Aarons 2003 Annual Report Download - page 20

REVENUES
The 19.7% increase in total revenues in 2003 from 2002
is primarily attributable to continued growth in our sales
and lease ownership division, both from the opening and
acquisition of new Company-operated stores and improve-
ment in same store revenues. Revenues for our sales and
lease ownership division increased $137.5 million to $656.5
million in 2003 compared with $519.0 million in 2002, a
26.5% increase. This increase was attributable to a 10.1%
increase in same store revenues and the addition of 136
Company-operated stores since the beginning of 2002. Total
revenues were impacted by a decrease in rent-to-rent division
revenues, which decreased $11.4 million to $110.3 million
in 2003 from $121.7 million in 2002, a 9.3% decrease, due
primarily to a decline in same store revenues as well as a net
reduction of 15 stores since the beginning of 2002.
The 20.6% increase in rentals and fees revenues was
attributable to a $100.9 million increase from our sales and
lease ownership division related to the growth in same store
revenues and the increase in the number of stores described
above. The growth in our sales and lease ownership division
was offset by a $6.3 million decrease in rental revenues in
our rent-to-rent division. The decrease in rent-to-rent division
revenues is primarily the result of the decline in same store
revenues and the net reduction in stores described above.
Revenues from retail sales fell 5.4% due to a decrease
of $4.6 million in our rent-to-rent division caused by the
decline in same store revenues and the store closures
described above, partially offset by an increase of $0.7
million in our sales and lease ownership division caused by
the increase in same store revenues and the increase in the
number of stores also described above. This increase in our
sales and lease ownership division was negatively impacted
by the introduction of an alternative shorter-term lease,
which replaced many retail sales.
The 35.3% increase in non-retail sales in 2003 reflects
the significant growth of our franchise operations.
The 20.4% increase in other revenues was primarily
attributable to franchise fees, royalty income, and other
related revenues from our franchise stores increasing $2.7
million, or 16.5%, to $19.3 million compared with $16.6
million in 2002, reflecting the net addition of 78 franchised
stores since the beginning of 2002 and improved operating
revenues at older franchised stores.
COST OF SALES
The 5.5% decrease in retail cost of sales is primarily
a result of a decrease in sales in our rent-to-rent division,
where sales decreased $3.9 million to $25.2 million in 2003
from $29.1 million in 2002, a 13.4% decline. This decrease
was primarily due to the decline in same store revenues and
to closing or merging underperforming stores. This decrease
is partially offset by a $1.0 million increase to $25.7 million
in 2003 from $24.7 million in 2002, representing a 3.9%
increase, in our sales and lease ownership division driven
by the increases in same store revenues and additional store
openings described above. Retail cost of sales as a percentage
of retail sales remained comparable between 2003 and 2002.
Cost of sales from non-retail sales increased 35.6%,
primarily due to the growth of our franchise operations as
described above, corresponding to the similar increase in
non-retail sales. As a percentage of non-retail sales, non-retail
cost of sales increased slightly to 92.8% in 2003 as compared
to 92.6% in 2002, primarily due to changes in product mix.
EXPENSES
The 17.6% increase in 2003 operating expenses was
driven by the growth of our sales and lease ownership
division described above. As a percentage of total revenues,
operating expenses improved to 45.0% for 2003 from 45.8%
for 2002, with the decrease driven by the maturing of new
Company-operated sales and lease ownership stores added
over the past several years and a 10.1% increase in same
store revenues.
The 20.3% increase in depreciation of rental merchandise
was driven by the growth of our sales and lease ownership
division described above. As a percentage of total rentals and
fees, depreciation of rental merchandise decreased slightly to
35.3% in 2003 from 35.4% in 2002. The decrease as a per-
centage of rentals and fees reflects an improvement in rental
margins, partially offset by increased depreciation expense as
a result of a larger number of short-term leases in 2003.
The increase in interest expense as a percentage of total
revenues was primarily due to a higher long-term average
debt balance during 2003 arising from the Company’s
August 2002 private debt placement.
The 32.1% increase in income tax expense between years
was driven primarily by a comparable increase in pretax
income, offset by a slightly lower effective tax rate of 37.0%
in 2003 compared to 37.1% in 2002.
18
Year Ended Year Ended Increase/ % Increase/
December 31, December 31, (Decrease) in Dollars (Decrease) to
(In Thousands) 2003 2002 to 2003 from 2002 2003 from 2002
REVENUES:
Rentals and Fees $553,773 $459,179 $ 94,594 20.6%
Retail Sales 68,786 72,698 (3,912) (5.4)
Non-Retail Sales 120,355 88,969 31,386 35.3
Other 23,883 19,842 4,041 20.4
766,797 640,688 126,109 19.7
COSTS AND EXPENSES:
Retail Cost of Sales 50,913 53,856 (2,943) (5.5)
Non-Retail Cost of Sales 111,714 82,407 29,307 35.6
Operating Expenses 344,884 293,346 51,538 17.6
Depreciation of Rental Merchandise 195,661 162,660 33,001 20.3
Interest 5,782 4,767 1,015 21.3
708,954 597,036 111,918 18.7
EARNINGS BEFORE TAXES 57,843 43,652 14,191 32.5
INCOME TAXES 21,417 16,212 5,205 32.1
NET EARNINGS $ 36,426 $ 27,440 $ 8,986 32.7%