Q1 2024 The Aaron's Co Inc Earnings Call
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Angela: Good morning, everyone and welcome to the Aaron's Company Q1, 'twenty 'twenty four earnings call. My name is Angela and I'll be coordinating your call today.
Angela: Good morning, everyone, and welcome to the Aaron'S Company Q1 2024 earnings call. My name is Angela, and I'll be coordinating your call today. During the presentation, you can register to ask a question by pressing star followed by 1 on your telephone keypad. If you change your mind, please press star followed by T. I will now hand you over to your host, Mark Levy, Vice President, Finance, and Investor Relations.
Angela: During the presentation you can richest set you asked a question by pressing star followed by one on your telephone keypad.
Angela: Have you changed your mind. Please press star followed by T. I will now hand, you over to your host Marc Levy, Vice President Finance and Investor Relations.
Mark Levy: Please go ahead.
Mark Levy: Thank you and good morning everyone. Welcome to our first quarter 2024 earnings conference call. Joining me today are Aaron'S Chief Executive Officer Douglas, President Steve Olsen, and Chief Financial Officer Kelly Walsh. 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.aaron.com.
Mark Levy: Thank you and good morning, everyone welcome to our first quarter 2024 earnings Conference call.
Mark Levy: Joining me today are <unk>, Chief Executive Officer, Douglas Lindsay, President, Steve Olsen, and Chief Financial Officer, Kelly Wall.
Mark Levy: After our prepared remarks, we will open the call for questions.
Mark Levy: Yesterday after the market closed we posted our earnings release on the Investor Relations section of our website at Investor Day Aaron's Dotcom.
Mark Levy: We also posted a slide presentation that provides additional information about our first quarter 2024 results.
Mark Levy: We also posted a slide presentation that provides additional information about our first quarter 2024 results. 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 certain risks and uncertainties that may cause actual results to differ materially from the content of our forward-looking statement.
Mark Levy: During today's call certain statements, we make may be forward looking including those related to our outlook for this year.
Mark Levy: 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.
Mark Levy: Safe Harbor provision identifies certain risks and uncertainties that may cause actual results to differ materially from the content of our forward looking statements.
Mark Levy: Also, please see our Form 10-K for the year ended December 31, 2023, and our 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 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. 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 said, I will now turn the call over to our CEO, Douglas Lindsay.
Mark Levy: Also please see our Form 10-K for the year ended December 31, 2023, and our other filings with the SEC for a description of the risks related to our business that may cause actual results to differ materially from <unk> looking statements.
Mark Levy: On today's call and the earnings release and in the supplemental investor presentation.
Mark Levy: We refer to certain non-GAAP financial measures, including EBITDA and adjusted EBITDA.
Mark Levy: non-GAAP net earnings non-GAAP EPS.
Mark Levy: Adjusted free cash flow and net debt, which had been adjusted for certain items, which may affect the comparability of our performance with other companies.
Mark Levy: These non-GAAP measures are detailed in the reconciliation tables included in our earnings release, and the supplemental investor presentation posted on our website.
Douglas A. Lindsay: Thanks, Mark. Good morning, everyone.
Mark Levy: With that I will now turn the call over to our CEO Douglas Lindsay.
Douglas A. Lindsay: Thank you for joining us and for your interest in Aaron's Company. Our performance in the first quarter was in line with our guidance. And I'm encouraged by the positive momentum that I'm seeing in the business so far this year. In the Aaron's business, we continue to significantly grow our e-commerce channel, driven by our new omnichannel lease decisioning and customer acquisition program that we launched in Q4 of last year. Due to seasonal trends in the lease-to-own business, it's common for our lease portfolio size to decrease in the first quarter. However, this year, we experienced the smallest decrease in a decade.
Douglas A. Lindsay: Thanks, Mark Good morning, everyone. Thank you for joining us and for your interest in Aaron's company.
Douglas A. Lindsay: Our performance in the first quarter was in line with our guidance and I'm encouraged by the positive momentum that I'm seeing in the business. So far this year.
Douglas A. Lindsay: In the Aaron's business, we continue to significantly grow our ecommerce channel driven by our new Omni channel lease Decisioning and customer acquisition program that we launched in Q4 of last year.
Douglas A. Lindsay: Due to the seasonal trends in the lease then business, it's common for our lease portfolio size the decrease in the first quarter.
Douglas A. Lindsay: This year, we experienced the smallest decrease in a decade.
Douglas A. Lindsay: This improvement was driven by the actions we've taken to generate year-over-year growth in leased merchandise deliveries across all major categories. At BrandsMart, we exceeded our top and bottom line expectations for the quarter, despite continued demand pressure. While comparable sales remain negative, we did experience sequential improvements in demand each month in the first quarter. Based on our first quarter performance and the trends across both businesses, we are reaffirming our full year 2024 outlook provided on February 26 for revenues and adjusted EBIT, and we are raising our outlook for non-GAAP diluted EPS due to a lower estimated tax. Kelly will speak to this in more detail in a few minutes. Now, I'm turning to the results of the first quarter.
Douglas A. Lindsay: This improvement was driven by the actions we've taken to generate year over year growth in lease merchandise deliveries across all major categories.
Douglas A. Lindsay: At brand Smart, we exceeded our top and bottom line expectations for the quarter. Despite continued demand pressure.
Douglas A. Lindsay: While comparable sales remain negative we did experienced sequential improvements in demand each month in the first quarter.
Douglas A. Lindsay: Based on our first quarter performance and the trends across both businesses. We are reaffirming our full year 2024 outlook provided on February 26th for revenues and adjusted EBITDA.
Douglas A. Lindsay: And we are raising our outlook for non-GAAP diluted EPS due to a lower estimated tax rate.
Douglas A. Lindsay: Kelly will speak to this in more detail in a few minutes.
Kelly Wall: Now turning to the results of the first quarter.
Douglas A. Lindsay: I'm pleased to report that we delivered consolidated revenues and adjusted earnings in line with expectations. At Aaron's, our leased merchandise deliveries increased 6.8% as compared to the prior year period. This led to year-over-year growth and recurring revenue written into the portfolio. We continue to close the gap from the beginning of the year, with our lease portfolio size ending the quarter down 4.8% after starting the year down seven.
Douglas A. Lindsay: I am pleased to report that we delivered consolidated revenues and adjusted earnings in line with expectations.
Douglas A. Lindsay: The Aaron's business, our lease merchandise deliveries increased six 8% as compared to the prior year period.
Douglas A. Lindsay: This led to year over year growth in recurring revenue written into the portfolio.
Douglas A. Lindsay: We continue to close the gap from the beginning of the year.
Douglas A. Lindsay: With our lease portfolio size, ending the quarter down four 8% after starting the year down 7%.
Douglas A. Lindsay: On a same store basis, our lease portfolio size ended the quarter down only 1.4%. This momentum has continued into April, with our leased merchandise deliveries up 18.6% year over year, driven by over 115% e-commerce. At the end of April, our same store lease portfolio size was down only 20 basis points, as compared to the prior year period.
Douglas A. Lindsay: On a same store basis, our lease portfolio size ended the quarter down only one 4%.
Douglas A. Lindsay: This momentum has continued into April.
Douglas A. Lindsay: With our lease merchandise deliveries up 18, 6% year over year, driven by over 115% E Commerce growth.
Douglas A. Lindsay: At the end of April our same store lease portfolio size was down only 20 basis points as compared to the prior year period.
Douglas A. Lindsay: I'm happy to report that we've seen further improvement in May, and we've reached an inflection point where our same store lease portfolio size is now larger than it was at the same time last year. We remain excited about our new Omnichannel Lease Decisioning and Customer Acquisition Program, which provides leasing power to all Aaron's customers. As highlighted last quarter, this program is driving significantly higher conversion rates for lease applications. And we continue to expect it to drive mid-single-digit growth in our total lease portfolio size by the end of the year.
Douglas A. Lindsay: I'm happy to report that we have seen further improvement in may.
Douglas A. Lindsay: And we've reached that inflection point, where our same store leased portfolio size is now larger than it was the same time last year.
Douglas A. Lindsay: We remain excited about our new omni channel lease Decisioning and customer acquisition program, which provides leasing power to all Aaron's customers.
Douglas A. Lindsay: As highlighted last quarter. This program is driving significantly higher conversion rates of lease applications and we continue to expect it to drive mid single digit growth in our total lease portfolio size by end of year.
Douglas A. Lindsay: Now turning to BrandSmart. While profitability remains challenging, BrandSmart ended the quarter with revenues and adjusted earnings slightly above our internal expectation, with a sequential quarterly improvement and comparable sales. We continue to expect improvements in customer demand in the second half of the year, primarily due to an anticipated rebound in our major product. We are also continuing to enhance our capabilities in merchandising, marketing, and technology, a better position in business for long-term growth.
Douglas A. Lindsay: Now turning to brand smart.
Douglas A. Lindsay: While profitability remains challenging brand smart ended the quarter with revenues and adjusted earnings slightly above our internal expectations with the sequential quarterly improvement in comparable sales.
Douglas A. Lindsay: We continue to expect improvements in customer demand in the second half of the year, primarily due to an anticipated rebound in our major product categories.
Douglas A. Lindsay: We are also continuing to enhance our capabilities in merchandising marketing and technology to better position the business for long term growth.
Douglas A. Lindsay: Although the broader demand environment is still challenging, we remain confident in BrandSmart's compelling value proposition and potential to expand to new markets. Before I turn the call over to Steve, I want to reiterate how encouraged I am by the customer demand trends we're seeing in the air. As I just mentioned, we have reached an inflection point where our same store lease portfolio size is now larger than it was the same time last year.
Douglas A. Lindsay: Although the broader demand environment is still challenging we remain confident in <unk> compelling value proposition and potential to expand to new markets.
Speaker Change: Before I turn the call over to Steve I want to reiterate how encouraged I am by the customer demand trends, we're seeing in the Aaron's business.
Speaker Change: As I just mentioned, we have reached an inflection point, where our same store lease portfolio size is now larger than it was the same time last year.
Douglas A. Lindsay: We expect this to lead to incremental flow through to profit development, benefiting earnings in the second half of this year and the end of 2025. I will now turn the call over to Steve to discuss the operational performance of each business segment. Thanks, Douglas. And good morning, everyone.
Stephen W. Olsen: We expect this to lead to incremental flow through to profitability benefiting earnings in the second half of the year and enter 2025.
Stephen W. Olsen: I will now turn the call over to Steve to discuss operational performance of each business segment.
Stephen W. Olsen: The portfolio declined only $1.7 million, as compared to a decline of $4.6 million in the first quarter of 2023 and a decline of $4.5 million in 2020. Now, moving to our key lease renewal metrics. The lease renewal rate for the quarter was 87.4% for all company-operated Aaron's stores. This rate was down approximately 110 basis points year over year due to the increasing mix of e-commerce agreements written into the portfolio. Our 32-plus day non-renewal rate was 2.2% at the end of the first quarter, which was up 60 basis points year-over-year but improved 50 basis points from the last quarter.
Stephen W. Olsen: in the first quarter at Aaron's, leased merchandise deliveries increased approximately 7% year-over-year and over 10% on a same-store basis. Our new Omnichannel Lease Decisioning and Customer Acquisition Program drove year-over-year growth in our major product categories of appliances, furniture, and consumer electronics. The success of this program gives us confidence that we are winning share in the market. Our lease portfolio size ended the quarter at $116.1 million. As Douglas mentioned, this is one of the best first quarters we've experienced in a decade.
Stephen W. Olsen: Thanks, Douglas and good morning, everyone.
Stephen W. Olsen: In the first quarter at the Aaron's business lease merchandise deliveries increased approximately 7% year over year and over 10% on a same store basis.
Stephen W. Olsen: Our new Omnichannel, Decisioning and customer acquisition program drove year over year growth in our major product categories of appliances furniture and consumer electronics.
Stephen W. Olsen: Success of this program gives us confidence that we are winning share in the market.
Stephen W. Olsen: Our lease portfolio size ended the quarter at $116 1 million.
Stephen W. Olsen: As Douglas mentioned this is one of the best first quarters, we've experienced in a decade.
Stephen W. Olsen: The portfolio declined only $1 7 billion.
Stephen W. Olsen: As compared to a decline of $4 6 million in the first quarter of 2023, and a decline of $4 5 million in 2022.
Stephen W. Olsen: Now moving to our key lease renewal metrics the lease renewal rate for the quarter was 87, 4% for all company operated Aaron's stores.
Stephen W. Olsen: Rate was down approximately 110 basis points year over year due to the increasing mix of e-commerce agreements written into the portfolio.
Stephen W. Olsen: Our 32, plus eight non renewal rate with two 2% at the end of the first quarter, which was up 60 basis points year over year, but improved 50 basis points from the last quarter.
Stephen W. Olsen: During the quarter, we also continued to improve our least decision technology to enhance controls to mitigate risk. We believe this will generate improvements in write-off over time. In the first quarter, write-offs of the percentage of lease revenues were 5.9%, which is up 50 basis points versus the prior year quarter but improved 60 basis points from last quarter.
Stephen W. Olsen: During the quarter. We also continued to improve our lease decisioning technology to enhanced controls to mitigate risk.
Stephen W. Olsen: We believe this will generate improvements in write off over time.
Stephen W. Olsen: In the first quarter write offs as a percentage of lease revenues were five 9%, which was up 50 basis points versus the prior year quarter, but improved 60 basis points from last quarter.
Stephen W. Olsen: As we mentioned last quarter, we do expect write-offs to be higher than our historical average due to ongoing strong demand. As a reminder, in periods of high growth in merchandise deliveries, we incur inventory purchases, marketing costs, Sales Based Incentive Compensation, and write-offs in advance of revenue recognition due to the portfolio nature of the business.
Stephen W. Olsen: As we mentioned last quarter, we do expect write offs to be higher than our historical average and we see ongoing strong demand trends.
Stephen W. Olsen: As a reminder, in periods of high growth in merchandise deliveries, we incur inventory purchases.
Stephen W. Olsen: Marketing costs.
Stephen W. Olsen: <unk> based incentive compensation and write offs in advance of revenue recognition due to the portfolio nature of the business.
Stephen W. Olsen: Now turning to our strategic growth initiatives for the Aaron's. Our market optimization strategy, which includes our GenNext stores and Hub and Children program, continues to improve our in-store customer experience and operating model. In the first quarter, we opened 11 GenX stores, including three in Newmarket, bringing the total to 265 company-operated Gennex stores since launching the program. At the end of the quarter, these stores accounted for more than 33% of our lease revenues from retail sales.
Stephen W. Olsen: Now turning to our strategic growth initiatives for the Aaron's business.
Stephen W. Olsen: Our market optimization strategy, which includes our Gen next doors and hub and showroom program continues to improve our in store customer experience and operating model.
Stephen W. Olsen: In the first quarter, we opened 11 <unk> stores, including three in new markets, bringing the total to 265 company operated <unk> stores since launching the program.
Stephen W. Olsen: At the end of the quarter these stores accounted for more than 33% of our lease revenues in retail sales that.
Stephen W. Olsen: That compares to over 26% in the prior year quarter. Now returning to Aaron's e-commerce, as Douglas mentioned, we continue to experience significant growth in this channel. In the first quarter, revenues generated from leases initiated on Aaron's.com increased 20.8% year-over-year and now represent 24% of total lease revenues as compared to approximately 18% in the prior-year quarter. Recurring revenue written into the portfolio from e-commerce increased over 94% year over year and represented approximately 34% of total recurring revenue written in the quarter.
Stephen W. Olsen: That compares to over 26% in the prior year quarter.
Stephen W. Olsen: Now turning to the <unk> E Commerce channel.
Stephen W. Olsen: As Douglas mentioned, we continue to experience significant growth in this channel.
Stephen W. Olsen: In the first quarter revenues generated from leases initiated on Aaron's dotcom increased 28% year over year and now represent 24% of total lease revenues as compared to approximately 18% in the prior year quarter.
Stephen W. Olsen: Recurring revenue written into the portfolio from e-commerce increased over 94% year over year and represented approximately 34% of total recurring revenue written in the quarter.
Stephen W. Olsen: As Douglas mentioned earlier, we are excited about the momentum and positive trends that we are seeing in the Aaron'S business, which have continued into the second quarter. With the ongoing enhancements we are making to the business, combined with our compelling lease rate and flexible payment options, we are confident that we are attracting new customers and gaining market share. Now turning to BrandSmart. Despite the challenging customer demand environment for our product categories, BrandSmart experienced sequential improvements and comparable sales during the quarter, which we believe will continue to improve through the rest of the year.
Stephen W. Olsen: As Douglas mentioned earlier, we are excited about the momentum and positive trends that we're seeing in the Aaron's business, which have continued into the second quarter.
Stephen W. Olsen: With the ongoing enhancements, we are making to the business combined with our compelling lease rate and flexible payment options. We are confident that we are attracting new customers and gaining market share.
Stephen W. Olsen: Now turning to brand smart.
Stephen W. Olsen: Despite the challenging customer demand environment for our product categories.
Stephen W. Olsen: <unk> experienced sequential improvement in comparable sales during the quarter, which we believe will continue to improve through the rest of the year.
Stephen W. Olsen: BrandSmart continues to experience weaker customer traffic and trade down to lower priced products in our key product categories of major appliances and Consumer Electronics. We also experience credit tightening with our private label credit card provider. As a result of these trends, comparable sales for the quarter were down 9.4% year over year.
Stephen W. Olsen: <unk> continued to experience weaker customer traffic and trade down to lower price products in our key product categories of major appliances and consumer electronics.
Stephen W. Olsen: We also experienced credit tightening with our private label credit card provider.
Stephen W. Olsen: As a result of these trends comparable sales for the quarter were down nine 4% year over year. However.
Stephen W. Olsen: However, this is a 460 basis point improvement from the last quarter. We continue to invest in our e-commerce shopping experience and digital marketing strategies to attract new customers. We are optimistic that our investments in e-commerce will lead to growth in this channel as customer demand rebounds later this year. I also want to mention that our business-to-business sales experienced significant growth in the first quarter, and we are focused on growing this channel. Now turning towards strategic initiatives in France.
Stephen W. Olsen: However, this is a 460 basis point improvement from the last quarter.
Stephen W. Olsen: We continue to invest in our e-commerce shopping experience and digital marketing strategies to attract new customers. We are optimistic that our investments in E. Commerce will lead to growth in this channel as customer demand rebound later this year.
Stephen W. Olsen: I also want to mention that our business to business sales experienced significant growth in the first quarter and we are focused on growing this channel.
Stephen W. Olsen: Now turning to our strategic initiatives that Brad smart.
Stephen W. Olsen: We are continuing to focus on improving our in-store shopping experience by rationalizing our product assortment and expanding our furniture product mix to attract new customers. In addition, we are excited about opening another new store later this quarter in Kennesaw, Georgia. This store will be similar in size and format to the new store that we opened in Augusta last year. We are looking forward to expanding BrandSmart's footprint and offering our compelling value proposition to more markets and customers. Now, I'll turn the call over to Kelly to provide further details on our financial performance for the quarter.
Stephen W. Olsen: We are continuing to focus on improving our in store shopping experience by rationalizing our product assortments and expanding our furniture product mix to attract new customers.
Stephen W. Olsen: In addition, we are excited about opening another new store later this quarter in Kennesaw, Georgia.
Stephen W. Olsen: The store will be similar in size and format to the new store that we opened in Augusta last year.
Stephen W. Olsen: We are looking forward to expanding brand sports footprint and offering a compelling value proposition to more markets and customers.
Stephen W. Olsen: Now I'll turn the call over to Kelly to provide further details on our financial performance for the quarter.
Kelly Walsh: Thanks Steve. We filed a Form 8k after the market closed yesterday, which included our earnings release, investor presentation, and additional information. We also filed our Form 10-Q for the quarter. These documents can be found on our investor relations website.
Kelly Wall: Thanks, Steve we filed a form 8-K after the market closed yesterday, which included our earnings release Investor presentation and additional information.
Kelly Wall: We also filed our Form 10-Q for the quarter.
Kelly Wall: These documents can be found on our Investor Relations website.
Kelly Walsh: Please refer to these documents for additional detail regarding our financial performance and outlook for the consolidated company and the two business sectors. Unless otherwise stated, any comparisons I make to prior periods will be on a year-over-year basis. Consolidated revenues for the first quarter of 2024 were $511.5 million, compared to $55.5 million. This year over year decrease is primarily due to lower lease revenues and fees at the Aaron's business and lower retail sales at BrandsMart.
Kelly Wall: Please refer to these documents for additional detail regarding our financial performance and outlook for the consolidated company and the two business segments.
Kelly Wall: Unless otherwise stated any comparisons I make the prior periods will be on a year over year basis.
Kelly Walsh: Consolidated Adjusted EBITDA was $22.7 million. Compared, 45.9 million, is primarily due to lower revenues at both businesses and higher other operating expenses and write-offs, partially offset by lower personnel costs, other operating expenses, which were hired primarily due to increased investments in advertising. As a percentage of total revenues, adjusted EBITDA was 4.4%, and on a non-gap basis, the loss per share was $0.15. Adjusted free cash flow, with a $33.2 million use of cash, lower than Q1 of the prior year, was favorable to our internal expectations.
Stephen W. Olsen: Consolidated revenues for the first quarter of 2024 were $511 $5 million.
Stephen W. Olsen: <unk> two $554 4 million.
Stephen W. Olsen: This year over year decrease is primarily due to lower lease revenues and fees at the Aaron's business and lower retail sales at brands Mark.
Stephen W. Olsen: Consolidated adjusted EBITDA was $22 7 million compared to $45 9 million.
Stephen W. Olsen: This year over year decrease is primarily due to lower revenues at both business segments and higher other operating expenses and write offs.
Stephen W. Olsen: Partially offset by lower personnel costs.
Stephen W. Olsen: Other operating expenses were higher primarily due to increased investments in advertising.
Stephen W. Olsen: As a percentage of total revenues adjusted EBITDA was four 4% and on a non-GAAP basis loss per share was <unk> 15.
Stephen W. Olsen: Adjusted free cash flow with a $33 $2 million use of cash.
Stephen W. Olsen: <unk> in Q1 of the prior year with.
Stephen W. Olsen: With favorable to our internal expectations.
Kelly Walsh: The year-over-year decrease was primarily driven by higher purchases of leased merchandise inventory to support the growth in new agreement deliveries at the Aaron'S business and lower consolidated earnings. This was partially offset by higher proceeds from real estate transactions.
Stephen W. Olsen: The year over year decrease was primarily driven by higher purchases of lease merchandise inventory to support the growth in new agreement deliveries at the Aaron's business and lower consolidated earnings.
Stephen W. Olsen: This was partially offset by higher proceeds from real estate transactions.
Kelly Walsh: During the first quarter, the company paid $3.8 million in dividends. At the end of the quarter, the company had a cash balance of $41 million and total debt of $212.9 million, which were both favorable to our expectations. Now, turning to our 2024 outlook.
Stephen W. Olsen: During the first quarter the company paid $3 8 million in dividends.
Stephen W. Olsen: At the end of the quarter the company had a cash balance of $41 million.
Stephen W. Olsen: And total debt of $212 9 million, which were both favorable to our expectations.
Stephen W. Olsen: Now turning to our 2020 for outlook.
Douglas A. Lindsay: As Douglas mentioned, based on our performance so far this year and the trends we're seeing in the business, we are reaffirming our full-year outlook for revenues and adjusted EBITDA. We are raising our outlook for non-GAP diluted EPS due to a lower estimated effective tax rate. The revised estimated effective tax rate is approximately 38%. 12 percentage points lower than the prior guidance we provided last quarter, the full year provision for lease merchandise write-offs is still expected to be between 6% and 7% of lease revenues.
Speaker Change: As Douglas mentioned based on our performance so far this year and the trends we're seeing in the business. We are reaffirming our full year outlook for revenues and adjusted EBITDA.
Speaker Change: We are raising outlook for non-GAAP diluted EPS due to a lower estimated effective tax rate.
Speaker Change: The revised estimated effective tax rate is approximately 38% 12.
Speaker Change: 12 percentage points lower than the prior guidance, we provided last quarter.
Speaker Change: Full year provision for lease merchandise write offs is still expected to be between 6% and 7% of lease revenues and fees.
Douglas A. Lindsay: Before I hand the call back to Douglas, I want to review our capital allocation priority. These priorities have not changed from our prior earnings call. We continue to focus on investing in the Aaron's business and BrandsMart to drive revenue and earnings growth while maintaining a conservative leverage profile of 1 to 1.5 times net debt to adjusted EBIT. After this, we look to return capital to shareholders through dividends and share repurchases and will continue to evaluate acquisitions on an opportunistic basis.
Speaker Change: Before I hand, the call back to Douglas I want to review our capital allocation priorities.
Speaker Change: These priorities have not changed from our prior earnings call.
Speaker Change: We continue to focus on investing in the Aaron's business and brands Mark to drive revenue and earnings growth, while maintaining a conservative leverage profile of one to one five times net debt to adjusted EBITDA.
Speaker Change: After this we look to return capital to shareholders through dividends and share repurchases and we will continue to evaluate acquisitions on an opportunistic basis.
Douglas A. Lindsay: As it relates to returning capital to shareholders, yesterday, we announced our quarterly dividend. We will pay 12.5 cents a share on July 3rd to shareholders of record as of the close of business on June 14. Now, I'll hand it back to Douglas to make a few remarks before we turn to Q&A.
Speaker Change: As it relates to returning capital to shareholders yesterday, we announced our quarterly dividend we.
Speaker Change: We will pay $12 <unk> per share on July three to shareholders of record as of close of business on June 2014.
Speaker Change: Now I'll hand, it back to Douglas to make a few remarks before we turn to Q&A.
Douglas A. Lindsay: Thanks, Kelly. As we look to the remainder of 2024 and beyond, I want to reiterate that our management team and board remain highly engaged and committed to taking all actions that will deliver additional value for our shareholders. We continue to execute our multi-year strategic plan, driving efficiencies and innovating our business to better serve our customers. I'm confident that the investments we are making will continue to enhance our distinct competitive advantage and allow us to increase market share at both Aaron's and Brands. And with that, I will now turn the call over to the operator for Q&A.
Douglas A. Lindsay: Thanks, Kelly as we look to the remainder of 2024 and beyond I want to reiterate that our management team and board remain highly engaged and committed to taking all actions that will deliver additional value for our shareholders.
Douglas A. Lindsay: We continue to execute our multi year strategic plan driving efficiencies and innovating our business to better serve our customers.
Douglas A. Lindsay: I am confident that the investments we are making will continue to enhance our distinct competitive advantages and allow us to increase market share, but at Aaron's brand smart.
Speaker Change: And with that I will now turn the call over to the operator for Q&A.
Operator: Thank you, Douglas. Everyone, 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.
Speaker Change: Thank you Douglas everyone. If you would like to ask a question. Please press star followed by one on your telephone keypad now.
Speaker Change: Thank you Mike Please press star followed by <unk>.
Speaker Change: Wanted to ask.
Speaker Change: Your question. Please ensure your devices in the mood to locally.
Operator: When preparing to ask your question, please ensure your device is unmuted locally. We'll pause here briefly as the questions are registered. We have the first question from Bobby Griffin with Raymond James. Your line is open.
Speaker Change: We'll pause briefly ask the question over to Scott.
Speaker Change: We have the first question from Bobby Griffin with Raymond James Your.
Robert Kenneth Griffin: Your line is open.
Alessandra Lynn Jimenez: Good morning. This is Alessandra Jimenez on behalf of Bobby.
Robert Kenneth Griffin: Good.
Robert Kenneth Griffin: Good morning. This is alejandro from minutes on for Bobby Thank you for taking our question.
Douglas A. Lindsay: Thank you for taking our questions. Maybe first on the store optimization efforts at Aaron. We saw an acceleration in store closures in one queue. Can you talk about how your store optimization efforts are progressing and then any updated thoughts on the right level of store count moving forward?
Robert Kenneth Griffin: On the <unk>.
Robert Kenneth Griffin: Optimization effort that Erin so we saw some acceleration in store closures can you talk about how your store optimization efforts are progressing and then any updated thoughts on the right level of store count moving forward.
Douglas A. Lindsay: Yeah, Alexander, thanks for the question. You know, as we stated previously, we continue to try to rationalize markets and lower our cost base in each market. And we're doing that, as you can see, by growing our econ portfolio, but also making sure that we're serving our customers in as strong a way as we can in each market. And so in doing that, we're constantly assessing, through our real estate committee, the right number of stores, and the right position of those stores.
Speaker Change: Yes, Alex.
Speaker Change: For the.
Speaker Change: As we stated previously.
Speaker Change: We continue to try to rationalize markets and lower our cost base in each market and we're doing that as you can see.
Speaker Change: Through growing our E comm portfolio, but also make sure that we're serving our customers in a strong way as we can in each market.
Speaker Change: So in doing that we're constantly assessing to a real estate committee the right number of stores the right position of those stores. So.
Douglas A. Lindsay: So we did open 11 Gen Next doors in the quarter, but we also closed you know, 30 to 40 stores within within the timeframe; we continue to do that over the course of the year. We're not going to state a number in terms of the number of stores that we will ultimately close. All I'll say is that we're continuing to optimize our markets to best serve our customers and to be as cost efficient in those markets as possible.
Speaker Change: We did open 11 Gen next stores in the quarter, we also closed.
Speaker Change: Yes.
Speaker Change: 30% to 40 stores within within the timeframe, we continue to do that over the course of the year, we're not going to state a number in terms of the number of stores that we will ultimately close all I'll say is that we're continuing to optimize our marches to best serve our customers and to be as cost efficient in those margins as possible one thing where soup.
Douglas A. Lindsay: One thing we're super excited about is that we're now opening incremental net and use stores, both in full stores and showrooms. And we think the showrooms, in particular, are a very efficient way to cover the markets we're in more thoroughly with lower working capital, smaller footprints and sort of a more efficient box in terms of profitability.
Steve Olsen: We're excited about is that we're now opening opening incremental net new stores, both in full stores and.
Douglas A. Lindsay: Showrooms and we think the showrooms in particular, a very efficient way to cover the markets. We're in more thoroughly with lower working capital smaller footprints and.
Douglas A. Lindsay: Sort of a more efficient box in terms of profitability.
Douglas A. Lindsay: Okay, that's helpful. Thank you. And then we were pleased to see a sequential improvement in the lease portfolio, you know, in April and May. Is there anything specific that you noticed to drive that improvement, like traffic trade down, anything like that?
Speaker Change: Okay. That's helpful. Thank you and then we are.
Douglas A. Lindsay: Sequential improvement in our lease portfolio in April and May is there anything specific that you notice to drive that improvement.
Douglas A. Lindsay: They trade down anything like that.
Douglas A. Lindsay: Yeah, well, we're super excited about what we're seeing in terms of our growth in the portfolio in Q1. As you heard, deliveries are up considerably, and they continue to be year to date.
Douglas A. Lindsay: Yeah, well listen we're Super excited about what we're seeing in terms of our growth in the portfolio in Q1 as you heard deliveries are up considerably and they continue to be.
Douglas A. Lindsay: Year to date in the year.
Douglas A. Lindsay: The way our business works is that because of our revenue recognition and cost of goods sold that we spread over the life of the agreement we don't see the ultimate impact of that until later on in the current period, we incurred things like marketing and it.
Douglas A. Lindsay: The way our business works is that, you know, because of revenue recognition and cost of goods sold that we spread over the life of the agreement, we don't see the ultimate impact of that until later on. And in the current period, we incur things like marketing and incentive-based compensation and near-term write-offs. But as we grow the portfolio, we see flow through to profitability, and we noted that there's an inflection point that we're expecting this year when our portfolio starts to turn positive. And with that, once we start to turn positive, which we have in our same store portfolio, little movements in growth there mean a lot to the bottom line. I'll just give you an example.
Douglas A. Lindsay: <unk> based compensation and near term write offs, but as we grow the portfolio we.
Douglas A. Lindsay: We see flow through.
Douglas A. Lindsay: To profitability, we noted that there is an inflection point that we're expecting this year.
Douglas A. Lindsay: Portfolio starts to turn positive in with that once we start to turn positive, which we have in our same store portfolio a little.
Douglas A. Lindsay: Movements in the growth there made a lot to the bottom line and I'll just give you. An example for every million dollars of portfolio size growth. We have we get about 600000 of gross margin a month and if you look at that on an annual basis that equates to about little over $7 million of gross margin edition.
Douglas A. Lindsay: For every million dollars of portfolio size growth we have, you know, we get about 600,000 in gross margin a month. And if you look at that on an annual basis, that equates to about a little over $7 million of gross margin addition. Because of the high operating leverage we have in the business, we see significant flow through to adjusted EBITDA after write-offs.
Douglas A. Lindsay: Because of the high operating leverage we have in the business, we see significant flow through to adjusted EBITDA after write offs.
Douglas A. Lindsay: So we're super excited about that. As we think about the rest of the year, our projections assume not only that we hit an inflection point for growth but that we grow our total monthly lease portfolio by the end of the year by mid-single digits. We believe that'll benefit not only the second half of 2024 but the full year of 2025. And as you think about 2025 being up mid-single digits over at the end of 2024.
Douglas A. Lindsay: So we're super excited about that as we think about the rest of the year.
Douglas A. Lindsay: Our projections assume no longer do we hit an inflection point to growth, whether we grow our total monthly lease portfolio up by the end of the year by mid single digits. We believe that will benefit not only the second half of 2024 for the full year of 2025, and as you think about 25%.
Douglas A. Lindsay: Being up mid single digits over at the end of 'twenty four.
Douglas A. Lindsay: We started 2024 with about $117 million in our portfolio, so being up mid-single digits by the end of the year equates to kind of a $4 to $8 million increase in portfolio value, and so that's very meaningful as we enter into – and that's $4 to $8 million a month, so that's very meaningful as we enter into 2025. So, I mean, really what we're seeing is just the great success of this program.
Douglas A. Lindsay: We started 2024 with about $117 million portfolio size of being up mid single digits by the end of the year equates to kind of like a $4 million to $8 million increase in portfolio value and so that is very meaningful as we enter into and thats $4 million to $8 million a month, so thats very meaningful as we enter into 2000.
Douglas A. Lindsay: We still are in a challenging market in terms of demand for our products, but we are capturing more share of the business that's coming in, and our customers are wanting to interact with us in a more omnichannel way. We mentioned that e-commerce was up over 100% in the month of April, and that's very encouraging as we see this flow through to the bottom line.
Douglas A. Lindsay: 25, so I mean really what we're seeing is just great success of this program. We still are in a challenging market in terms of demand for our products. We are capturing more share of the business thats coming in and our customers are wanting to interact with us in a more omnichannel way, we mentioned that E comm is up over.
Douglas A. Lindsay: 100% in the month of April and that's very encouraging as we see this flow through to the bottom line.
Stephen W. Olsen: Okay, thank you. That's very helpful. And then maybe just lastly, for me switching over to BrandsMart, you know, what gives you confidence to accelerate the top line growth at BrandsMart as we move throughout 2024 to hit that annual guidance? Is it primarily a factor of, you know, just comparisons get easier in the back half on a multi-year basis?
Speaker Change: Okay. Thank you that's very helpful. And then maybe just lastly for me switching over to Brian Mark.
Stephen W. Olsen: What gives you confidence to accelerate the top line growth at brands Smart as we move throughout 2024 to hit that annual guidance is it primarily a factor of <unk>.
Stephen W. Olsen: Harrisons get easier in the back half on a multiyear basis.
Stephen W. Olsen: Yeah, hi, this is Steve. Yes, exactly what you said. So it is comparisons, you know, definitely some slightly lower comps that we are comparing over last year, but as well as the release of the pull forward demand that we're expecting in the back half of the year, starting and consuming electronics and then moving on to furniture and appliances.
Stephen W. Olsen: Yeah, Hi, this is Steve.
Speaker Change: Yes, exactly what you said so it is comparisons.
Stephen W. Olsen: Definitely some slightly lower comps that we're comping over last year, but as well as the release of the pull forward demand that we're expecting in the back half of the year, starting in consumer electronics, and then moving on to furniture and appliances.
Alessandra Lynn Jimenez: All right, thank you so much, and best of luck here in QQ.
Speaker Change: Alright. Thank you so much and best of luck hearing QQ.
Speaker Change: Thank you.
Operator: Thank you. The next question is from Kyle Joseph with Jeffreys. Your line is open.
Alessandra Lynn Jimenez: Thank you. The next question is from Kyle Joseph with Jefferies. Your line is open.
Kyle Joseph: Hey, good morning, guys. Thanks for taking my question. Um, just want to talk about margins on leasing or on leases in the quarter that look really strong. I'm not sure if that's a function, buyout activity, or kind of Gennex contribution or what's the driver there and the outlook for the rest of the year.
Kyle Joseph: Hey, good morning, guys. Thanks for taking my questions.
Kyle Joseph: Just wanted to talk about margins on leasing on leases in the quarter.
Kyle Joseph: Really strong.
Kyle Joseph: Or if that's a function of.
Kyle Joseph: Buyout activity or kind of Gen X contribution or what's the driver there and the outlook for the rest of the year.
Kelly Walsh: Yeah, I'd say that, you know, Kyle, it's Kelly, the growth in the margin is, again, you typically see an improvement as you go from Q4 into Q1 of any year. And as you mentioned, that is largely driven by, you know, the higher early purchase option activity.
Speaker Change: Yes, I would say that.
Kyle Joseph: Kyle it's Kelly the growth and the margin is as you typically see an improvement as you go from Q4 into Q1 of any year and as you mentioned that is largely driven by.
Kelly Walsh: The higher early purchase option activity.
Kelly Walsh: And so we did that it kind of an experience that is expected in the quarter.
Kelly Walsh: And so we did the kind of experience that was expected in the quarter. And then I think, as Douglas mentioned, the team has done a great job balancing risk in the portfolio as we've achieved the growth quarter today or improvement in delivery. And so while write-offs are up slightly, they continue to be in line with our expectations, which encourages us because, you know, as we grow, the tools and processes that we've put in place to manage the risk in the portfolio are working.
Kelly Walsh: And then I think as Douglas mentioned the team has done a great job.
Kelly Walsh: Balancing risk in the portfolio as we've achieved the growth quarter to date or improvement in deliveries and so while write offs are up slightly as they continue to be in line with our expectations again, which encourages us because.
Kelly Walsh: As we as we grow the tools and processes that we've put in place to manage the risk in the portfolio is it working.
Stephen W. Olsen: Got it. And then just an update on BrandsMart. What kind of trends are you seeing in resale sales at BrandsMart? And you know, how are those more kind of akin to what you're seeing on the Aaron side of the business, or just, I guess, kind of update us on the integration now that we are where we are post-deal.
Speaker Change: Got it and then just an update on on brand Tomorrow, what kind of trends are you seeing in lease sale that brand Spartan.
Stephen W. Olsen: There is more kind of akin to what youre seeing on the Aaron's side of the business or just I guess kind of update us.
Stephen W. Olsen: On the integration.
Stephen W. Olsen: Where we are post this deal.
Stephen W. Olsen: Sure. Hey, Kyle, and Steve. I'm glad to answer that question. So first, I just state that we fully rolled out our integrated financial decision waterfall to all BrandSmart stores in the February timeframe. And the team, both on the BrandSmart leasing side with Aaron's and the BrandSmart store team, continue to find ways to improve performance, both from an operations, customer experience, and technology standpoint. But specifically regarding your question on performance, we did see growth in the portfolio, as well as an attach rate of BrandSmart leasing and retail sales on a year-over-year basis at BrandSmart. So we continue to improve, but we're really focused on finding ways to drive efficiencies and effectiveness in the model.
Stephen W. Olsen: Hey, Kyle Steve glad to answer that question. So first I'll just state that we fully rolled out our integrated financial decision waterfall to.
Stephen W. Olsen: So all brand smart stores in the February timeframe.
Stephen W. Olsen: And the team.
Stephen W. Olsen: On the <unk>.
Stephen W. Olsen: Leasing side with Aaron's and the brand Smart store team continue to find ways to improve performance both from an operations customer experience and technology standpoint, but specifically regarding your question on performance, we did see growth in the portfolio as well as the attach rate of <unk> leasing and the retail sales on a year over year.
Stephen W. Olsen: <unk>, so we continue to improve and but we're really focused on finding ways to drive efficiencies and effectiveness in the model.
Stephen W. Olsen: Got it very helpful. Last one for me, just appreciate the color on credit and appreciate, you know, growth and specifically economic growth is going to take that higher, but just give us an update on kind of the health of the underlying consumer, which obviously drives both demand and credit performance. They just continue to chug along. I know inflation has been stubborn, but just an update on the health of the underlying consumer would be great.
Stephen W. Olsen: Got it very helpful last one for me.
Stephen W. Olsen: I appreciate the color on credit and I. Appreciate you know growth and specifically E. Congress is going to take a higher but could you give us an update on kind of the health of the underlying consumer like obviously.
Stephen W. Olsen: Jazz, both demand and credit performance.
Speaker Change: I'll just continue.
Stephen W. Olsen: Chug along.
Stephen W. Olsen: <unk> been stubborn, but just an update on the health of the underlying consumer it would be great.
Douglas A. Lindsay: Yeah, I mean, I think you've read about it, Kyle. Underneath consumer inflation is eating into them. You know, it's been tough. We found that, you know, our customer has been pretty resilient, as we've said in the past. Most of the increase you're seeing in write-offs and the lowering of renewal rates is really just a mixture between channels. Ultimately, the underlying trends are, I would say, decent, and our models are predicting or sloping risk appropriately. So we're really happy with least decisioning and what's going on there.
Speaker Change: Yes, I mean, I think you've read about it in the.
Douglas A. Lindsay: The underlying consumer inflations eaten into them.
Douglas A. Lindsay: It's been tough we found that.
Douglas A. Lindsay: Our customer has been pretty resilient as we've said in the past most of the.
Douglas A. Lindsay: Increase youre seeing in write offs and lowering our renewal rate is really just a mix shift between channels ultimately the underlying.
Douglas A. Lindsay: Trends are I would say decent and our models are predicting or sloping risk appropriately. So we're really happy with lease decisioning and what's going on there and we continue to optimize that in certain ways to sort of maximize profitability, but also to set our customer up for success, which is ultimately what our leasing power and our decisioning.
Douglas A. Lindsay: And we continue to optimize that in certain ways to sort of maximize profitability but also set our customers up for success, which is ultimately what our leasing power and our decision is all about. I'd say in terms of what we're seeing out there on things like trade down, you know, at BrandSmart, we are seeing the providers above us tightening lease standards. So we know there's some pressure out there in the economy, and we saw that starting at the beginning of the end of last year and going into this year.
Douglas A. Lindsay: However, we haven't seen material signs of customer trade down yet at Aaron's, but we're well poised to capture that when it does. And when the opportunity arises, the last thing I would say about the state of the customer is, you know, while the market for our product categories, furniture, appliances, and electronics, is slow across the broader economy, we're seeing great success there and capturing the opportunity that's out there. Customers are wanting more and more. We're seeing even our existing or previous customers and our new customers wanting to transact with us.
Douglas A. Lindsay: Is all about.
Douglas A. Lindsay: I'd say in terms of what we're seeing out there.
Douglas A. Lindsay: On things like trade down or brand smart we are.
Douglas A. Lindsay: I'm seeing the provider's above us tightening lease standards. So we know there are some pressure out there in the economy and we saw it starting at the beginning at the end of last year and going into this year. However.
Douglas A. Lindsay: However, we haven't seen material signs of customer trade down he added errands, but we're well poised to capture that when it does and when the opportunity arises.
Douglas A. Lindsay: Last thing I would say just on state of the customer is while the <unk>.
Douglas A. Lindsay: Market for our product categories furniture appliances, and electronics are slow across the broader economy, we're seeing great success at Aaron's capturing the opportunity that's out there.
Douglas A. Lindsay: Customers are wanting more and more we're seeing even our existing or previous customers and new customers wanting to transact with us in an omnichannel way and most of the growth that we're seeing right now has to do with the changes we've made to our Omnichannel lease Decisioning and customer acquisition program, which is providing leasing power across all.
Douglas A. Lindsay: In an omnichannel way, and most of the growth that we're seeing right now has to do with the changes we've made to our omnichannel lease decisioning and customer acquisition program, which is providing leasing power across all of our channels to all of our customers, and we believe that it's driving significantly higher. We know it's driving significantly higher conversion rates, but we're also getting add-on sales. So we're seeing more customers do more deals with us.
Douglas A. Lindsay: All of our channels to all of our customers and we believe.
Douglas A. Lindsay: And we're getting more share wallet, which is really encouraging. And you can, sort of, the numbers state or show that and are up 19% in deliveries in April. So really encouraged about what we're seeing and really encouraged about our ability to take share in this market.
Douglas A. Lindsay: What is driving significantly higher we know what's driving significantly higher conversion rates, but we're also getting add on sales. So we're seeing more customers do more deals with us and we're getting more share of wallet, which is really encouraging and you can sort of.
Douglas A. Lindsay: Number of states that are sure that and being up 19% deliveries in April so really encouraged about what we're seeing are really encouraged about our ability to take share in this market.
Kyle Joseph: Great. Thanks very much for taking my question.
Speaker Change: Okay. Thanks, very much for taking my questions.
Speaker Change: Thanks Colin.
Operator: Thank you. The next question is from Scott Ciaccarelli with Truist. Your line is open.
Kyle Joseph: Thank you. The next question is from Scot Ciccarelli with.
Scott Ciaccarelli: Your line is open.
Unknown Caller: Hey guys, this is Joe on for Scott. I just had a quick question.
Operator: Hey, guys. This is Joe on for Scott just had a quick question.
Unknown Caller: Lease write-offs came in a little bit better than we were expecting. You guys kept, obviously, the 67% for the year. Just wanted to know if you could give a little color on the trajectory you're expecting through 2024.
Joe: Lease write offs came in a little bit better than we were expecting you guys. Obviously, the 67% for the year just wanted to know if you could give a little color on the trajectory you're expecting now.
Unknown Caller: Through 2024.
Kelly Walsh: Yeah, Joe, it's Kelly. As we said on the call, we continue to expect write-offs for the full year to be between six and 7%. You know, and I can kind of key in on what Douglas was saying earlier, right? The customer does continue to be challenged. Year over year, what we're seeing, though, in terms of the impact of write-offs is the increasing mix of the lease portfolio, including ecom originated deals. But, as you noted, we're forming in line with expectations and continue to feel really good about our forecast for the full year.
Kelly Walsh: Yes, Joe it's Kelly.
Kelly Walsh: As we stated on the call. We continue to expect write offs for the full year to be between <unk>.
Kelly Walsh: Six months to 7%.
Kelly Walsh: And.
Kelly Walsh: You can kind of keen on what Douglas was saying earlier rate customer does continue to be challenged on a year over year, what we're seeing though in terms of the impact of write offs is the increasing mix of the lease portfolio.
Kelly Walsh: Including E com originated deals.
Kelly Walsh: But.
Kelly Walsh: As you noted we're performing in line with expectations.
Joe: Do you feel really good about our.
Kelly Walsh: Forecast for the full year.
Kelly Walsh: Yeah, the other thing I point out, sorry, is if you look at our 32 plus day delinquency rate in our investor presentation, you know, we've seen sequential improvement in our trends from Q4, as with our write-offs, and that same presentation, you'll see sequential improvement. So while we naturally see that during tax season, we think those trends are encouraging and in line with what we think.
Speaker Change: Yes, the other thing I would point and then.
Kelly Walsh: Sorry, if you look at our 32 plus day delinquency rate in our Investor presentation.
Kelly Walsh: We've seen sequential improvement in our trends from Q4 as with our write offs and that same presentation, you'll see sequential improvement. So while we will naturally see that during tax season, we think those trends are encouraging and in line with what we expect.
Unknown Caller: Gotcha. And then, um, just wanted to check in on the, uh, kind of long-term thoughts, like 5 to 6% long term. Does that still make sense? Yeah, I think so.
Speaker Change: Got you and then just wanted to check in on the kind of long term thoughts, but 5% to 6% long term.
Speaker Change: Makes sense.
Kelly Walsh: Yeah, I think long term that's in line with our general expectations. What I'd say is a lot will largely depend as we get into 2025 on the mix of the portfolio. So again, how much is originated through our e-commerce channel versus versus in store. But we're not seeing anything at this point that leads us to believe any different.
Speaker Change: Yes, I think long term.
Kelly Walsh: Yes.
Kelly Walsh: In line with our general expectations, what I would say.
Kelly Walsh: A lot will largely depend as we get into 2025 on the mix of the portfolio. So again, how much is originated through our E com channel versus the versus in store, but we're not seeing anything at this point.
Kelly Walsh: We just to believe any different going forward.
Speaker Change: Got it thanks, so much.
Kelly Walsh: Yes.
Operator: Thank you. The next question is from Anthony Chukumba with Loop Capital Markets. Your line is open.
Speaker Change: Thank you. The next question is from Anthony <unk>.
Anthony Chinonye Chukumba: <unk> with loop capital markets. Your line is open.
Anthony Chinonye Chukumba: Thank you. And a great, great job pronouncing my last name correctly.
Anthony Chinonye Chukumba: Thank you and great great job pronouncing my last name correctly.
Anthony Chinonye Chukumba: So I guess my first question, two questions on BrandSmart. First one, I know it's still relatively early, but we'd love to, and I know there's a lot of noise, you know, because obviously, there's just, you know, it's just tough right now in terms of consumer demand for major appliances and consumer electronics. But how is the Augusta, Georgia, store performing relative to your expectations?
Anthony Chinonye Chukumba: So I guess my first question two questions on Brian Smart first one.
Anthony Chinonye Chukumba: I know, it's still relatively early but we'd love to and I know, there's a lot of noise, because obviously theres just tough.
Anthony Chinonye Chukumba: Tough right now in terms of consumer demand for major appliances, and consumer electronics, but how is the Augusta, Georgia store performing relative to your expectations.
Stephen W. Olsen: Hey Anthony, it's Steve. Thanks for the question. So just to remind you, we opened the store at the end of September last year, and so we're about, you know, six, seven months into it, and the store continues to thrive, and we're really excited about the market and the feedback we're getting from customers both on the in-store experience as well as the brand promise of great pricing and a broad assortment. We continue to train our team to improve their selling skills. So we're ramping up where we thought and, you know, we just continue to push our way through this environment, this, you know, challenging demand environment.
Anthony Chinonye Chukumba: Hey, Anthony it's Steve Thanks for the question.
Stephen W. Olsen: So just to remind you we we opened the store at the end of September last year, and so we're about six seven months.
Stephen W. Olsen: <unk> and the store continues to ramp.
Stephen W. Olsen: And we're really excited about the market and the feedback we're getting from the customer both on the in store experience.
Stephen W. Olsen: As well as the brand promise with great pricing.
Stephen W. Olsen: And broad assortment and we continue to train our team to improve their selling skills. So we're ramping where we thought and we just continue to push our way through this environment challenging demand environment.
Douglas A. Lindsay: Anthony, one of the things I've been encouraging about Augusta is that, relative to our underwriting on that deal, we were able to sort of come in better than we thought on our build out, and, you know, it was our first store, so we're still learning about kind of how these stores ramp. I think net-net, you know, our OpEx is coming in more favorably. We are seeing pressure on that store from the macro environment that's out there, but we feel good about where it's trending and the return on our capital there, and, you know, we continue to sort of find ways to sort of market to that market, if you will, and, you know, sort of break into our core customer base there.
Stephen W. Olsen: Anthony one of the things got encouraging about Augusta as we were able to it relative to our.
Douglas A. Lindsay: Underwriting on that deal, we were able to sort of come in better than what we thought on on our build out and.
Douglas A. Lindsay: It is our first stores that we're still learning about kind of how these stores ramp I think net net.
Douglas A. Lindsay: Our opex is coming in more favorable we are seeing pressure in that store from the macro environment. That's out there, but we feel we feel good about where it's trending and the return on our capital there and we continue to sort of.
Douglas A. Lindsay: Find ways to market to that market if you will.
Douglas A. Lindsay: Breaking into our core customer base. There. So it's really a great learning ground I think what's encouraging to me is that.
Douglas A. Lindsay: So it's really a great learning ground. I think what's encouraging to me is that, you know, this is a smaller format store and that has lighter cutbacks than what we've spent at BrandsMart historically, and when we look at that, it's really informed how we do Kennesaw and how we potentially open stores in the future, which is really encouraging.
Douglas A. Lindsay: This is a smaller format store and that is lighter capex than what we spent at <unk> historically and when we look at that.
Douglas A. Lindsay: It's really informed how we do kennesaw and how we potentially open stores in the future, which is really encouraging.
Stephen W. Olsen: Got it. And then, yeah, so that's, I guess that second new store will also be in Georgia. You know, should we read into that? I mean, do you see Georgia as a better opportunity in terms of new stores relative to Florida? Or is it just, you know, just kind of happenstance?
Speaker Change: Got it and then so I guess that second new store will be also in Georgia.
Stephen W. Olsen: Should we read into that I mean, do you see as Georgia is a better opportunity in terms of new stores relative to Florida or is it just you know.
Stephen W. Olsen: Just kind of happen stance.
Anthony Chinonye Chukumba: Hey, it's Steve again, Anthony. Now, you know, Florida is, you know, a primary key market for us. You know, as we look at our real estate strategy, it really comes down to the availability of real estate sites and then the associated occupancy and development costs to build that out. So we are working hard to look across Florida, all the key major markets, and hopefully we'll find a site that works for us, you know, in the coming quarter. Thanks.
Steve: It's Steve again.
Anthony Chinonye Chukumba: Florida is as you know.
Anthony Chinonye Chukumba: Primary key market for us.
Anthony Chinonye Chukumba: As we look at our real estate strategy. It really comes down to availability of real estate sites and then what's the associated occupancy and development cost to build that out. So we are working hard to look across Florida, all the key major markets and hopefully we will find a site that works for us.
Anthony Chinonye Chukumba: The coming quarters.
Stephen W. Olsen: Got it. Thanks for taking my question.
Speaker Change: Got it thanks for taking my question.
Stephen W. Olsen: Okay.
Stephen W. Olsen: Okay.
Speaker Change: Thank you.
Operator: The next question is from Huang Wei with TD Co., Your line is open.
Stephen W. Olsen: The next question is from Kwang Lee with TD Cowen Your line is open.
Unknown Caller: Hi, team, and congrats on the quarter. I just want to ask about the average ticket. Can you give some comments around that? I mean, in one Q and maybe into April and May, and I guess, as a caller, really, maybe in terms of terms, talk about, you know, dollar originations. Because I think, I mean, if you are up in deliveries by 19%, right, it's hard to imagine that, you know, you're not growing in gross dollar volume. Maybe can you talk a little bit more about that too? Thank you.
Huang Wei: Hi team congrats on the quarter.
Unknown Caller: Just wanted to ask about average ticket can you give some comment around that.
Unknown Caller: One key way maybe into April and May and I guess that's it.
Randy: Randy maybe.
Unknown Caller: Talk about originations.
Unknown Caller: Originations because I think I mean, if you are up.
Unknown Caller: In deliveries by 19% right, it's hard to imagine that.
Unknown Caller: You are not growing in gross dollar volume, maybe can you talk a little bit more about that too. Thank you.
Douglas A. Lindsay: Yeah, I'll just mention that, as we said, in the quarter, we were up 6.8% in deliveries, but only up, I wouldn't say only, it was a very strong quarter, but up 2.3% in recurring revenue written. The delta between those two numbers is huge, and so we've seen it go down sort of four to 5% year over year. And, you know, we continue to see that we're working on ways to, and see if you can talk about this a little bit more to position our product offerings to look at term and look at product mix in order to drive ticket, but ultimately, we're optimizing for Recurring Revenue Written. And so we are doing certain things at certain price points to drive volumes, and we're always looking at that trade-off.
Speaker Change: Yes, I mean, I'll just mentioned that you know as we said in the quarter, we were up six 8% deliveries, but only up I wouldn't say only.
Douglas A. Lindsay: Very strong quarter, but up two 3%.
Douglas A. Lindsay: Occurring revenue written the delta between those two numbers is ticket and so we've seen it tick it down sort of 4% to 5% year over year.
Douglas A. Lindsay: And we continue to see that we're working on ways to and Steve you're talking about there's a little bit more to position our product offerings to look at term and look at product mix in order to drive check it but ultimately we're optimizing for.
Douglas A. Lindsay: For recurring revenue written in <unk>.
Douglas A. Lindsay: So we are doing certain things at certain price points to drive volumes and we're always looking at that trade off so.
Stephen W. Olsen: Yeah, just to add to it. You know, as Douglas mentioned, a little pressure on the ticket at Aaron's business in Q1. So we did see some trade down in some of our categories, especially appliances and consumer electronics. But with that, with a lot of that growth we're seeing in deliveries, at least merchandise deliveries, and the growth in our strategies around our marketing campaign, we're definitely focusing on putting strong price messages out there at our really key value items in those low price points and strong promotional offers to drive those particular products. So some of that obviously is trade down, but also some of it is our desire to drive new customers. Yeah, the last thing I want to
Speaker Change: Yes, just to add to it.
Stephen W. Olsen: As Doug had mentioned a little pressure on ticket at the Aaron's business in Q1. So did we did see some trade down and some of our cat category, especially appliances and consumer electronics.
Stephen W. Olsen: But with that with a lot of that growth, we're seeing in deliveries lease merchandise deliveries and the growth in our strategies around our marketing campaign, we're definitely focusing on putting strong price messages out there at our really our key value items in those low price points and strong promotional offers to drive those particular products. So.
Stephen W. Olsen: Some of that obviously is trade down but also some of it is.
Stephen W. Olsen: Our desire to drive new customers.
Douglas A. Lindsay: Yeah, the last thing I want to mention is not only trying to attract new customers, but we're also trying to get more share wallet from our existing customers. So with our new omnichannel lease decisioning engine that provides leasing power to all of our customers, not only are we making getting that first lease agreement, but we're getting add-on lease agreements as a second deal within the customer's leasing power. And many of those new agreements are at lower price points.
Speaker Change: And what I mentioned is not only trying to attract new customers. We're also trying to get more share of wallet from our existing customers with our new omni channel lease Decisioning engine that provides leasing powered all of our customers not only are we making that getting that first lease agreement, but we're getting add on lease agreements as a second deal within the customers leasing.
Douglas A. Lindsay: Power and many of those new agreements are lower price points and so there is sort of while we're getting more agreements per customer. The average ticket is down because of that add on agreements and thats, putting some pressure on ticket as well, but we say that is a very good thing more share of wallet.
Douglas A. Lindsay: And so there is sort of while we're getting more agreements per customer, the average ticket is down because of that add-on agreement that's putting some pressure on the ticket as well. But we say that as a very good thing, more share of wallet.
Unknown Caller: Gotcha. I think you mentioned your private label provider is slightly tightening. I mean, could you remind us, maybe, you know, how much penetration do they have in your sales?
Speaker Change: Gotcha I think you mentioned about your private label provider.
Unknown Caller: Slightly tightening I mean could you remind us maybe how much penetration do they have in your sales.
Stephen W. Olsen: Yeah, hi, this is Steve. I'll be glad to answer that.
Unknown Caller: Yes, Hi, this is keith be glad to answer that so yes.
Stephen W. Olsen: So yeah, so we just recall, we start tightening in Q4 and again in Q1. From a private label credit card standpoint, the mix of our business, it's a little more than 25% of overall sales. So, a considerable amount. They've been a great partner for many years, and we work closely with them to, you know, drive marketing and our promotional activities around key holidays.
Steve: So just to recall, we saw tightening in Q4 and again in Q1.
Stephen W. Olsen: From a private label credit card standpoint mix of our business, it's a little more than 25% of overall, our overall sales so.
Stephen W. Olsen: So a considerable amount they've been a great partner for many years and we work closely with them.
Stephen W. Olsen: To drive marketing and our promotional activities around key holidays.
Unknown Caller: Got it. And my last one is on expenses. I mean, how should we think about personnel and other operating expenses going forward?
Speaker Change: Got it and my last one is on expenses I mean, how should we think about personnel and other operating expenses going forward. Thank you.
Kelly Walsh: Yeah, it's Kelly, I'd say that, again, we're reaffirmed that we didn't change our guidance. So our margin expectations continue to be the same for for remainder of 24. And I believe what I may have mentioned on the last call was that from a personnel perspective, we are expecting, you know, kind of call it a 50 to 100 basis point improvement as a percentage of revenue, as well as on the op ex side, we're seeing a bit of the opposite, about a 50 basis point increase, the improvements that we're seeing in personnel, as well as improvements that we're seeing on the op ex side is driven by the cost savings initiatives that that we outlined on the prior call as well, where we expect to deliver 40 to 45 million, I'm sorry, 30 to $35 million of cost savings this year.
Unknown Caller: Thank you. Yeah, it's it's.
Unknown Caller: Yes.
Speaker Change: Kelly I would say that.
Unknown Caller: Again, or reaffirm that we didn't change our guidance. So our margin expectations continue to be the same for for remainder of 'twenty four and I believe what I may have mentioned on the last call was that from a personnel perspective, we are expecting.
Unknown Caller: Kind of call. It 50 to 100 basis point improvement.
Unknown Caller: As a percentage of revenue as well as on the Opex side, we're seeing a bit of the opposite about a 50 basis point increase.
Unknown Caller: The improvements that we're seeing in personnel as well as improvements that we're seeing on the Opex side is driven by the cost savings initiatives that.
Unknown Caller: That we outlined on our prior call as well.
Unknown Caller: We expect to deliver 40 to 45 million Im sorry, $30 million to $35 million of cost savings this year.
Kelly Walsh: The increase in other op ex year over year is driven by drilling two things, one, increased investment in advertising, particularly at the errands business, which is a component of what's kind of driving our growth that we're seeing there. Also, there are some new store opening costs associated with the store that we're opening a brand smart.
Unknown Caller: Increase in other opex year over year is driven by really two things one increased investment in advertising, particularly at the Aaron's business, which is a component of what's kind of driving our growth that we're seeing there.
Kelly Walsh: Also there are some new store opening costs associated with the store that we're opening in brands more so that's what's driving.
Kelly Walsh: Giving that 50 basis point increase.
Kelly Walsh: So that's what's driving that 50 basis point increase in operating income. I also want to just give you kind of a quick update on the spread of earnings through the course of the year. We're currently expecting that consolidated revenues for the full year will be in line with expectations but that they're going to grow sequentially each quarter with Q2 representing about 20 to 25 percent of the full year. And then as that translates down to adjusted EBITDA, we're expecting that Q2 is going to represent about 25 percent of the full year.
Kelly Walsh: Operating margin.
Kelly Walsh: I also want to just give you a kind of a quick update on spread of earnings through the course of the year.
Kelly Walsh: We're currently expecting that consolidated revenues for the.
Kelly Walsh: Full year in line with expectations, but theyre going to grow sequentially each quarter.
Kelly Walsh: With Q2, representing about 20% to 25% of the full year and then as that translates down to adjusted EBITDA.
Kelly Walsh: Spectrum that Q2 is going to represent about 25% of the full year there.
Kelly Walsh: And then you probably also heard us talk about a change in the tax rate in the prepared remarks. So that 12 percentage point improvement did lead to our increase in outlook for non-GAAP EPS, but the tax rate will be different in each quarter of the year. I think more specifically we're expecting that Q4 will be about 300 basis points lower than Q2 and Q3, with Q2 and Q3 roughly the same. So hopefully that helps you all with some of your modeling for the year.
Kelly Walsh: And then you probably also heard US talk about the change in tax rate on the prepared remarks.
Kelly Walsh: There that 12.
Kelly Walsh: Percentage point improvement.
Kelly Walsh: It did lead to our increase in outlook for non-GAAP EPS, but the tax rate will be different in each quarter of the year.
Kelly Walsh: I think more specifically, we're expecting that Q4 will be about 300 basis points lower than Q2, and Q3 with Q2 and Q3 roughly the same so hopefully that helps you all with some of your modeling for the year.
Speaker Change: Thank you.
Operator: Thank you. We currently have no further questions. I will hand it back to Douglas for any closing remarks.
Speaker Change: Thank you.
Kelly Walsh: We have no further questions I will hand back to Douglas for any closing remarks.
Douglas A. Lindsay: Thank you, operator. Thank you for joining the call today. And thank you to all of our company and franchise team members at Aaron's, BrandSmart, BrandSmart Leasing, and Woodhaven for your continued focus on delivering exceptional value and service to our customers each and every day. We look forward to speaking to each of you again next quarter. Thanks so much.
Douglas: Thank you operator, thank you for joining the call today and thank you to all of our company and franchise team members that Aaron's brand Smart brand smart leasing of Wood Haven for your continued focus on delivering exceptional value and service to our customers each and every day, we look forward to speaking to each of you again next quarter.
Speaker Change: <unk>. Thanks, so much.
Operator: Thank you. This concludes today's call. Thank you for joining us. You may now disconnect your line.
Speaker Change: Thank you. This concludes today's call. Thank you for joining you may now disconnect your lines.
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