Aaron Rents (NYSE: RNT ) saw an opportunity to expand its store base as its main competitor, Rent-a-Center (Nasdaq: RCII ) , acquired Rent-Way. Aaron Rents launched an aggressive program to open 350 new stores in 18 months, and so far, 100 new locations have been established. Expect to see Aaron Rents popping up like mushrooms overnight in 2007.
The growth strategy has been pushing revenue up. In the fourth quarter, it rose 15% to nearly $340 million, and for the year, it was up 18% to more than $1.3 billion. Growth has been good across the board. Other than furniture leases, which were flat, Aaron Rents saw 20% growth or greater in appliances, electronics, and computers. In particular, laptop computer growth was a remarkable 139% increase over the year-ago period.
Aaron Rents makes available popular consumer products, furniture, and appliances at low weekly rates for people who might not otherwise be able to afford them. Customers with poor credit or no credit might not be able to buy a refrigerator at Best Buy (NYSE: BBY ) or a wide-screen TV at Circuit City (NYSE: CC ) , but they can go to Aaron Rents, rent one, and then have the option to buy it at the end of the contract.
It's definitely not the most cost-effective way to go, since the lease rates can almost double the price of the product or appliance you're buying. Interest can at times exceed 80% per year. That's what Rent-a-Center was charged with doing when it was found in violation of New Jersey's usury laws, which cap rates at 30% per year.
That's why you won't find any more Aaron Rents opening up in the state anytime soon. The company already has 11 stores in New Jersey split about evenly between company-owned operations and franchises. In the wake of the court decision, it had to takeover a handful of its franchised stores as the franchisees sought to exit the business. Despite the new store launch program, there won't be any mushrooms popping up in the Garden State.
As unsavory as some see the business, Aaron Rents does an admirable job of keeping its customers coming back. While same-store sales have slowed from the double-digit pace the company was exhibiting a year ago, comps were still up over 7% for the quarter. Same-store sales, or sales at stores open for a year or more, represent an important retail metric. Although the torrid pace has eased up, they still signify strong demand for its business.
With profits up 36% in 2006, Aaron Rents looks like its making a move to own the industry.
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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
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