Aarons 2013 Annual Report Download - page 34

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
Aaron’s, Inc. (“we”, “our”, “us”, “Aaron’s” or the “Company”) is a leading specialty retailer of consumer electronics,
computers, furniture, household appliances and accessories. Our major operating divisions are the Aaron’s Sales & Lease
Ownership division, the HomeSmart division and the Woodhaven Furniture Industries division, which manufactures and
supplies the majority of the upholstered furniture and bedding leased and sold in our stores.
Aaron’s has demonstrated strong revenue growth over the last three years. Total revenues have increased from $2.013 billion in
2011 to $2.235 billion in 2013, representing a compound annual growth rate of 5.4%. Total revenues for the year ended
December 31, 2013 increased $21.8 million, or 1.0%, over the prior year. The majority of our growth comes from the opening
of new sales and lease ownership stores and increases in same store revenues from previously opened stores.
The Company’s franchised store activity and Company-operated store activity for Sales & Lease Ownership, HomeSmart and
RIMCO stores is summarized as follows:
2013 2012 2011
Franchised stores
Franchised stores open at January 1, 749 713 664
Opened 45 56 55
Purchased from the Company 2 3 9
Purchased by the Company (10) (21) (7)
Closed, sold or merged (5) (2) (8)
Franchised stores open at December 31, 781 749 713
Company-operated Sales & Lease Ownership stores
Company-operated Sales & Lease Ownership stores open at January 1, 1,227 1,144 1,135
Opened 33 73 51
Added through acquisition 10 21 8
Closed, sold or merged (8) (11) (50)
Company-operated Sales & Lease Ownership stores open at December 31, 1,262 1,227 1,144
Company-operated HomeSmart stores
Company-operated HomeSmart stores open at January 1, 78 71 3
Opened 3 7 24
Added through acquisition — 1 44
Closed, sold or merged — (1) —
Company-operated HomeSmart stores open at December 31, 81 78 71
Company-operated RIMCO stores 1
Company-operated RIMCO stores open at January 1, 19 16 11
Opened 8 3 6
Closed, sold or merged — — (1)
Company-operated RIMCO stores open at December 31, 27 19 16
1 In January 2014, we sold our 27 Company-operated RIMCO stores and the rights to five franchised RIMCO stores.
We added a net of 46 Company-operated sales and lease ownership stores in 2013. We spend on average approximately
$700,000 to $800,000 in the first year of operation of a new store, which includes purchases of lease merchandise, investments
in leasehold improvements and financing first-year start-up costs. Our new sales and lease ownership stores typically achieve
revenues of approximately $1.1 million in their third year of operations. Comparable stores open more than three years
normally achieve approximately $1.4 million in revenues, which we believe represents a higher unit revenue volume than the
typical rent-to-own store. Most of our stores are cash flow positive in the second year of operations.
We also use our franchise program to help us expand our sales and lease ownership concept more quickly and into more areas
than through opening only Company-operated stores. Our franchisees added a net of 32 stores in 2013, which was impacted by
our purchase of 10 franchised stores during 2013. Franchise royalties and other related fees represent a growing source of high
margin revenue for us. Total revenues from franchise royalties and fees for the year ended December 31, 2013 increased from
$63.3 million in 2011 to $68.6 million in 2013, representing a compounded annual growth rate of 4.1%. Total revenues from
franchise royalties and fees for the year ended December 31, 2013 increased $1.9 million, or 2.9%, over the prior year.