Aarons 2009 Annual Report Download - page 12

In addition to selection, service and value, Aaron’s offers a
superior shopping experience. The typical Aaron’s store is 9,000
square feet, attractively merchandised in a leased endcap or
free-standing building. The Aaron’s store format has proven
successful in urban, suburban and rural markets. In many
cases, Aaron’s stores draw customers from more than 20 miles
away. The stores are open six days a week. In-house real estate
and marketing departments coordinate to develop signature
signage and store décor. Stores are remodeled on a regular
schedule. Approximately 50% of Company-operated stores are
more than five years old and, as a group, are still showing same
store revenue growth.

Last year was one of growth; growth in market share, customer
count, store base, revenues, earnings and most other metrics.
This growth is good news to communities as Aaron’s brings
needed jobs. Unlike many companies, Aaron’s added jobs in
2009, expanding the Company workforce by 4%. Net system-
wide store count increased 8.8% in 2009 as the Company
opened 85 new Company-operated stores and 84 franchised
stores. Weakness in the real estate market has afforded Aaron’s
the opportunity to secure attractive new store locations at
reduced prices. In addition, the Company has been able to
renew leases of existing stores on favorable terms.
Aaron’s plans to increase net store count by 5% to 9% in 2010,
a combination of Company-operated and franchised stores. At
year-end 2009, Aaron’s had 1,071 Company-operated sales and
lease ownership stores, 590 franchised stores, 11 Company-
operated RIMCO stores, seven franchised RIMCO stores and 15
Aaron’s Office Furniture stores for a total of 1,694 stores.


The franchise system is a key strength of Aaron’s. The franchise
program, which was initiated in 1992, now numbers nearly
600 stores. Franchisees benefit from the Company’s market-
ing expertise, buying power and nationally-recognized brand.
Franchisees also participate in extensive in-house training
programs and benefit from the Company’s real estate exper-
tise. Franchisees pay an upfront fee and an ongoing royalty fee
based on a percentage of weekly revenues.
During 2009, the Company awarded area development agree-
ments to open 159 additional franchised stores. At the end of
December 2009, there were 269 franchise stores in the pipeline
that are expected to open in the next few years. Validating
the Company’s business model is the recent trend of small,
privately-held, rent-to-own operators becoming Aaron’s fran-
chisees and converting their stores to our lease ownership
model.
The franchise program has been an integral component of
Aaron’s growth and is a significant asset to our business model.
The program has facilitated the expansion and growth of the
Aaron’s brand, leveraging the growth of Company-operated
stores. Experienced and successful franchisees bring invaluable
management and business expertise to Aaron’s and continue
to be a key part of the Company’s expansion plans.


Aaron’s capital structure is also good news for shareholders.
At the end of 2009, the Company had more than $109 mil-
lion cash on hand, no outstanding debt under its $140 million
revolving credit facility, a relatively small amount of other
long-term debt, and the capability of self-funding capital
spending in 2010 and beyond. A new Aaron’s store normally
requires $600,000 to $700,000 of cash to operate in its first
year and typically reaches positive cash flow during its second
year of operation. Capital is required to cover operating losses
until monthly revenues sufficiently offset operating expenses.
Currently less than 20% of Company-operated stores are under
two years old, which bodes well for the Company’s financial
stability. Unlike many companies, Aaron’s has not cut cash
dividends in recent quarters but has increased the payout to
shareholders for six consecutive years.


Marketing expertise is good news for Aaron’s. The Company
has successfully built a national brand, a recognizable logo and
a strong, credible identity. The power of the Aaron’s brand has
been carefully developed and managed by a talented, internal
marketing team. Aaron’s has an active sports marketing cam-
paign, ranging from its sponsorship of the national champion
University of Alabama Crimson Tide football team, to its well-
established partnerships in NASCAR. The Aaron’s logo is highly
visible in collegiate stadiums, racetracks and arenas in major
markets throughout the U.S.
Aaron’s is perhaps best known for its long affiliation with
Michael Waltrip Racing. David Reutimann drives the Aaron’s
#00 Dream Machine in the NASCAR Sprint Cup Series races
reinforcing Aaron’s advertising offering customers a chance to
“Drive Dreams Home.” The Aaron’s Lucky Dog mascot is inte-
