, cool. And then just on the 5.5 to 6.5% write-offs for the year, is that still what we should be thinking about? And if any color you give on the cadence between 3Q and 4Q, it would be super helpful. Thanks. Yes. We are still expecting write-offs in the range of 5.5 to 6.5%.
performance in the fourth quarter and happy with the trends as we move into Q3 and beyond. As it relates to a right-off trends in the back part of the year, there is seasonality in the business, so we would expect that right-offs would increase, but we expect them to be below right-off levels that we experienced in the same quarters of 2022.
Got it. Great. Thanks, guys.
Thank you.
With our next question comes from Bobby Griffin from Raymond James. Bobby, you're lies now open. Good morning. This is Allison Pemenez on for Bobby Griffin. Thank you for taking our questions. First on the air and side of the business despite any recorder with a larger than expected the report folio size you left.
behave longer term or is there something else?
What we're seeing there, Alessandro, is we continue to expect demand to be a challenge going in the back half of the year. We talked about that earlier in the call. What we're seeing is as we go into Q3 and Q4 with the lower EPO activity, early payout activities in Q1 and Q2.
those deals are rolling into Q3 and Q4 and paying off, so higher levels of payoffs relative to prior periods. And so that continues to impact demand in the second half of the, or the lease portfolio size in the second half of the year. And, again, we're focused in Q3 and Q4 on growing that portfolio as we head into 2024.
Okay, that's very helpful. And then maybe on the brand smart segment, can you walk us through the puts and takes to get to consistent EBITDA in the segment despite lower expected revenue?
And puts and takes to get to consistent, I would say that the brands part side, what we're focused on is implementing the cost necessary to run the business and to set the company up for sustained growth going forward. One, two, the team's done a great job in a declining revenue environment, managing the cost that we can control to preserve margin.
starts to grow and we continue to maintain.
Between that and the addition of the new store going into next year and the new stores thereafter, as we grow top line, we would expect margin to expand as we're leveraging those fixed costs.
Yeah, this is Douglas. The last thing I would say is Steven has team had done a great job on both the purchasing side and on the pricing side of maintaining the
And that business and preserving a margin as you know, it's a sort of a mid 20% margin business. And so while the revenue declines hurt, there are ways to offset that and they've done a good job of that. I don't know if you want to comment on that.
Just mentioned, you know, 1 of the key drivers of the brand smart value proposition is, you know, is our ability to purchase great products and great deals and the team continues.
Definitely as we mentioned in the prepared remarks, we continue to focus on strategic pricing actions and manage the business where there's opportunity to adjust pricing for a margin improvement. We do that as well as obviously those.
You know, I don't really want to want to speak about the, you know, the industry average, but I will tell I'll give you a little more context on, you know, the breakdown, you know, are the brand smart comp and Q2. So you know, appliances, you know, under pressure being 50% of our business and the majority of that pressure is in the average selling price, which, you know, was down approximately 10% of, you know, versus the prior year, where the overall average selling price of the business is that was down about 6%.
We're facing headwinds and consumer electronics across categories, especially in TVs, and that more result of the significant poll forward in demand that that occurred in the prior few years.
The categories that we're seeing slightly better performance in, our small appliances and other household goods, seeing what we believe, obviously lower ticket products, some improvement in trend. The team has done a great job to continue to expand out that assortment and ensure we have.
the right prices and the right inventory levels.
Thank you so much, and best of luck in the dot-calf of the year. Thank you.
Thank you. Before our next question comes from Anthony Chopcumba from Loop Capital Markets. Anthony, you're nice, that open.
I guess my first question was on the weekly payment option. You mentioned that you would roll that out to aarons.com. I know you've had it in your stores for quite some time. I guess two questions related. First one, what have you seen in terms of uptake on that weekly?Crystal calling 1a Lu triangles
pricing option or weekly payment option. And then as far as you can tell, how much of that is incremental customers as opposed to someone who would have paid monthly is instead taking advantage of a weekly payment option. Thank you.
Sure Anthony, hi, this is Steve Olson. Be glad to answer that. First, I just want to say we're really excited about offering this weekly payment option across our channels, both in-store and online. We think it really gives the customer flexibility, and we know from research that flexibility is an important decision driver.
as they decide what categories and products to lease. From a performance standpoint, really hard to break down, you know, what's truly incremental and what we really look at this leasing business is, you know, what are the benefits of it? What do we call success?
It's really allowing us to land and deliver our strong value message with very competitive lease rates across the business that we're using, both on our e-commerce channel as well as all of our traditional marketing. So weekly, it's still a small piece of our overall business, less than 10%.
But we think it's a key driver in landing our value proposition in our low price message. Yeah, and Anthony, this is Doug. We're not going to disclose our penetration online or in stores, but it has been growing.
And we do think that these weekly price points we put out are very competitive, particularly in our key core assortment. And we're excited about that. I mean, as you know, this isn't about us trying to become a weekly shop. It's about us trying to put together, put forward the best price point we can in the market.
So we believe over time we'll take share by doing that. God, and then just one quick clarification. Is the weekly payment option available for leases that are originated in Brands Mart stores? Yeah.
Not at this time. So focused more on the 18 month and 24 month lease options. Sorry, sorry, the 12 and 18 month iPoders around. Yeah, that's term, but the pay frequency, there is flexibility and pay frequency within the, within the branch harvest.
oh
Thank you.
We have our last question, it comes from Jason Haas from Bank of America. Jason, your line is now open.
It comes from Jason Haas from Bank of America. Jason, your line is now open.
Hey, good morning and thanks for taking my questions.
We're curious to know how you're thinking about the least portfolio size in their remainder of the year. What are you expecting there from like a, you know, where it should end the year at or, you know, what the growth looks like in our sphere? Hey, Jason Staggles. I'll just give it to you at high level. As you know, we started the year down, we'll level 7%.
middle of the year as we had more.
churn in the first part of the year and because of the demand environment we were in in the first part of the year and then would improve throughout the rest of the year, but still to a negative number. We're still seeing that curve of sort of dropping in the middle of the year and improving the back part of the year, but it's not as much as before.
We are not giving a number for the end of the year, but we still expect the lease portfolio to be down at the back part of the year, but more influenced by incrementally softer demand in the second half of the year. That is helpful. Thank you. That is a follow-up.
for what happened with Brandsmart through the quarter because you had guided at the end of April for the prior Brandsmart revenue guidance. And then if I call the commentary right, it sounded like Brandsmart got better through the year, but now you're lowering the revenue guidance.
had you always been anticipating an acceleration through the quarter? It just wasn't as much as you hoped for, which I guess, yeah, what was the, like, why did you expect an acceleration through the quarter? Or if it's not that, you know, what's changing in how you're thinking about the back half of the year there? Yeah, I'd be glad to answer that. This is Steve.
So, you know, as we said in Q1, we were experiencing pressure and demand. As we got into Q2, deep into Q2, you know, obviously that demand pressure continued. We did see a slight improvement in demand as Q2 progressed, especially during our key promotional periods around the holidays.
And with our original guidance, we were expecting improvement in demand throughout the back half of the year, really tied to replacement cycle of products. And as we've stated previously, using just consumer electronics as a base, that replacement cycle is typically in that.
And when you look back on that, obviously, at the pandemic years, you'd expect some of those purchases now that occurred a few years ago with customers will be coming in for replacement. So we're just trying to be a little cautious. With the brand smart demand, we do believe the back half of the year will improve from the first half.
as we lap some easier comps in the business going forward. But one is we just wanna see some consistent improved trends in demand.
Got it. That's helpful. Thank you.
Thank you.
We have no further questions for the line. I will now pass back to Dr. Minsi for closing remarks.
Thank you, operator. We appreciate everyone who's joined us today. As we wrap up, I want to thank our team members, Aarons and BrandSmart and Woodhaven.
and our franchisees for their relentless focus on delivering exceptional value and service to our customers while continuing to innovate our business and control costs.
As a company, we remain focused on executing our multi-year strategic plan and by investing in our growth strategies before us.
Thanks again for joining us today and we'll talk to you soon. Thank you. Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.