Shares of Aaron’s (NYSE:AAN), which operates through 1,400 owned and franchised rent-to-own stores, rose as much as 25% when trading opened on April 27. Roughly an hour in, the enthusiasm hadn’t waned very much, with the shares still sitting with a gain of around 20%. The company’s premarket earnings report was the big story here.
Aaron’s top line came in at $481 million in the first quarter of 2021. That was up roughly 11% from the same period in 2019. Same-store sales, meanwhile, rose an impressive 14.8%, with online revenue growing a strong 42%. E-commerce revenues now account for around 14% of total lease revenues. Adjusted earnings, the bottom line, chimed in at $1.24 per share in the first quarter this year, compared to $0.30 in 2020.
Basically there were good results all around, and investors like good news. But there was still another positive in the quarter, given that Aaron’s beat Wall Street expectations on the top and bottom lines. Notably, earnings were roughly twice what analysts had been projecting. Investors really like it when a company’s earnings results are both good and, essentially, trounce expectations. And on top of that, the company upped its revenue expectations for 2021, notably increasing its same-store sales target from zero to 2% growth up to 4% to 6% growth. So, all in, it’s hardly a shock to see the shares rallying strongly in early trading.
Aaron’s is kind of a unique business, offering predominantly low-income consumers the opportunity to rent furniture, electronics, and other things with the potential to eventually buy them. While it is a retailer in some ways, in others it is more like a lender. Long-term investors looking at the positive results today need to dig in a bit more here to ensure they truly understand what Aaron’s does, why, and the implications for its business before jumping aboard the stock because of a strong quarterly earnings report. Indeed, if the economy were to sputter for some reason, Aaron’s could run into collection headwinds that a more traditional retailer might not face.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
View more information: https://www.fool.com/investing/2021/04/27/why-aarons-stock-rocketed-25-in-the-first-hour-of/