Aarons 2013 Annual Report Download - page 25

15
result of opening new stores;
• timing of promotional events; and
• our ability to execute our business strategy effectively.
Changes in our quarterly and annual same store revenues could cause the price of our common stock to fluctuate significantly.
Continuation or worsening of current economic conditions could result in decreased revenues or increased costs.
The U.S. economy is currently experiencing prolonged uncertainty accompanied by high unemployment. We believe that the
extended duration of current economic conditions, particularly as they apply to our customer base, may be resulting in our
customers curtailing entering into sales and lease ownership agreements for the types of merchandise we offer, resulting in
decreased revenues. In addition, unemployment may result in increased defaults on lease payments, resulting in increased
merchandise return costs and merchandise losses.
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. During 2013, we estimate that start-up expenses for new stores reduced our net earnings by approximately
$10.4 million, or $.14 per diluted share, for our Aaron's Sales & Lease Ownership stores and approximately $300,000 for our
HomeSmart stores, which had no impact on earnings per diluted share. 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 depends significantly upon our franchisees developing new franchised sales and lease ownership stores,
maximizing penetration of their designated markets and operating their stores successfully. We generally seek franchisees who
meet our stringent business background and financial criteria and who are willing to enter into area development agreements
for multiple stores. A number of factors 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 the ability of our franchisees to obtain capital needed to develop and operate
new stores.
Operational and other failures by our franchisees may adversely impact us.
Qualified franchisees who conform to our standards and requirements are 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 slow our growth, reduce
our franchise revenues or damage our 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. Since the beginning of 2009, we acquired the lease
agreements, merchandise and assets of 169 Aaron's Sales & Lease Ownership stores and 51 HomeSmart stores. If we are
unable to successfully integrate businesses we acquire, we may incur substantial cost and delays in increasing our customer
base. In addition, our efforts to integrate acquisitions successfully may divert management’s attention from our existing
business, which may harm our profitability. The integration of an acquired business may be more difficult when we acquire a
business in an unfamiliar market or with a different management philosophy or operating style.
Our competitors could impede our ability to attract new customers, or cause current customers to cease doing business
with us.
The industries in which we operate are highly competitive. In the sales and lease ownership market, our competitors include
national, regional and local operators of rent-to-own stores and traditional retailers. Our competitors in the sales and lease
ownership and traditional retail markets may have significantly greater financial and operating resources and greater name
recognition in certain markets. Greater financial resources may allow our competitors to grow faster than us, including through
acquisitions. This in turn may enable them to enter new markets before we can, which may decrease our opportunities in those
markets. Greater name recognition, or better public perception of a competitor’s reputation, may help them divert market share
away from us, even in our established markets.