Aarons 2007 Annual Report Download - page 24

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RESULTS OF OPERATIONS
Year Ended December 31, 2007 Versus Year Ended
December 31, 2006
The following table shows key selected financial data for the
years ended December 31, 2007 and 2006, and the changes
in dollars and as a percentage to 2007 from 2006.
Year Ended Year Ended Increase/(Decrease) % Increase/
December 31, December 31, in Dollars to 2007 (Decrease) to
(In Thousands) 2007 2006 from 2006 2007 from 2006
REVENUES:
Rentals and Fees $1,126,812 $ 992,791 $134,021 13.5%
Retail Sales 54,518 62,319 (7,801) (12.5)
Non-Retail Sales 261,584 224,489 37,095 16.5
Franchise Royalties and Fees 38,803 33,626 5,177 15.4
Other 13,194 13,367 (173) (1.3)
1,494,911 1,326,592 168,319 12.7
COSTS AND EXPENSES:
Retail Cost of Sales 36,099 41,262 (5,163) (12.5)
Non-Retail Cost of Sales 239,755 207,217 32,583 15.7
Operating Expenses 674,412 579,565 94,847 16.4
Depreciation of Rental Merchandise 407,321 364,109 43,212 11.9
Interest 8,479 9,729 (1,250) (12.8)
1,366,066 1,201,882 164,184 13.7
EARNINGS BEFORE INCOME TAXES 128,845 124,710 4,135 3.3
INCOME TAXES 48,570 46,075 2,495 5.4
NET EARNINGS $ 80,275 $ 78,635 $ 1,640 2.1%
Revenues
The 12.7% increase in total revenues, to $1.495 billion in
2007 from $1.327 billion in 2006, was due mainly to a
$134.0 million, or 13.5%, increase in rentals and fees rev-
enues, plus a $37.1 million increase in non-retail sales. The
$134.0 million increase in rentals and fees revenues was
attributable to a $131.2 million increase from our sales and
lease ownership division, which had a 3.8% increase in same
store revenues during the 24 month period ended December
31, 2007 and added 266 company-operated stores since the
beginning of 2006. Additionally, included in other revenues
in 2007 was a $4.9 million gain from the sale of a parking
deck at the Company’s corporate headquarters and included
in other revenues in 2006 was a $7.2 million gain from the
sale of the assets of our 12 stores located in Puerto Rico
and three additional stores located in the continental
United States.
The 12.5% decrease in revenues from retail sales, to $54.5
million in 2007 from $62.3 million in 2006, was due to a
decrease of $4.1 million in the sales and lease ownership
division and a decrease of $3.7 million in the corporate
furnishings division. The decline in retail sales was primarily
driven by a strategic decision to increase retail sales prices
effective in the fourth quarter of 2006. Retail sales represent
sales of both new and returned rental merchandise.
The 16.5% increase in non-retail sales (which mainly repre-
sents merchandise sold to our franchisees), to $261.6 million
in 2007 from $224.5 million in 2006, was due to the growth
of our franchise operations and our distribution network. The
total number of franchised sales and lease ownership stores
at December 31, 2007 was 484, reflecting a net addition of
92 stores since the beginning of 2006.
The 15.4% increase in franchise royalties and fees, to
$38.8 million in 2007 from $33.6 million in 2006, primarily
reflects an increase in royalty income from franchisees,
increasing 17.3% to $29.8 million in 2007 compared to
$25.4 million in 2006. The increase is due primarily to the
growth in the number of franchisees.
The 1.3% decrease in other revenues, to $13.2 million
in 2007 from $13.4 million in 2006, is primarily due to a
decline in investment and interest income during the period.
With respect to our major operating unit, revenues for
our sales and lease ownership division increased 13.7%, to
$1.366 billion for 2007 from $1.201 billion for 2006. This
increase was attributable to the addition of stores and same
store revenue growth described above.
Cost of Sales
Cost of sales from retail sales decreased 12.5% to $36.1
million in 2007 compared to $41.3 million in 2006, with