Aarons 2012 Annual Report Download - page 26

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16
ITEM 1A. RISK FACTORS
Aaron’s business is subject to certain risks and uncertainties, the most significant of which are set forth below.
Our growth strategy depends considerably on opening new Company-operated stores. Our ability to expand our
store base is influenced by factors beyond our control, which may impair our growth strategy and impede our
revenue growth.
Opening new Company-operated stores is an important part of our growth strategy. Our ability to continue opening new
stores is affected by, among other things:
the substantial outlay of financial resources required to open new stores and initially operate them, and the
availability of capital sources to finance new openings and initial operation;
difficulties associated with hiring, training and retaining additional skilled personnel, including store managers;
our ability to identify suitable new store sites and to negotiate acceptable leases for these sites;
competition in existing and new markets;
consumer demand, tastes and spending patterns in new markets that differ from those in our existing markets;
and
challenges in adapting our distribution and other operational and management systems to an expanded network
of stores.
If we cannot address these challenges successfully, we may not be able to expand our business or increase our revenues
at the rates we currently contemplate.
If we cannot manage the costs of opening new stores, our profitability may suffer.
Opening large numbers of new stores requires significant start-up expenses, and new stores are generally not profitable
until their second year of operation. Consequently, opening many stores over a short period can materially decrease our
net earnings for a time. This effect is called ―new store drag.‖ During 2012, we estimate that start-up expenses for new
stores reduced our net earnings by approximately $11 million, or $.14 per diluted share for our Aaron’s Sales & Lease
Ownership stores and approximately $2 million, or $.02 per diluted share for our HomeSmart stores. We cannot be
certain that we will be able to fully recover these significant costs in the future.
We may not be able to attract qualified franchisees, which may slow the growth of our business.
Our growth strategy also depends significantly upon our franchisees developing new franchised sales and lease
ownership stores. We generally seek franchisees who meet our stringent business background and financial criteria, and
who are willing to enter into area development agreements for several stores. A number of factors, however, could
inhibit our ability to find qualified franchisees, including general economic downturns or legislative or litigation
developments that make the rent-to-own industry less attractive to potential franchisees. These developments could also
adversely affect our franchisees' ability to obtain adequate capital to develop and operate new stores on time, or at all.
Our inability to find qualified franchisees could slow our growth.
Qualified franchisees who conform to our standards and requirements are also important to the overall success of our
business. Our franchisees, however, are independent businesses and not employees, and consequently we cannot and do
not control them to the same extent as our Company-operated stores. Our franchisees may fail in key areas, which could
in turn slow our growth, reduce our franchise revenues or damage our image and reputation.
If we are unable to integrate acquired businesses successfully and realize anticipated economic, operational and
other benefits in a timely manner, our profitability may decrease.
We frequently acquire other sales and lease ownership businesses. We acquired the lease agreements, merchandise and
assets of 44 Aaron’s Sales & Lease Ownership stores and four HomeSmart stores through acquisitions in 2012. If we
are unable to integrate successfully businesses we acquire, we may incur substantial cost and delays in increasing our
customer base. In addition, the failure to integrate acquisitions successfully may divert management's attention from