Q3 2023 The Aaron's Company Inc Earnings Call

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Speaker 1: Good morning, everyone, and thank you for joining today's The Arran Company third quarter 2023 earnings conference call will be getting underway in a moment or two, whilst we allow a few more participants to connect. If you'd like to ask a question, please press star followed by one on your telephone keypad. That's star followed by one on your telephone keypad. If you'd like to ask a question, thank you for your patience. We'll get underway shortly.

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Speaker 1: Welcome to the Aaron's company shared call to 2023 results call. Thank you for your patience while you're underway. My name is Ellen and I'll be your moderator today's call. All lines we needed during the presentation for sure for call with an opportunity for questions and answers at the end. If you'd like to ask a question at this time, please press the follow by one on your telephone keypad. I'd now like to cross the conference over to our host, Mark Levy, Vice President of Finance and Investor Relations to begin. Mark, please go ahead whenever you're ready.

Welcome to the Aaron's company short courses.

Forget about cool thank.

Thank you for your patience I'll get underway my name is Ellen and I'll be moderating today's call all lines, we need to during the presentation booklet coal with an opportunity for questions and answers at the end if you'd like to ask a question at this time. Please press star followed by one on your kind of thing he pad.

Now I'd like to close the conference I have small hey, Mark Murphy, Vice President of Finance and Investor Relations to begin Marc. Please go ahead whenever you're ready.

Thank you and good morning, everyone welcome to our third quarter 2023 earnings conference call joining.

Speaker 2: Thank you and good morning everyone. Welcome to our third quarter 2023 earnings conference call.

Speaker 2: Joining me today are Aaron's Chief Executive Officer Douglas Lindsay, President Steve Olson, and Chief Financial Officer Kelly Wall. After our prepared remarks, we will open to questions.

Joining me today are Aaron's Chief Executive Officer, Douglas Lindsay President, Steve Olsen, and Chief Financial Officer, Kelly Wall.

Unknown Executive: We'll be getting underway in a moment and see what we allow a few more participants to connect. Very cool, if you'd like to ask a question, please press star, follow by one on your telephone keypad. That's star, follow by one on your telephone keypad if you'd like to ask a question.

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 Dot Aaron's Dotcom. We also posted a slide presentation that provides additional information about our third quarter results and full year 2023 outlook.

Speaker 2: Yesterday, after the market closed, we posted our earnings release on the investor relations section of our website at investor.arrens.com.

Unknown Executive: Thank you for your patience, we'll be getting under a few minutes.

Speaker 2: We also posted a slide presentation that provides additional information about our third quarter results and full year 2023 outlook.

Speaker 2: 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 forward looking statements, please refer to the safe harbor provision that can be found at the end of the earnings.

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 forward looking statements. Please refer to the safe Harbor provision that can be found at the end of the earnings release.

Speaker 2: The safe harbor provision identifies risks that may cause actual results to differ materially from the content of our forward-looking...

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 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.

Speaker 2: Also, please see our form 10K for the year ended 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.

Our forward looking statements.

On today's call and the earnings release and in the supplemental Investor presentation, we will 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 has been adjusted for certain items, which may affect the comparability of.

Speaker 2: On today's call in the earnings 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.

Of our performance with other companies.

Speaker 2: 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...

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 Douglas Lindsay.

Thanks, Mark and good morning, everyone. Thank you for joining us today and for your interest in the Aaron's company.

Speaker 3: Thanks Mark and good morning everyone. Thank you for joining us today and for your interest in the Aarons company.

Unknown Executive: Welcome to the Aaron'Company third-core dispensatory learning conference call. Thank you for your patience while you're underway.

Before we discuss the results of the third quarter I would like to mention some exciting leadership announcements.

Speaker 3: Before we discuss the results of the third quarter, I would like to mention some exciting leadership announcements.

Ellen: My name is Ellen and I'll be your moderator today's call. All lines we needed during the presentation will be called with an opportunity for questions and answers at the end. If you'd like to ask a question at this time, please press star, follow by one on your telephone keypad.

Speaker 3: On September 13th, we announced the appointment of Wally Magdian and Chris Malkowski to our board of directors, effective October 1st.

On September 13th we announced the appointment of Huawei back Diane and Chris Mel Koski to our board of directors effective October one.

Speaker 3: Wally and Chris have a wealth of knowledge and experience, and I know they will be great additions to our board.

Huawei and Chris have a wealth of knowledge and experience and I know there will be great additions to our board.

Mark Levy: I'd now like to cross the conference over to our host, Mark Levy, Vice President of Finance and Investor Relations to begin. Mark, please go ahead whenever you're ready. Thank you and good morning everyone. Welcome to our third quarter, 2023 earnings conference call. Joining me today are Aaron's Chief Executive Officer Douglas Lindsay, President Steve Olson and Chief Financial Officer Kelly Wall. After our prepared remarks, we'll 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.

Also on September 13th we announced the appointment of Russ Falcon <unk> to Chief operating officer of lease to own.

Speaker 3: Also on September 13th, we announced the appointment of Russ Falkenstein to Chief Operating Officer of Least to Own.

Russ joined the company in 2016 and has served in a number of senior leadership roles.

Speaker 3: Russ joined the company in 2016 and has served in a number of senior leadership roles.

Speaker 3: In his new role, he will oversee all lease-to-own operations at Aarons and Brandsmart Lease.

In his new role he will oversee all lease to own operations at Aaron's and brand smart leasing.

I'm also very excited to announce that we held a grand opening celebration for our new brands for our store in Augusta, Georgia on October 21.

Speaker 3: I'm also very excited to announce that we held a grand opening celebration for our new BrandSmart store in Augusta, Georgia on October 21st.

Mark Levy: We also posted a slide presentation that provides additional information about our third 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 forward-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.

Speaker 3: This is the first new store we've opened since we acquired the company in April of last year. We are delighted to bring the BrandSmart experience to the Augusta community, and we look forward to delivering exceptional value and service to our customers in this new market.

This is the first new store we've opened since we acquired the company in April of last year we.

We are delighted to bring the <unk> experience to the Augusta community and we look forward to delivering exceptional value and service to our customers in this new market.

Now turning to the results of the third quarter.

Speaker 3: I'm pleased to report that we delivered consolidated earnings that exceeded our internal expectations.

I'm pleased to report that we delivered consolidated earnings that exceeded our internal expectations.

Speaker 3: We benefited from the least decisioning enhancements in the errands business.

We benefited from a lease decisioning enhancements in the Aaron's business.

Mark Levy: Also, please see our form 10K for the year ended 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, on today's call in the earnings release and in the supplemental investor presentation we refer to certain non-gap financial measures including EBITDA and adjusted EBITDA, non-gap net earnings, non-gap 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-gap measures are detailed in the reconciliation tables included in our earnings release, and the supplemental investor presentation posted on our website.

Speaker 3: continued progress in our cost optimization initiatives at both Aarons and Brandsmart.

And continued progress on our cost optimization initiatives at both Aaron's and brand smart.

We achieved these results despite ongoing challenges in customer demand for the big ticket and discretionary products we carry.

Speaker 3: We achieve these results despite ongoing challenges in customer demand for the big ticket and discretionary products we carry.

Speaker 3: In the Aaron's business, we ended the quarter with revenues and earnings above internal expectations.

In the Aaron's business, we ended the quarter with revenues and earnings above internal expectations Pri.

Speaker 3: primarily due to a larger than expected lease portfolio size combined with lower write-offs.

Primarily due to a larger than expected lease portfolio size combined with lower write offs.

We also made great progress in our market optimization initiatives, including adding more gen next doors and expanding our hub and showroom program.

Speaker 3: We also made great progress in our market optimization initiative.

Speaker 3: including adding more GenNext stores and expanding our hub and showroom program, while continuing

While continuing to grow our E Commerce channel.

As we look to the fourth quarter of this year and into 2024, we expect the challenging demand trends to persist.

Speaker 3: As we look to the fourth quarter of this year and into 2024, we expect the challenging demand trends to persist.

Douglas Lindsay: With that, I will now turn the call over to our CEO, Douglas Lindsay. Thanks, Marc, and good morning, everyone. Thank you for joining us today and for your interest in the Aaron's company.

In this environment, we remain focused on growing our market share through delivering a best in class customer experience.

Speaker 3: In this environment, we remain focused on growing our market share through delivering a best in class customer experience.

Douglas Lindsay: Before we discuss the results of the third quarter, I would like to mention some exciting leadership announcements. On September 13th, we announced the appointment of Wally Bagdion and Chris Malkowski to our Board of Directors, effective October 1st. Wally and Chris have a wealth of knowledge and experience, and I know they will be great additions to our Board. Also on September 13th, we announced the appointment of Russ Falkin's team to Chief Operating Officer of Least To Own. Russ joined the company in 2016 and has served in a number of senior leadership roles. In his new role, he will oversee all Least To Own operations at Aaron's and Brandsmart Leasing.

Including flexible payment options low prices and a broad product selection.

Speaker 3: including flexible payment options, low prices, and a broad product slag.

Speaker 3: We are also excited about the next evolution of our least decisioning.

We are also excited about the next evolution of our lease Decisioning model, which we believe will enhance the customer experience and lead to higher approval rates stable.

Speaker 3: which we believe will enhance the customer experience and lead to higher approval rates. Steve will share more details about this.

Steve will share more details about this initiative in a minute.

I'm pleased with the progress, we're making on our Aaron's multiyear strategic plan and I remain encouraged about our ongoing transformation and the investments, we're making to drive future growth.

Speaker 3: I'm pleased with the progress we're making on our ARIN's multi-year strategic plan, and I remain encouraged about our ongoing transformation and the investments we're making to drive future growth.

Now turning to brand smart.

Speaker 3: We remain confident in BrandsMart's compelling value proposition and our long-term strategic

We remain confident in brands <unk> compelling value proposition and our long term strategic growth opportunities, including.

Douglas Lindsay: I'm also very excited to announce that we held a grand opening celebration for our new Brandsmart store in Augusta, Georgia on October 21st. This is the first new store we've opened since we acquired the company in April of last year. We are delighted to bring the Brandsmart experience to the Augusta community, and we look forward to delivering exceptional value and service to our customers in this new market.

Speaker 3: including expanding into new markets and growing our e-commerce chain.

Including expanding into new markets and growing our E Commerce channel.

Although demand is challenging we remain focused on optimizing profitability through enhanced cost controls and strategic procurement and pricing actions.

Speaker 3: Although demand is challenging, we remain focused on optimizing profitability through enhanced cost controls and strategic procurement and pricing actions.

Speaker 3: While doing this, we are also continuing to enhance our capabilities in merchandising, marketing, and technology to position the business for-

While doing this we are also continuing to enhance our capabilities in merchandising marketing and technology to position the business for long term growth.

Douglas Lindsay: Now turning to the results of the third quarter. A pleased report that we delivered consolidated earnings that exceeded our internal expectations. We benefited from the Least Decisioning Enhancements in the Aaron's Business and continued progress on our cost optimization initiatives at both Aaron's and Brandsmart. We achieved these results despite ongoing challenges in customer demand for the big ticket and discretionary products we carry. In the Aaron's Business, we ended the quarter with revenues and earnings above internal expectations, primarily due to a larger than expected Least Portfolio size, combined with lower write offs. We also made great progress on our market optimization initiatives, including adding more gin next stores and expanding our hub and showroom program, while continuing to grow our e-commerce channel.

Now I'll turn the call over to Steve to provide more details about both Aaron's and brands for us.

Speaker 3: Now I'll turn the call over to Steve to provide more details about both errands and brands for us. Thanks Doug.

Thanks, Douglas and good morning, everyone.

Speaker 4: The Aarons business delivered revenues for the third quarter that exceeded our internal expectations. Despite the ongoing...

The Aaron's business delivered revenues for the third quarter that exceeded our internal expectations. Despite the ongoing challenges in customer demand.

Lease merchandise deliveries were down four 5% year over year.

Speaker 4: These merchandise deliveries were down 4.5% Europe .

Speaker 4: This is an improvement over last quarter of approximately 580 base.

This is an improvement over last quarter of approximately 580 basis points.

Year over year change was largely due to fewer leased applications in the quarter.

Speaker 4: The year-over-year change was largely due to fewer leased applications in the quarter.

Speaker 4: Actions we took the Titan least decisioning in prior quarters and approximately 3% fewer company operated stores as compared to the beginning of the prior year course.

Actions, we took the tightened lease decisioning in prior quarters, and approximately 3% fewer company operated stores as compared to the beginning of the prior year quarter.

Speaker 4: In addition, we continue to see pressure on our average ticket as customers trade down to lower price items across all major categories.

In addition, we continue to see pressure on our average ticket as customers trade down to lower price items across all major categories.

Douglas Lindsay: As we look to the fourth quarter of this year and into 2024, we expect the challenging demand trends to persist. In this environment, we remain focused on growing our market share through delivering a best-in-class customer experience, including flexible payment options, low prices, and a broad product selection. We are also excited about the next evolution of our Least Decisioning model, which we believe will enhance the customer experience and lead to higher approval rates. Steve will share more details about this initiative in a minute.

Our lease portfolio ended the quarter with a value of $116 $4 million.

Speaker 4: Our least portfolio ended the quarter with a value of $116.4 million.

Speaker 4: This was 7.5% lower than the prior year quarter, but larger than we expected, due to fewer lease agreements turning out of the portfolio.

This was seven 5% lower than the prior year quarter, but larger than we expected due to fewer lease agreements churning out of the portfolio.

Now moving to our key lease renewal metrics.

The lease renewal rate for the quarter was 86, 2% for all company operated Aaron's stores.

Speaker 4: The lease renewal rate for the quarter was 86.2% for all company operated errand stores. This rate was down approximately...

This rate was down approximately 10 basis points year over year.

Our 32, plus a non renewal rate was two 6% at the end of the third quarter.

Speaker 4: Our 32-plus day non-renewal rate was 2.6% at the end of the third quarter. This was an improvement of 30 basis points.

This was an improvement of 30 basis points year over year.

Douglas Lindsay: I'm pleased with the progress we're making on our Aaron's multi-year strategic plan, and I remain encouraged about our ongoing transformation and the investments we're making to drive future growth. Now turning to Bransmart, we remain confident in Bransmart's compelling value proposition and our long-term strategic growth opportunities, including expanding into new markets and growing our e-commerce channel. Although demand is challenging, we remain focused on optimizing profitability through enhanced cost controls and strategic procurement and pricing actions. While doing this, we are also continuing to enhance our capabilities in merchandising, marketing, and technology to position the business for long-term growth.

Speaker 4: This also reflects a sequential increase of 10 basis points from the prior quarter, primarily due to normal season.

This also reflects a sequential increase of 10 basis points from the prior quarter, primarily due to normal seasonal trends.

We are pleased with enhancements to our lease decision model, which we believe continue to contribute to improvements in our write offs.

Speaker 4: We are pleased with enhancements to our least decision model, which we believe continue to contribute to improvements in our write-off.

Speaker 4: Right off to the percentage of lease revenues with 6.1%, which is the improvement of 140 basis points for a prior year quarter. Now turning to our important street.

Write offs as a percentage of lease revenues was six 1%, which is an improvement of 140 basis points versus the prior year quarter.

Now turning to our important strategic growth initiatives for the Aaron's business.

Speaker 4: Our GenNext Source strategy continues to deliver meaningful financial performance through the transformation of in-store customer experience and operating model.

Our <unk> strategy continues to deliver meaningful financial performance through the transformation of our in store customer experience and operating model.

Speaker 4: In the quarter, we open 15 Gen Next Stores, bringing the year-to-date total to 34 stores, and 245 company-operated Gen Next Stores since launching the Pro.

In the quarter, we opened 15 genex stores, bringing the year to date total to 34 stores and 245 company operated jet next stores since launching the program.

At the end of the quarter. These stores accounted for over 30% of our lease revenues in retail sales.

Speaker 4: At the end of the quarter, these stores accounted for over 30% of our least revenues in retail.

Steve Olson: Now I'll turn the call over to Steve to provide more details about both Aaron's and Bransmart. Thanks Douglas and good morning everyone. The Aaron's business delivered revenues to the third quarter that exceeded our internal expectations despite the ongoing challenges of customer demand. These merchandise deliveries were down 4.5% year-of-year. This is an improvement over the last quarter of approximately 580 basis points. The year-of-year change was largely due to fewer lease applications in the quarter.

Speaker 4: That compares to just over 22% in the prior year quarter.

That compares to just over 22% in the prior year quarter.

In addition, we are pleased with our progress in executing the new hub in showroom program.

Speaker 4: In addition, we are pleased with our progress in executing the new hub and showroom program.

Speaker 4: We now have 111 children in the chain and are achieving the expected cost.

Now have 111 showrooms in the chain and are achieving the expected cost savings.

As we continue to evolve our <unk> strategy I am excited to report that we are now opening aaron's stores in new markets.

Speaker 4: As we continue to evolve our Gen-Next strategy, I am excited to report through our now opening Aaron Soars in New Mark.

Speaker 4: This includes three GenX stores and one showroom open in new markets so far this year.

This includes three <unk> stores and one showroom opened in new markets. So far this year.

Now turning to the <unk> E Commerce channel.

Steve Olson: Actions we took to tighten lease decisioning in prior quarters and approximately 3% fewer company operated stores as compared to the beginning of the prior year quarter. In addition, we continue to see pressure on our average ticket as customers trade down to lower price items across all major categories. Our lease portfolio ended the quarter with a value of $116.4 million. This was 7.5% lower than the prior year quarter, but larger than we expected, due to fewer lease agreements turning out of the portfolio.

Speaker 4: We continue to focus on improving our digital marketing strategies, enhancing the online shopping experience, and expanding the assortment with over 10,400 products on Air and Stocks.

We continue to focus on improving our digital marketing strategies enhancing the online shopping experience and expanding the assortment with over 10400 products on Aaron's dotcom.

Speaker 4: In the third quarter, revenues generated from leases initiated on Airens.com increased 1.3% year-over-year and now represent 18.5% of total lease revenues as compared to 16.2% in the prior year quarter.

In the third quarter revenues generated from leases initiatives on <unk> Dot com increased one 3% year over year and now represents 18, 5% of total lease revenues as compared to 16, 2% in the prior year quarter.

Recurring revenue written into the portfolio from E Commerce decreased six 8% compared to the prior year quarter. We believe the decrease resulted from tighter lease decisioning in prior quarters and lower average ticket.

Speaker 4: Recurring revenue written into the portfolio from e-commerce, decreased 6.8% compared to the prior year quarter. We believe the decrease resulted from tidally decisioning in prior quarters and lower average.

Steve Olson: Now moving to our key lease renewal metrics. The lease renewal rate for the quarter was 86.2% for all company operated Aaron's stores. This rate was down approximately 10 basis points year-of-year. Our 32-plus-day non-renewal rate was 2.6% at the end of the third quarter. This was an improvement of 30 basis points year-of-year. This also reflects a sequential increase of 10 basis points from the prior quarter, primarily due to normal seasonal trends. We are pleased with enhancements to our lease decision model, which we believe continue to contribute to improvements in our write-offs. Write-offs as a percentage of lease revenues was 6.1%, which is an improvement of 140 basis points for a prior year quarter.

We continue to see growth in our new weekly payment option, both in stores and on air is dot com.

Speaker 4: You can continue to see growth in our new weekly payment option, both in-sores and on errands.com.

Speaker 4: As a reminder, we rolled out this option in stores in Q3 of last year and on errands.com last quarter.

As a reminder, we rolled out this option in stores in Q3 of last year on Aaron's Dotcom last quarter.

We are excited to provide enhanced flexibility to our customers through our new weekly payments options and we believe our compelling lease rates will help us gain market share over time.

Speaker 4: We are excited to provide enhanced flexibility to our customers through our new weekly payments options and we believe our compelling lease rates will help us gain market share over time.

In addition, we are excited about enhancements to our leased Decisioning model rolled out earlier this month.

Speaker 4: In addition, we are excited about enhancements to our lease decision model rolled out earlier this month.

Speaker 4: Customers are now able to shop across all of our channels by submitting just one lease application.

Customers are now able to shop across all of our channels by submitting just one lease application.

We now approve all customers through consistently Decisioning model.

Speaker 4: And we now approve all customers through a consistent lease decisioning model.

Steve Olson: Now turning to our important strategic growth initiatives for the Aaron's business. Our GenNext store strategy continues to deliver meaningful financial performance through the transformation of our in-store customer experience and operating model. In the quarter, we open 15 GenNext stores, bringing the year-to-date total to 34 stores and 245 company operated GenNext stores since launching the program. At the end of the quarter, these stores accounted for over 30% of our lease revenues in retail.

We believe these enhancements will streamline the customer experience.

Speaker 4: We believe these enhancements will streamline the customer experience, lead to higher approval rates and improve conversion of lease applications.

The higher approval rates and improved conversion of lease applications.

Now turning to <unk>, we are very excited about the recent opening of our first new store in Augusta, Georgia.

Speaker 4: Now turning to Brant Smart. We are very excited about the recent opening of our first new store in Augusta George.

Speaker 4: This store showcases our new brand image in a more modern store layout.

This store showcases our new brand image and a more modern store layout.

Speaker 4: I want to extend my thanks to all of our team members who worked tirelessly to launch this.

I want to extend my thanks to all of our team members, who work tirelessly to launch this new store.

Speaker 4: I am proud of what we achieved, and I look forward to serving customers in this new market.

I am proud of what we achieved and I look forward to serving customers in this new market.

Steve Olson: Sales. That compares to just over 22% in the prior year quarter. In addition, we are pleased with our progress in executing the new hub and showroom program. We now have 111 showrooms in the chain and are achieving the expected cost savings. As we continue to evolve our gen-next strategy, I am excited to report through our now opening Aaron's stores in new markets. This includes three gen-next stores in one showroom open in new markets so far this year.

Turning to our third quarter performance.

Speaker 4: As Douglas mentioned, we continue to operate in a challenging customer demand environment.

As Douglas mentioned, we continue to operate in a challenging customer demand environment.

Speaker 4: As a result, BrandSmart's comparable sales were down 17% year-over-year.

As a result, <unk> comparable sales were down 17% year over year.

This was a result of ongoing weaker customer traffic and customer trade down to lower priced products, primarily in major appliances Tvs and computers.

Speaker 4: This was a result of ongoing weaker customer traffic and customer trade down to lower price products primarily in major appliances, TVs and computers.

As we work to attract new brands smart customers, we continue to invest in our E Commerce channel and digital marketing strategies.

Speaker 4: As we work to attract new brand smart customers, we continue to invest in our e-commerce channel in digital marketing strategy.

Steve Olson: Now turning to the Aaron's e-commerce channel. We continue to focus on improving our digital marketing strategies, enhancing the online shopping experience, and expanding the assorbent with over 10,400 products on Aaron's.com. In the third quarter, revenues generated from leases initiative on Aaron's.com increase 1.3% year-over-year and now represent 18.5% of total lease revenues as compared to 16.2% in the prior year quarter. Recurring revenue written into the portfolio from e-commerce decreased 6.8% compared to the prior year quarter.

Speaker 4: Consistent with overall sales performance, we experienced pressure in our ecommerce channel.

Consistent with overall sales performance, we experienced pressure in our E Commerce channel.

E Commerce product sales represented eight 9% of total product sales down from nine 3% in the prior year quarter.

Speaker 4: Ecommerce product sales represented 8.9% of total product sales, down from 9.3% in the prior year quarter.

We continue to focus on optimizing profitability of the business.

Speaker 4: Further third quarter, a product gross margin improved by approximately 80 basis points compared to the prior year quarter.

For the third quarter, our product gross margin improved by approximately 80 basis points as compared to the prior year quarter.

This was the result of direct procurement savings and strategic pricing actions as we move into the holiday season, and look ahead into 2024, we remain focused on achieving transaction synergies and positioning the business for future growth.

Steve Olson: We believe the decrease resulted from tidally decisioning in prior quarters and lower average tickets. We continue to see growth in our new weekly payment option, both in stores and on Aaron's.com. As a reminder, we rolled out this option in stores in Q3 of last year and on Aaron's.com last quarter. We are excited to provide enhanced flexibility to our customers through our new weekly payments options and we believe our compelling lease rates will help us gain market share over time.

Speaker 4: Now I'll turn the call over to Kelly to provide further details on our financial performance.

Now I will 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.

Speaker 2: Thanks, Steve. We filed our Form 10Q 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 and the two business segments.

Steve Olson: In addition, we are excited about enhancements to our lease decisioning model rolled out earlier this month. Customers now able to shop across all of our channels by submitting just one lease application and we now approve all customers through a consistently decisioning model. We believe these enhancements will streamline the customer experience, lead to higher approval rates, and improve conversion of lease applications.

Also unless stated otherwise any comparisons I make to prior periods will be on a year over year basis.

Speaker 5: Also, unless stated otherwise, any comparisons I make to prior periods will be on a year-over-year basis.

Consolidated revenues for the third quarter of 2023 were $525 7 million compared.

Compared with $593 4 million.

Speaker 5: This year over year decrease is primarily due to the expected lower lease revenue and fees and retail sales at the Aaron's business and lower retail sales.

This year over year decrease is primarily due to the expected lower lease revenue and fees and retail sales at the Aaron's business and lower retail sales at branch Martin.

Steve Olson: Now turning to Bransmark.

Steve Olson: We are very excited about the recent opening of our first new store in Augusta, Georgia. This store showcases our new brand image in a more excellent way. I want to extend my thanks to all of our key members who worked tirelessly to launch this new store. I am proud of what we achieved and I look forward to serving customers in this new market.

Speaker 5: Consolidated adjusted EBITDA was $25.3 million compared with $38.2 million.

Consolidated adjusted EBITDA was $25 $3 million.

Compared with $38 2 million.

Speaker 5: This year over year decrease is primarily due to the lower revenues at both businesses.

This year over year decrease is primarily due to the lower revenues at both business segments.

Steve Olson: Turning to our third quarter performance. As Douglas mentioned, we continued to operate in a challenging customer demand environment. As a result, Bransmark's comparable sales were down 17% year over year. This was a result of ongoing weaker customer traffic and customer trade down to lower price products, primarily in major appliances, TVs, and computers. As we worked to attract new Bransmark customers, we continued to invest in our e-commerce channel in digital marketing strategies.

Partially offset by lower personnel costs at both business segments and lower write offs at the Arris business.

Speaker 5: partially offset by lower personnel cost at both business segments and lower write-offs at the errands business.

As a percentage of total revenues.

Adjusted EBITDA was four 8% compared to $6 four per se.

On a non-GAAP basis earnings per share or <unk> compared to earnings of <unk> 31.

Adjusted free cash flow was $7 8 million a decrease of $42 3 million.

Steve Olson: Consistent with overall sales performance, we experienced pressure in our e-commerce channel, e-commerce product sales represented 8.9% of total product sales down from 9.3% in the prior year quarter. We continued to focus on optimizing profitability of the business. Further third quarter, a product gross margin improved by approximately 80 basis points as compared to the prior year quarter. This was a result of direct procurement savings and strategic pricing actions.

This decrease was driven by lower cash provided by operations and having generated $7 $5 million of proceeds from real estate transactions in the prior year quarter.

On a year to date basis, adjusted free cash flow was $86 4 million, an increase of $18 5 million.

This increase is largely driven by higher cash provided by operations as we have executed on our cost optimization initiatives and managed merchandise inventory levels at both businesses to reflect the soft demand environment.

Steve Olson: As we move into the holiday season and look ahead to 2024, we remain focused on achieving transaction synergies and positioning the business of future growth.

Kelly Wall: Now, I'll turn the call over to Kelly to avoid further details on our financial performance. Thanks, Steve. We filed our Form 10Q 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 and the two business segments. Also, unless stated otherwise, any comparisons I make the prior periods will be on a year-over-year basis.

During the quarter, we continued to return capital to shareholders paying $3 $9 million in dividends and repurchasing about $5 $7 million of the company's common stock.

In addition, we ended the third quarter with $39 $3 million of cash and $187 $5 million of debt.

Our net debt balance at the end of the quarter was $148 1 million and our net debt to adjusted EBITDA leverage ratio ended the quarter at one times.

Turning to our updated outlook.

Kelly Wall: Consolidated revenues for the third quarter of 2023 were $525.7 million, compared with $593.4 million. This year-over-year decrease is primarily due to the expected lower lease revenue and fees and retail sales at the Aaron's business. Consolidated adjusted EBITDAV was $25.3 million, compared with $38.2 million. This year-over-year decrease is primarily due to the lower revenues at both business segments, partially offset by lower personnel costs at both business segments and lower write-offs at the Aaron's business.

In the third quarter earnings release, we provided an update to our full year 2023 outlook.

This updated outlook reflects our expectation that total revenues for the consolidated company will be between $2, one 2 billion and $2 $1 7 billion.

We have updated revenues to incorporate our consolidated results in the first three quarters of 2023.

To also reflect expected lower product sales at brands Mark for the year as compared to our prior outlook.

We have narrowed the range of our outlook for adjusted EBITDA and non-GAAP EPS for the consolidated company.

We expect adjusted EBITDA to be between 140 and $150 million.

Kelly Wall: As a percentage of total revenues, adjusted EBITDAV was $25.3 million, compared with $38.2 million. On a non-gap basis, earnings per share were 1 cent, compared to earnings of 31 cents. Adjusted free cash flow was $7.8 million, a decrease of $42.3 million. This decrease was driven by lower cash provided by operations and having generated $7.5 million of proceeds from real estate transactions in the prior year quarter. On a year-to-date basis, adjusted free cash flow was $86.4 million, an increase of $18.5 million.

We expect non-GAAP EPS to be between $1 and $1 20.

The lower to mid point for both reflects that we no longer expect to close our planned sale leaseback transaction for a group of Aaron's stores by the end of the year.

The revised outlook also includes the continued lower demand we are experiencing that brand smart.

And finally, we have lowered our adjusted free cash flow outlook, which is also impacted by the timing of the sale leaseback.

And with that I will now turn the call over to the operator for Q&A.

Kelly Wall: This increase is largely driven by higher cash provided by operations as we have executed our cost optimization initiatives and managed merchandise inventory levels at both businesses to reflect the soft demand environment. During the quarter, we continued to return capital to shareholders paying $3.9 million in dividends and repurchasing about $5.7 million of the company's common stock. In addition, we ended the third quarter with $39.3 million of cash and $187.5 million of debt. Our net debt balance at the end of the quarter was $148.1 million and our net debt to adjusted EBITDAV leverage ratio ended the quarter at one time.

Thank you we will now enter all Q&A session, if you'd like to welcome question. Please press star followed by one on your telephone keypad.

Any reason you'd like to repeat that question. Please press star followed by Qi, just as a reminder, that I wonder if I want to thank you Pat to answer question. One point I'll ask a question on the speaker phone. Please remember to take up Johan <unk> No question and ensure that you are on mute.

We'll pause briefly.

Ask the question is if I just did.

Our first question today comes from Joseph from Jefferies. Your.

Your line is now open. Please go ahead.

Hey, good morning, guys. Thanks for taking my questions.

Just to start out on the on the Rev headwinds at call it either business.

Just wanted to see if youre seeing any any sort of strength in certain vertical as ongoing weakness in others trying to get a sense. If consumer electronics are showing any signs of life given that they probably have the shortest product cycle.

Kelly Wall: Turning to our updated outlook, in the third quarter orange release, we provided an update to our full year of 2023 outlook. This updated outlook reflects our expectation that total revenues for the consolidated company will be between $2.12 billion and $2.17 billion. We have updated revenues to incorporate our consolidated results in the first three quarters of 2023 and to also reflect expected lower product sales at Brandsmark for the year as compared to our prior outlook.

Hey, Carlos Douglas How're you doing.

I think we said at the Aaron's business or deliveries were down about four 5% of that four 5% about half was really decisioning related and lower store count and the other half was demand so in the Aaron's business.

Kelly Wall: We have narrowed the range of our outlook for adjusted EBITDA and non-GAP EPS for the Consolidated Company. We expect adjusted EBITDA to be between 140 and 150 million dollars. We expect non-GAP EPS to be between $1 and $1.20. The lower midpoint for both reflects that we no longer expect to close a planned cell leaseback transaction for a group of Aaron' stores by the end of the year. The revised outlook also includes the continued lower demand we are experiencing at BrandsMart. And finally, we have lowered our adjusted free cash flow outlook, which is also impacted by the timing of the cell leaseback.

While we're seeing fewer applicants were also seeing a higher conversion rate and I'm really proud of what the team has done there to convert customers and we're seeing a bit more strength.

And the customer there, albeit a down cycle, we're also seeing customers choosing lower price points across most major categories, especially.

In TV and that's consistent with brands for it as well.

We're really seeing customers generally looking for deals in both businesses.

And you'll see us be promotional during the holiday periods, which we have been but we're seeing that driving.

More of our demand and this demand cycle.

I'll, let Steve talk specifically about categories to your second part of your question, Yes. Good morning.

Unknown Executive: And with that, I will now turn the call over to the operator for Q&A. Thank you. We will now enter our Q&A session. If you would like to ask a question, please press star followed by one on your telephone keypad. If any reason you'd like to remove that question, please press star followed by two. Just as a reminder that it's star followed by one on your telephone keypad to also question. When preparing to ask a question, if you are on a speaker phone, please remember to pick up your handsets for asking your question and ensure that you are unmuted locally. We'll pause briefly just as the questions are registered.

I'll talk first about the Aaron's business. So they're definitely saw some growth in some categories. So on the appliance side growth in laundry and ranges on the furniture side upholstery.

And have a flat business in mattresses, so definitely some growth areas on the on the declining side.

Up against some pretty surging demand last year in gaming.

And then continued pressure in television computers and bedroom so.

On the <unk> side.

The the best performing category, which is still a slight negative small appliances and home goods.

Followed by audio and video and security and in the categories that are most under pressure being appliances Tvs and computers. So to answer your question on consumer electronics.

Carl Joseph: Our first question today comes from Carl Joseph and Jeffries. Carl, your line is now open. Please go ahead when you're ready. Hey, good morning guys. Thanks for taking my questions. Just starting out on the rev headwinds that call it either business.

In some.

Improvement that being that being slight.

Mid single digit negatives in audio and video security, but Tv's continued to be under pressure and the only really grow theory was seen in Tvs is Douglas referenced is really in that opening price point, so seeing some improvement in the opening price points in CE, but just not enough to offset the overall demand.

Douglas Lindsay: I just want to see if you're seeing any sort of strength in certain verticals, ongoing weakness in others, trying to get a sense that consumer electronics are showing any signs of life given that they probably have the shortest product cycle. Yeah, he calls Douglas. How you doing? You know, I think we said that the errands business or deliveries were down about four and a half percent of that four and a half percent about half was really decision related and a lower store count and the other half was demand.

And then tied to that shifting over to credit. Obviously, you said a good decline year over year in write offs, but just give us an update on that kind of the health of the underlying consumer I mean, obviously like demand and Theres a number of factors driving that but in terms of credit it seems like they would do that relatively sound but.

Douglas Lindsay: So in the errands business, you know, while we're seeing fewer applicants, we're also seeing higher conversion rate and I'm really proud of what the team's done there to convert customers and we're seeing a bit more strength in the customer. They're all be at a down cycle. We're also seeing customers choosing lower price points across most major categories, especially in television and that that's consistent with brands for as well. You know, we're really seeing customers generally looking for deals in both businesses and you'll see us be promotional during the holiday periods, which we have been, but we're seeing that driving more of our demand in this demand cycle.

Just kind of an update on the health of your underlying consumer.

Yes.

I think the consumer has been pretty resilient and we noted.

Despite having.

Fewer applicants and the fact that we're approving less by several hundred basis points year over year, we're really controlling our.

Our renewals process, a 30 day Nonrenewed was down 30 basis points year over year write offs were down 140 basis points.

And so we're really encouraged by that in terms of what we're seeing with the actual consumer.

While we are seeing fewer lease applications, we're starting to see signs of a slightly higher income and better credit quality customer coming into both Aaron's and brands smart leasing and so that's encouraging.

Steve Olson: I'll let Steve talk specifically about categories to your second part of your question. Yeah, good morning. I'll talk first about the errands business. So they're definitely saw some growth in some categories. So on the appliance side growth in laundry and ranges and on the furniture side of poultry and have a flat business in mattresses. So definitely some growth areas on the declining side up against some pretty surging demand last year and gaming and then continued pressure in TV computers in bedroom.

As we've said before we have the benefit of owning brands smart and seeing what is coming in through the full credit waterfall.

As I think we've mentioned, 30% of our brands smart sales or finance through our private label credit card and this quarter. We are beginning to see lower approval rates from the higher tier lenders above us, which should benefit brand support leasing over time now on the Aaron's business, we're not necessarily seeing a P.

Steve Olson: So on the brand smart side, the best performing category which is still slight negative, small appliances and home goods, followed by audio and video insecurity, and the category is that a most under pressure being appliances, TVs, and computers. So to answer your question on consumer electronics, seeing some improvement, that being slight mid-single digit negatives and audio and video security, but TVs continue to be under pressure. And the only really growth area we've seen in TVs as Douglas referenced is really in that opening price point. So seeing some improvement in the opening price point and CE, but just not enough to offset the overall demand.

Pick up in application volume, but we are seeing a slight mix shift to higher income higher credit consumers.

And again got it.

I believe we continue to believe if there is a trade down that's coupled with.

An increase in general demand, whether that'd be through a replacement cycle or otherwise that that'll be a tailwind for the business and the cost transformation initiatives and the modernization of our.

Of our competitive positioning and will benefit us.

Great. That's it for me thanks for taking my questions.

Douglas Lindsay: Yes, and tied to that shifting over to credit, obviously you saw a good decline year over year in write-offs, but just give us an update on the kind of the health of the underlying consumer. Obviously light demand, and there's a number of factors driving that, but in terms of credit, it seems like there's a relatively sound, but just kind of an update on the health of your underlying consumer. I think the consumer has been pretty resilient.

Thank you. Our next question comes from Bobby Griffin from Raymond James will be your line is now open. Please go ahead.

Hey, good morning, Marty Thanks for taking the questions.

I guess first for me I.

I guess on the Aaron's side of the business just curious kind of what you kind of think for <unk> and what's implied in the lease portfolio. It looks like we are making progress on it you know, it's declining but declining a little bit less do you think we've kind of hit the bottom now in the lease portfolio size, where <unk> were used to kind of think in <unk> holiday easily see sequential expansion here in the <unk>.

Douglas Lindsay: I mean, we noted that despite having fewer applicants, and the fact that we're approving less by several hundred basis points of year over year, we're really controlling our renewals process. So 30-day non-renewed was down 30 basis points year over year, write-offs were down 140 basis points. And so we're really encouraged by that. In terms of what we're seeing with the actual consumer, while we are seeing fewer lease applications, we're starting to see signs of a slightly higher income and better credit quality customer coming into both errands and brand smart leasing.

Portfolio do you think that's still a possibility this.

This year, given some of the demand pressures.

Yes, Bobby it's Kelly Thanks for the question. So I think what we've said on prior calls is that.

The kind of continued pressure on demand and the corresponding revenue written into the portfolio through the course of this year.

We are expecting that year over year, where in 2023 with a lower lease portfolio size as.

As we think about Q4, specifically, which you asked about you're right normally we would see an increase going from Q3 to Q4.

Douglas Lindsay: And so that's encouraging. As we said before, we have the benefit of owning brand smart and seeing what is coming in through the full credit waterfall. As I think we've mentioned, 30 percent of our brand smart sales are financed through our private label credit card. And this quarter, we're beginning to see lower approval rates from the higher tier lenders above us, which should benefit brand smart leasing over time. Now, on the errands business, we're seeing a pickup and application volume, but we are seeing a slight mix to higher income higher credit consumers. And again, we continue to believe if there is a trade down that's coupled with an increase in general demand, whether that be through replacement cycle or otherwise, that'll be a tailwind for the business.

And we do expect that again this year.

It's to be seen as we go through November and December just how much of a bounce back we get but based upon the comps that we saw last year and what we're seeing year to date, we would expect an increase sequentially. One thing I do want to remind you, though as we go into 2024.

And Stephen Douglas both talked about this and we've talked about this last few quarters is that kind of the overall and the lease portfolio, what we've seen quarter to quarter.

As lower demand than what we had been anticipating and that trend has continued.

And we've been able to offset that though with less churn out of the portfolio. So again, we've talked about improvement in write offs. That's helped with the portfolio we have.

Also seen customers pain out.

Douglas Lindsay: And the cost transformation initiatives and the modernization of our competitive positioning will benefit us.

Their leases earlier are less often right.

Early payouts or less frequent than what they've been in the past.

And so as a result, again churns lower wild.

Unknown Executive: Great. That's it from me. Thanks for taking my questions. Thank you.

While demand written and is also lower than the net benefit has been slightly better performance in lease portfolio size of what it was as expected quarter to quarter.

Kelly Wall: Our next question comes from Bobby Griffin from Raymond James. Bobby, your line is my way. Please go ahead. Hey, good morning, buddy. Thanks for taking the questions. I guess first for me, I guess from the errands side of the business, this curious kind of what you kind of think for 4Q and what's implied in the lease portfolio. It looks like we are making progress on it, you know, it's declining, but declining a little bit less.

As we move into next year right the impact that that has us as we do start to see demand normalize with which we would expect at some point, where we start to see the benefit of the trade down at Douglas talked about.

The benefiting revenue and earnings from that will lag. So as demand has continued to be soft just pushing out kind of that growth in the topline and bottom line that we would have been expecting earlier in the year as we go into next year. So hopefully that gives you some color on that.

Kelly Wall: Do you think we've kind of hit the bottom now in the lease portfolio size where 4Q, you know, we're used to kind of thinking 4Q, how they use the sequential expansion here in the portfolio. Do you think that's still a possibility this year give us some of the demand pressures? Yeah, Bobbi is Kelly. Thanks for the question. So I think what we said on prior calls is that, you know, with the kind of continued pressure on on demand and the corresponding revenue written into the portfolio to the course of this year, you know, we are expecting that year over year we're going to end 2023 with a lower lease portfolio size.

Q4, and some inside as to how we're starting to think about next year, which again will provide you a lot more detail on 2024 on our next earnings call.

Okay. That's helpful and just to take that maybe one step further to make sure I'm, capturing probably sets up for the first half of next year from an EBITDA perspective see some type of year over year pressure is that the correct read through from your comments.

That's correct.

Okay. Yeah. That's helpful. Because I don't think I don't know if the street models necessarily have that captured I guess are captured correctly I.

Kelly Wall: As we think about Q4 specifically, what you asked about, you're right. Normally, we would see an increase going from Q3 to Q4. And we do expect that again this year. You know, again, it's to be seen as we go through November and December just how much of a bounce back we get. But based upon, you know, the comps that we saw last year, and then what we're seeing here today, we would expect an increase sequentially.

I guess the next question I had is just on brands Mark and it is more on the implied <unk> revenue performance versus the year to date trends. It does imply from a year over year decline.

The decline lessons a lot I know, we've got one new store. So is that just the difference or is there. Some view on the promotional side of things or just maybe walk me through kind of the assumptions in the <unk> implied revenue guidance for <unk>.

Kelly Wall: One thing I do want to remind you, though, of as we go into 2024. And Steve and Douglas both talked about this. We've talked about this the last few quarters is that kind of the overall and the least portfolio, what we've seen quarter to quarter is lower demand than what we had been anticipating. And that trend has continued. And we've been able to offset that though with less turn out of the portfolio.

So Bob you're right we did open.

The Augusta store the Grand opening was this past weekend and so there will be contribution in Q4 relative to last year.

Also we are.

We're kind of comping over.

A weak Q4 last year as well and so our view on the quarter does incorporate kind of the demand trends we've seen year to date I think the two positives are comping over a weaker comp and then the addition of Augusta.

Kelly Wall: So again, we've talked about improving and write offs. That's helped with the portfolio. We've also seen customers paying out of their leases earlier. Our less often, right, than they would their early payouts are less frequent than what they've been in the past. And so as a result, again, turns lower while demand written in is also lower. And that benefit has been slightly better performance in least portfolio size and what we expected quarter to quarter.

Hey, Bob This is Steve in addition.

We've.

Invested more in the holiday season from a marketing perspective, both on the direct response side and digital marketing side.

With a real focus of really driving of that value proposition that low low price.

Kelly Wall: As we move into next year, right, the impact that that has is as we do start to see demand normalize with which we'd expect at some point, where we start to see the benefit of the trade down that Douglas talked about, you know, the benefiting revenue and earnings from that will lag. So as demand has continued to be soft, it's pushing out how that growth in the top line and bottom line that we would have been expecting earlier in the year as we go into next year.

Positioned down a brand smart.

We're excited about our promotional offers that we have coming into the holiday season, and as Kelly mentioned.

I think we have the right plans to move this business forward.

Okay I appreciate that and I guess lastly from me you guys now I think have owned the business for six full quarters or at least reported six full quarters.

Just any new learnings on how you think about the long term margin potential I think the last time, we talked a little bit about it was on the <unk> call. We're just now.

Douglas Lindsay: So hopefully that gives us some color on both Q4 and some inside as the power starting to think about next year, which again will provide you a lot more detail on 2024 on our next earnings call. Okay, yeah, and so that's helpful and just to take that maybe one step further since I'm capturing it, it probably sets up for the first half of next year from evil perspective, see some type of year over year pressure, is that the correct read through from your comments.

Going through the cycle, what do you think about the long term margin potential of the brand smart business.

Douglas Lindsay: That's that's correct. Okay, yeah, that's helpful. Yeah, because I don't think I don't know if the street models necessarily have that capture, I guess, or capture correctly. I guess the next question I had is just on Brandsmark and it's just more on the implied for Q revenue performance versus the year-to-date trend. It does imply from a year-to-year decline, the decline lessens a lot. I know we got one new store, so is that just the difference or is there, you know, some view on, you know, the promotional side of things or just maybe walk me through kind of the assumptions and the 4Q implied revenue guidance for Brandsmark.

Yes, Bobby first I'd say, the macroeconomic environments really challenging right now for retailers, who sell appliances furniture and electronics I'm really proud of.

Steven team's performance.

We strongly believe in the brand as far as compelling value proposition and a right to win over the long term.

Feel like the synergies are compelling.

We've got a great customer base with great core markets and significant growth potential in terms of units. Our four wall economics are very compelling over our fixed cost structure.

And so that's really exciting for us as you know.

A grand opening at Augusta, and while we're going through.

A downturn right now we believe over long term and the brand smarts.

Profitability, we are not putting out any kind of revised EBITDA or profitability forecast, we should do that as we give outlook for 2024 and beyond.

Douglas Lindsay: So Bobby, you're right. We did open the, you know, August the store, the grand opening was this past weekend and so there will be contribution in Q4 relative to last year. Also, you know, we are, it's kind of copying over a week Q4 last year as well. And so while our view on the quarter does incorporate kind of the demand trends we've seen here today. I think the two positives are copying over a week or a cup.

Okay I appreciate the details best of luck here in the holiday quarter.

Thanks, Bobby.

Yeah.

Thanks, Bobby.

Question comes from Scot Ciccarelli.

Curious securities. Your line is now open. Please go ahead.

Hey, Good morning, guys. This is Joe on for Scott I, just had a quick question on the sale leaseback timing you mentioned.

Douglas Lindsay: And then the addition of LaGosta. Yeah. Hey, Bob, it's Steve. In addition, you know, we're, we've invested more in the holiday season from a marketing perspective, both on the direct response side and digital marketing side with a real focus of really driving of that value proposition, that low price position down a brand smart. We're excited about our promotional offers that we have coming into the holiday season. And as Kelly mentioned, you know, look, think we have the right plans to move this business forward.

Is that due to any changes in the interest or cap rate environment or is that something youre pushing off longer term for strategic reasons.

Okay.

Yes, Joe it's Kelly.

As I think you're probably aware right we've over the last several years completed sell lease.

Sale leaseback transactions as well as the sale of real estate with stores, we have closed.

We think that is.

As we think about our overall capital allocation strategy. Our view is that we're not in the business don't real estate.

And.

Not going to monetize those assets and then put that capital to work within the business or returned to shareholders.

Douglas Lindsay: Okay, I appreciate that. And I guess last thing for me, you guys now I think of on the business for six full quarters or at least four to six full quarters. Just any new learnings on how you think about the long-term margin potential is that I think the last time we talked a little bit about it was on the four Q call, which is now, you know, going through this cycle. What do you think about the long-term margin potential of the brand smart business?

As we are ending this year you are correct I think the environment is not as.

Positive right as we end the year as it has been in prior quarters, where we've completed the transactions. So.

We think about.

Ending the year the thought was to just be more prudent in terms of our expectations on timing as it relates to completing that transaction and thought it best not to include it in this year's earnings.

Douglas Lindsay: Yeah, Bobby, first I'd say the macro economic environment's really challenging right now for retailers who sell appliances furniture and electronics. I'm really proud of. Steve and teams performance. We strongly believe in the brand smart compelling value proposition and our right to win over the long term. You know, we feel like the synergies are compelling. We got a great customer base with great core markets and significant growth potential in terms of units are four wall economics are very compelling over our fixed cost structure.

Got it that makes sense and then just shifting gears a little bit just wanted to ask about the seasonal dynamics at play as we think about the write offs from <unk>. If you could just give any color on those.

Okay.

Yeah, absolutely. So typically write what you'd see is Q3 would be the kind of our weakest quarter from a write off perspective.

Douglas Lindsay: And so that's really exciting for us. As you know, we. We grand opening Augusta and while we're going through a downturn right now, we believe over long term in the brand smarts, you know, profitability. We are not putting out any kind of revised even or profitability forecast. We should do that as we give out low for 2024 and beyond.

We did and <unk>.

Q3 of this year at six 1%, we've mentioned, it's pretty pretty nice improvement from the same quarter over last year.

As we move into the fourth quarter of this year.

We might not see the same.

Seasonal improvement that we have in prior periods.

We might but it'll be kind of a close whether it's kind of just above or just below.

Bobby Griffin: Okay, I appreciate details best of luck here in the holiday quarter. Thank you, Bobby.

But one of the dynamics, that's impacting that as we've.

Talked Douglas talked and Steve talked about enhancements that we're making to our lease decisioning and with that we are expecting an increase in applications through our E Com channel and so with the growth in E com as a percentage of the total portfolio.

Joe: Our next question comes from Scott. Take a rally from true security. Scott, your line is now away from please go ahead. Thank you. Good morning, guys. This is Joe on for Scott. I said a quick question on the sale least back time you mentioned.

Kelly Wall: Is that due to any changes in interest or cap rate environment or is that something you're pushing off longer term for strategic reasons? Yeah, Joe, it's Kelly. I mean, as I think you're probably aware, right? We've over the last several years completed. Selling spend or sell these back transactions as well as the cell of real estate with stores we have closed. We think that as we think about our overall kind of capital allocation strategy, our view is that we're not in the business phone.

We've talked in the past about how those customers that come through that channel tend to have a higher kind of write off profile and so we would we would expect to see that.

Kind of materialize right as we move through the quarter and into the first quarter of next year.

Yeah.

Got it and then just one last question just talking about the trade down sort of trade in dynamics can you guys talk about the.

The higher higher credit quality customers coming in where you think they are coming from it.

Kelly Wall: Bill of State and that we want to monetize those assets and then put that capital work within the business or return it to shareholders. As we are ending this year, year correct, I think quite the environment is not as positive right as we end the year as it has been in prior quarters where we've completed the transactions.

If it's from above your funnel or.

Customers coming in from other appear L. P o's. Thanks.

Okay.

Yes.

I think we've said before we sort of have expected with credit tightening that there has been this trade across going on from peers.

As everybody in this space has been tightening we are seeing as I said slightly ahead at higher incomes and a slightly higher.

Kelly Wall: So as we think about ending the year, the thought was just be more prudent in terms of our expectations on timing as it relates to completing that transaction and thought it best not to include it in this year's earnings. Got it, that makes sense.

Credit scores are the only data we have on that we don't know where they were before us, but we do have data brand smart and we are seeing tightening within the waterfall of transport. So that would indicate to me at <unk> as a proxy for other retail tightening that that may be occurring.

Kelly Wall: And then just shifting gears a little bit, just wanted to ask about the seasonal dynamics that play as we think about the write offs from 3Q to 4Q, so you could just give any color on those. Yeah, absolutely. So typically, what you'd see is Q, 3 would be the kind of our weakest quarter from from a write-off perspective. You know, we did end Q3 of this year at 6.1%. We've mentioned pretty nice improvements in the same quarter of our last year.

Okay.

Got it thanks.

Yeah.

As a reminder, if you'd like to ask a question. Please press star followed by one thank you Pat.

Thank.

Thank you Pat John question on.

Our next question comes from Jason Haas from Bank of America, Jason Your line is now less than people think.

Kelly Wall: I think as we move into the fourth quarter of this year, we might not see the same seasonal improvement that we have in prior periods. We might, it will be kind of close whether it's kind of just above or just below, but one of the dynamics that's impacting that is we've talked, Douglas talked and Steve talked about enhancements that we're making to our least decisioning. And with that, we are expecting an increase in applications through our e-com channel.

Hey, good morning, and thanks for taking my question.

So you mentioned that you've seen.

Stronger demand for the weekly payment options is that a function of the macro environment does that signal that the consumers under pressure and theyre looking more for that weekly payment option.

If things were to improve and the macro environment do you think you would see that reverse and consumers go back to looking at that monthly payment.

Hey, Jason it's Steve.

Great question.

I'll start off by saying, we're definitely pleased with one the progress, we're making with it and how customers are responding to our new weekly payment options, which now give them weekly biweekly and monthly payment frequencies, depending on their needs.

Kelly Wall: And so with the growth in e-com as a percentage of the total portfolio, we've talked in the past about how those customers that come to that channel tend to have a higher write-off profile. And so we would expect to see that kind of materialized right as we move to the quarter and into kind of the first quarter of next year. Got it.

We're definitely seeing obviously more weekly.

Customers more customers, taking our weekly payment option, both in store and our E Commerce channel, but still it's a small portion of our overall mix of deliveries.

Douglas Lindsay: And then just one last question. Just talking about the trade downs or the trade in dynamics. Can you guys talk about the higher credit quality customers coming in, where you think they're coming from, and if it's from above your funnel or customers coming in from other peer LTOs, thanks. Yeah, I think we've said before we've sort of have expected with credit tightening that there's been this trade across going on from peers as everybody in the space has been tightening.

We think weekly really gives us the chance to demonstrate.

Our competitive lease rates on a weekly basis across all of our major categories.

So while we're pleased with it we're getting good feedback from our customers tough to really say what happens in the future. We just see it as another way to give our customers more flexibility to really set up a payment that meets their needs yes, Jason.

Joel has to offer.

Douglas Lindsay: We are seeing, as I said, slightly higher incomes and not slightly higher credit scores. The only data we have on that, we don't know where they were before us, but we do have data at Brandsmart. And we are seeing tightening within the waterfall at Brandsmart. So that would indicate to me that Brandsmart is a proxy for other retail tightening that that may be occurring. Got it. Thanks. Thank you. As a reminder, if you'd like to ask a question, please press star followed by one on your telephone keypad. That's star followed by one on the telephone keypad to ask a question.

<unk> payments and whatever frequency the customer wants to pay whether it be weekly by weekly monthly or monthly and we do believe that our.

Weekly price points are very compelling relative to.

What our consumer may get in other places and so we're leaning in on our opening price points. We think our weekly opening price points are super compelling. So we're excited about it and we're excited about growing that part of the business.

Great. Thank you and then switching over to branch Mark can you just talk about how youre thinking about store openings going forward is the plan about one store per year.

Can you just remind me what the expectations were when the next one will open.

Jason Hart: Our next question comes from Jason Hart from Bank of America. Jason, your line is now open. Please proceed.

Yeah, Hey, Jason It's Kelly So we've stated consistently over the last several quarters that we would expect to open at a one to two stores a year. Obviously, we opened the one in August of this year and.

Steve Olson: Very good morning and thanks for taking my question. So you mentioned that you've seen just stronger demand for the weekly payment option. Is that a function of the macro environment? Is that signal that the consumers under pressure and they're looking more for that weekly payment option? And if things were to improve in the macro environment, do you think you would see that reverse and consumers go back to looking for that monthly payment?

And we'd expect to open one to two next year we've not.

Provided an update on kind of the exact timing of that next store.

So I think it's safe to assume at this point that it's not going to be in Q1. So that first store. They will earlier for next year at the earliest it would come would be kind of Q2 late in Q2 potentially in Q3.

Douglas Lindsay: Hey Jason, it's Steve. Great question. You know, I'll start off by saying we're definitely pleased with one, the progress we're making with it and how customers are responding to our new weekly payment options which now give them weekly by weekly and monthly payment frequencies depending on their needs. We're seeing obviously more weekly customers taking our weekly payment option both in store and our e-commerce channel but still it's a small portion of our overall mix of deliveries.

Douglas Lindsay: We think weekly really gives us the chance to demonstrate our competitive lease rates on a weekly basis across all of our major categories. So while we're pleased with it, we're getting good feedback from our customers. Tough to really say what happens in the future. We just see it as another way to give our customers more flexibility to really set up a payment that meets their needs. Yeah Jason, our goal is to offer payments at whatever frequency the customer wants to pay, whether it be weekly, weekly, weekly, semi-monthly or monthly and we do believe that our weekly price points are very compelling, relative to what our consumer may get in other places and so we're leaning in on our opening price points. We think our weekly opening price points are super compelling. So we're excited about it and we're excited about growing that part of the business.

Okay got it thank you.

Thank you Jason we currently have no further questions now I'd like to hand back to Douglas Lindsay for any closing remarks.

Unknown Executive: Great. Thank you.

Thank you operator, we appreciate everyone who's joined US today I want to thank our team members and franchisees.

And their relentless focus on delivering exceptional value and service to our customers. Each day, we believe that our continued focus on innovation and our ongoing strategic investments will enhance our distinct competitive advantages and grow our market share both Aaron's and brand smart.

You again for joining us today, and we'll talk to you soon.

That concludes the Orange company.

Thank you very much for your participation you may now disconnect your lines.

That concludes.

Kelly Wall: And then switching over to Brandt Smart, can you just talk about how you're thinking about store openings going forward? Is the plan about one store per year or is it higher? Can you remind me what the expectations were and when the next one will open? Yeah.

Kelly Wall: Hey Jason, it's Kelly. So yeah, we've stated consistently over the last several quarters that we'd expect to open at a one to two stores a year. Obviously we opened the one in August of this year and we'd expect to open one to two next year. We've not provided an update on the exact timing of that next store. So I think it's safe to assume at this point that it's not going to be in Q1. So that first store, the earliest, for next year, the earliest it would come would be kind of Q2, latent Q2 potentially in Q3. Okay. Got it. Thank you. Thank you Jason.

Unknown Executive: We currently have no further questions registered.

Douglas Lindsay: So I'd like to hand back to Douglas Lindsay for any closing remarks. Thank you operator. We appreciate everyone who's joined us today. I want to thank our team members in franchisees for their relentless focus on delivering exceptional value and service to our customers each day. We believe that our continued focus on innovation and our ongoing strategic investments will enhance our distinct competitive advantages and grow our market share both errands and brands. Thank you again for joining us today and we'll talk to you soon.

Unknown Executive: That concludes the Aaron's Company conference call. Thank you very much for your participation. You may now disconnect your line.