Aarons 2010 Annual Report Download - page 22

Revenues
The 7.1% increase in total revenues, to $1.877 billion in 2010
from $1.753 billion in 2009, was due mainly to a $91.3 million,
or 7.0%, increase in lease revenues and fees revenues, plus a
$34.3 million, or 10.4%, increase in non-retail sales. The
$91.3 million increase in lease revenues and fees revenues was
attributable to our sales and lease ownership division, which had a
4.4% increase in same store revenues during the 24-month period
ended December 31, 2010 and added a net 112 company-operated
stores since the beginning of 2009.
The 6.5% decrease in revenues from retail sales, to $40.6 million
in 2010 from $43.4 million in the comparable period in 2009, was
due to decreased demand and closure of the majority of the Aaron’s
Office Furniture stores in 2010.
The 10.4% increase in non-retail sales (which mainly represents
merchandise sold to our franchisees), to $362.3 million in 2010
from $328.0 million in 2009, was due to the growth of our fran-
chise operations and our distribution network. The total number of
franchised sales and lease ownership stores at December 31, 2010
was 664, reflecting a net addition of 160 stores since the beginning
of 2009.
The 11.7% increase in franchise royalties and fees, to $59.1
million in 2010 from $52.9 million in 2009, primarily reflects an
increase in royalty income from franchisees, increasing 13.2% to
$47.9 million in 2010 compared to $42.3 million in 2009. The
increase is due primarily to the growth in the number of franchised
stores and same store growth in the revenues of existing franchised
stores.
Other revenues decreased 27.6% to $12.9 million in 2010 from
$17.7 million in 2009. Included in other revenues in 2010 is a
$1.9 million gain from the sales of the assets of 11 stores. Included
in other revenues in 2009 is a $7.8 million gain on the sales of the
assets of 39 stores.
Cost of Sales
Retail cost of sales decreased 10.6% to $23.0 million in 2010
compared to $25.7 million in 2009, and as a percentage of retail
sales, decreased to 56.7% in 2010 from 59.3% in 2009 primarily
as a result of decline in the volume of lower margin office furni-
ture retail sales associated with the closure of 14 Aaron’s Office
Furniture stores.
Non-retail cost of sales increased 10.4%, to $330.9 million in
2010, from $299.7 million for the comparable period in 2009,
and as a percentage of non-retail sales, decreased slightly to 91.3%
in 2010 from 91.4% in 2009.
Expenses
Operating expenses in 2010 increased $53.3 million to $824.9 mil-
lion from $771.6 million in 2009, a 6.9% increase. As a percentage
of total revenues, operating expenses were 44.0% for both the year
ended December 31, 2010, and 2009.
We began ceasing the operations of the Aaron’s Office Furniture
division in June 2010. We closed 14 Aaron’s Office Furniture
stores during 2010 and had one remaining store open to liquidate
merchandise. As a result, we recorded $3.3 million in closed store
reserves, $4.7 million in lease merchandise write-downs and other
miscellaneous expenses in 2010, totaling $9.0 million in operating
expenses, related to the closures. In 2009 we recorded a $2.2 million
pre-tax charge to operating expenses relating to the write-down of
certain lease merchandise and the impairment of long-lived assets
associated with Aaron’s Office Furniture stores.
Depreciation of lease merchandise increased $29.1 million to
$504.1 million in 2010 from $475.0 million during the comparable
period in 2009, a 6.1% increase. As a percentage of total lease
revenues and fees, depreciation of lease merchandise decreased
slightly to 36.0% from 36.2% a year ago.
Interest expense decreased to $3.1 million in 2010 compared
with $4.3 million in 2009, a 28.0% decrease. The decrease in inter-
est expense was due to lower debt levels during 2010.
Income tax expense increased $8.8 million to $72.4 million in
2010, compared with $63.6 million in 2009, representing a 13.9%
increase. Our effective tax rate increased to 38.0% in 2010 from
36.0% in 2009 primarily related to the favorable impact of a $2.3
million reversal of previously recorded liabilities for uncertain tax
positions due to expiration of statute of limitations in 2009.
Net Earnings from Continuing Operations
Net earnings from continuing operations increased $5.5 million to
$118.4 million in 2010 compared with $112.9 million in 2009,
representing a 4.9% increase. As a percentage of total revenues, net
earnings from continuing operations were 6.3% and 6.4% in 2010
and 2009, respectively. The increase in net earnings from continuing
operations was primarily the result of the maturing of new company-
operated sales and lease ownership stores added over the past several
years, contributing to a 4.4% increase in same store revenues, and an
11.7% increase in franchise royalties and fees.
Year Ended December 31, 2009 Versus Year Ended
December 31, 2008
The Aaron’s Corporate Furnishings division is reflected as a discon-
tinued operation for all periods presented. The following table shows
key selected financial data for the years ended December 31, 2009
and 2008, and the changes in dollars and as a percentage to 2009
from 2008.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
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