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Aaron's Inc (NYSE:AAN)
Q4 2020 Earnings Call
Feb 23, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Michelle, and I will be your conference coordinator. At this time, I would like to welcome everyone to the Aaron's Company Fourth Quarter 2020 Earnings Conference Call. [Operator Instructions] After the speakers' remarks, there will be a question-and-answer session.

I will now turn the call over to Mr. Michael Dickerson, Vice President of Corporate Communications and Investor Relations for Aaron's. You may begin your conference.

Michael P. Dickerson -- Vice President, Corporate Communications & Investor Relations

Thank you, and good morning, everyone. Welcome to the Aaron's Company Fourth Quarter 2020 Earnings Conference Call. Joining me this morning are Douglas Lindsay, Aaron's Chief Executive Officer; Steve Olsen, Aaron's President; and Kelly Wall, Aaron's Chief Financial Officer.

Many of you have already seen a copy of our earnings release issued this morning. For those of you that have not, it is available on the Investor Relations section of our website at investor.aarons.com.

During this call, certain statements we make will be forward-looking, including our financial performance outlook for 2021. Actual results in the future may be materially different than those discussed here. This could be due to a variety of factors including, among other things, uncertainties associated with the duration and severity of the COVID-19 pandemic and related impact on the economy and supply chain. I want to call your attention to our Safe Harbor provision for forward-looking statements that can be found at the end of our earnings release. The Safe Harbor provision identifies risks that may cause actual results to differ materially from the content of our forward-looking statements. Also, please see our Form 10-K for the year ended December 31, 2020, and other periodic filings with the SEC for a description of the risks related to our business that may cause actual results to differ materially from our forward-looking statements. Listeners are cautioned not to place undue emphasis on forward-looking statements, and we undertake no obligation to update any such statements.

On today's call, we will be referring to certain non-GAAP financial measures, including EBITDA and adjusted EBITDA, non-GAAP net earnings and non-GAAP EPS, which have been adjusted for certain items, which may affect the comparability of our performance with other companies. These non-GAAP measures are detailed in the reconciliation tables included with our earnings release. The company believes that these non-GAAP financial measures provide meaningful insight into the company's operational performance and cash flows, and provides these measures to investors to help facilitate comparisons of operating results with prior periods and to assist them in understanding the company's ongoing operational performance.

Let me add one comment, as it relates to our basis of presentation. For the month of December, 2020, our results represent the consolidated statements of the company and its subsidiaries, and is based on the financial position and results of operations as a stand-alone company. For all periods prior to December 1st 2020, combined financial statements include all revenue and cost directly attributable to the company and an allocation of expenses from our former parent related to certain corporate functions and actions. A more detailed explanation of our basis of presentation can be found in our Form 10-K filed today.

With that, I will now turn the call over to our CEO, Douglas Lindsay.

Douglas A. Lindsay -- Chief Executive Officer

Thanks, Mike, and thank you for joining us today. First, let me take a moment to recognize all of our talented team members for their determination and commitment in 2020, which enabled Aaron's to accelerate our key strategic priorities in a very challenging year. Our fantastic team members at our stores, distribution and service centers, Woodhaven manufacturing and store support center worked tirelessly to provide products and services to our customers, while accelerating our digital and real estate transformation. We overcame the challenges posed by the COVID-19 pandemic, while continuing to meet the needs of our customers and safeguarding our team members. At the same time, we delivered annual revenues that exceeded our expectations for the year and an adjusted EBITDA that was higher than we've generated in several years. In addition, during the year, our team has worked diligently to establish Aaron's as a new stand-alone publicly traded company. The spin-off transaction closed on November 30th 2020. And following the spin, we are well positioned with a strong balance sheet and cash flow profile to execute on our go-forward strategy.

While some uncertainty remains regarding how the Corona virus may impact the economy or consumer behavior, I'm more energized and optimistic about our future than ever. Our business has never been more nimble, and we continue to make investments in technology, decisioning, e-commerce and store operations that are yielding higher productivity and lease portfolio performance.

In the fourth quarter of 2020, same-store revenues rose 3.4% as compared to the prior year quarter, primarily due to strong customer payment activity, improving lease portfolio size and higher retail sales. The fourth quarter was the sixth out of the last eight quarters with positive same-store comps, with 2020 representing the first annual positive same-store revenue growth since 2013. Additionally, we ended 2020 with a larger and healthier lease portfolio than we had at the beginning of the year. The larger portfolio size is a result of better collections, fewer product returns and lower write-offs, which was enabled by improvements in operational execution, the roll-out of centralized decisioning technology and enhancements to our customer payments platform. We achieved this larger portfolio despite revenue written into the portfolio that was flat in the fourth quarter. Recall that our implementation of decisioning technology in the second quarter of 2020 effectively reduced new lease originations and therefore, revenue written by 6% to 8%.

Moving to our e-commerce channel. Revenues grew 39% in the quarter and represented approximately 13% of total lease revenues compared to 10% in the fourth quarter of 2019. Thanks to the tremendous efforts of our team; traffic to our aarons.com site continues to increase year-over-year, as our customers are increasingly going online in search of affordable products for their homes. In the fourth quarter, e-commerce traffic was up 29% compared to the fourth quarter of 2019. Despite the significant increase in traffic at aarons.com, e-commerce recurring revenue written into the portfolio declined 1.2% as compared to last year's fourth quarter, due to both decisioning optimization and lower conversion of traffic. Conversion is not what we would expect it to be due to the inventory shortages resulting from the global supply chain disruption. However, our inventory position continues to modestly improve in the first quarter of 2021, which should lead to higher conversion rates. I'm encouraged by the progress of our e-commerce initiatives, including our evolving analytics and digital capabilities. Improvements in online customer acquisition, conversion and decisioning are leading to margin growth and continued positive momentum in this important channel.

In 2020, we also accelerated our strategy to consolidate, remodel and reposition our store footprint with our new GenNext store concept, which includes enhanced shared rooms, digital technologies, expanded product assortment and improved brand imaging. As of the end of the year, we had 47 GenNext stores opened and have more than 60 additional stores in the 2021 pipeline. Our GenNext stores are performing well, delivering new lease volumes that are higher than the corporate averages and in line with our expectations. While the new stores still represent a small portion of our overall store count, we believe over time the execution of our GenNext store strategy will provide meaningful lift to our overall performance.

Overall, I'm pleased with our full year of 2020 and fourth quarter results. And I'm encouraged about the future and our new chapter as a financially strong stand-alone public company. As we look to 2021, we remain focused on our key strategic initiatives of simplifying and digitizing the customer experience, aligning our store footprint to our customer opportunity and promoting the Aaron's value proposition of low payments, high approval rates and best-in-class service.

And now, I'll turn the call over to our Chief Financial Officer, Kelly Wall, to discuss our financial results.

C. Kelly Wall -- Chief Financial Officer

Thank you, Douglas. For the full year 2020, consolidated revenues were $1.735 billion, a decline of 2.8% compared to the full year 2019. This decline is primarily the result of a reduction of 253 company-operated stores in 2019 and 2020 partially offset by a 1.8% increase in same-store revenues for the year. Adjusted EBITDA for the full year 2020 was $208.9 million, an increase of $43.6 million or 26.4% compared to the full year of 2019. As a percentage of revenues, adjusted EBITDA was 12% compared to 9.3%, an increase of 270 basis points over the prior year. This increase in adjusted EBITDA is primarily due to an improvement in customer payment activity, fewer lease merchandise returns and efficiencies in store operations, including pandemic-related staffing reductions in the second and third quarters of 2020. Write-offs were 4.2% of lease revenues in 2020, a 200 basis point improvement over 2019. Annual non-GAAP earnings per share was $3.02 in 2020, an increase of 43.8% compared to $2.10 for prior year 2019.

Turning to the fourth quarter of 2020. Revenues were $430 million, a decrease of approximately 1% compared to the same quarter last year, despite the closure, consolidation and acquisition of a net 75 company-owned locations throughout the year. Adjusted EBITDA was $53.7 million for the fourth quarter compared to $51.2 million for the same period of 2019, an increase of $2.5 million or 4.8%. Adjusted EBITDA margin was 12.5% of revenues compared to 11.8% in the same period a year ago, an increase of 70 basis points. The improvement in Q4 2020 adjusted EBITDA margin was primarily due to the reduction in inventory write-offs, partially offset by comping over the impact of one-time benefits realized in the fourth quarter of the prior year period. These one-time items in 2019, related primarily to gains from real estate sale and leaseback transactions and other miscellaneous items. Excluding these one-time items from 2019, adjusted EBITDA margin in the fourth quarter of 2020 would have improved approximately 250 basis points. Diluted earnings per share on a non-GAAP basis for the quarter increased 11.3% to $0.79 versus $0.71 in the prior year quarter, primarily due to the continuing strength of customer payment activity and reduced lease merchandise write-offs. Operating expenses were down $1.2 million as compared to the fourth quarter of 2019, primarily due to an $11.7 million reduction in write-offs, offset primarily by an increase in advertising spend and the previously mentioned benefit of real estate transactions that took place in the fourth quarter of the prior year. During the fourth quarter of 2020, the company's store labor expense increased compared to the second and third quarters, during which labor expenses were lower due to pandemic-related store closures and furloughs. Write-offs in the fourth quarter were 4.3%, down 300 basis points from the prior year fourth quarter, due primarily to the implementation of our new decisioning technology, improved operations and the benefit of government stimulus. Cash generated from operating activities was $355.8 million for the 12 months ended December 31, 2020. Cash from operating activities grew $169.8 million year-over-year, primarily due to improved lease portfolio performance, lower inventory purchases and one-time tax benefits resulting from the CARES Act, partially offset by other changes in working capital. At the end of the year, the company had a cash balance of $76.1 million and less than $1 million of debt. In addition, concurrent with completing the spin-off transaction of November 30th, the company entered into a $250 million unsecured revolving credit facility, which was undrawn at the end of 2020, giving the company more than $300 million of liquidity as of year-end.

Before I review our outlook for 2021, I want to remind you all that in November, prior to completing the spin-off transaction, the legacy combined company accelerated the payment of its regular quarterly cash dividend, which would normally have been paid in January 2021.

Turning to our 2021 outlook. We currently expect total revenues in the range of $1.65 billion to $1.7 billion. This represents a $50 million increase to the bottom end of the preliminary outlook we provided in connection with our spin-off roadshow in November, which is summarized on Slide 17 of the roadshow presentation and is available on the Investor Relations section of our website. Adjusted EBITDA is expected to be in the range of $155 million to $170 million, representing an increase in the midpoint of our outlook as compared to the preliminary outlook we provided in November. As it relates to the seasonality of our financial results, we expect that both revenues and earnings will be somewhat higher in the first six months of 2021 compared to the second six months of 2021. Free cash flows, which we define as operating cash flows of less capital expenditures, are expected to be $80 million to $90 million. Capital expenditures are also expected to be between $80 million and $90 million for the year. This outlook assumes a few key items we want to highlight. First, no significant deterioration in the current retail environment or in the state of the U.S. economy as compared to its current condition. Second, a gradual improvement in global supply chain conditions. And finally, no incremental government stimulus or supplemental unemployment benefits.

To summarize, 2020 was a successful year for Aaron's, despite the many challenges our team members and customers faced. To echo Douglas's earlier comments, I am encouraged by the opportunity ahead of us. The unique nature of Aaron's recurring revenue business model combined with our strong balance sheet, cash flows and operating leverage enables us to perform well during this period of uncertainty.

With that, I will now turn the call over to the operator, who will assist with the taking of your questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Your first question will come from Anthony Chukumba from Loop Capital Markets. Your line is open.

Anthony Chukumba -- Loop Capital Markets LLC -- Analyst

Wow, I got to ask the first question on your first call as a publicly traded company [Technical Issues] traded company. I am honored.

Douglas A. Lindsay -- Chief Executive Officer

Thank you, Anthony.

Anthony Chukumba -- Loop Capital Markets LLC -- Analyst

Being a little more serious, Doug, congrats on a great finish to a great year. I guess I have a couple of questions. My first question is on capital allocation. So, you ended the year with essentially $76 million of cash and virtually no debt, $1 million worth of debt. You're going to generate another $80 million, $90 million of free cash flow, and your stock is trading at kind of a [Indecipherable] multiple. So, I guess, I'm just wondering how do you think about capital allocation in terms of cash dividend and also share repurchases.

Douglas A. Lindsay -- Chief Executive Officer

Yeah, Anthony. Hey, this is Douglas. Thanks for being our first questioner on our first earnings call. Glad to have you here. Yeah. So, we've actually -- we've got a very nice setup on our balance sheet, as you mentioned, and great cash flow prospects. As Kelly mentioned, in 2021, we're going to be deploying -- give a bit of that cash that Kelly laid out into internal investments in technology and real estate strategy. And that's been laid out in our outlook. We continue to focus, however, on returning capital to shareholders and that is super important to us. As you recall, at the time of the spin, when we did the roadshow, we indicated that we expect to pay a dividend of $10 million to $15 million on annual cash dividends. And that continues to be our expectation. Kelly mentioned in his prepared remarks, we did accelerate our normal January dividend into November of 2020, so our shareholders wouldn't miss a payment while our new board formalizes that dividend policy and makes plans for the future and the future of our capital structure. So, that's all in process. We've also historically used share buybacks in the past to return capital to shareholders. It's something that we've been discussing. And we'll discuss as a management team, as a Board, and will give you more information on that in the future, if that is something we want to pursue. And lastly, I would say, almost, is while M&A activity is not our primary focus right now, we're open to looking at strategic opportunities as they arise and we will continue to do so as part of our direct-to-consumer strategy and sort of pursuing our core strategy in the business. So, I've listed these specifically in the order of focusing on executing our existing strategies, returning capital to shareholders and then opportunistic M&A as we look to the future.

Anthony Chukumba -- Loop Capital Markets LLC -- Analyst

Got it. That's helpful. And then, just one follow-up question. So, in terms of the guidance, you talked about the fact that you expect sales mix stronger in the first half than the second half. I am assuming that we're seeing some sort of lingering impact from stimulus. I know that compares a little bit easier in the first half as stores were closed. I guess my question is, to the extent that there are additional disclosing consumer stimulus measures enacted, and I know that the administration is working on [Indecipherable] taxes the right now, is it safe to assume that there would be upside to your current guidance?

C. Kelly Wall -- Chief Financial Officer

Yeah. Hey, Anthony. It's Kelly. You're correct. As we pointed out on the call, our outlook does not include any benefit of incremental stimulus that may be past this year. If you look back at last year, certainly we and others benefited from the stimulus that was pushed into the market. But again, it's difficult for us to forecast exactly what impact that's going to have on our business, which is obviously why we didn't include it in our outlook. A few things to note, right? While there is generally consensus it seems around the size and the makeup of what stimulus may look like, we don't know when it's going to start; we don't know, I guess, formally when it's going to end, either, right? So, it makes that a little bit challenging. The other thing that's unique this year is, as we were going into the pandemic in early 2020, the economy was in great shape, unemployment was at record lows, our customer was in a really good spot. As we sit here today, obviously, unemployment's elevated; customers, we believe, are behind in rent payments and other obligations that they have. So, we don't know exactly how they may use that stimulus when it comes available to them relative to how they used it last year. And finally, I think we'd be remiss to not point out that there is some uncertainty, right, around the tax season this year. We know it's delayed. We know that there is a high probability that our customers will have some liabilities this year that they haven't had in the past. So when you put all that together, it makes it very difficult to forecast. But as a general rule, our customer, whether it's due to rising wages, right, increasing employment or government stimulus, when they have greater liquidity, we tend to do better.

Anthony Chukumba -- Loop Capital Markets LLC -- Analyst

Got it. That's very helpful. Thanks. Thanks so much, guys. Keep up the good work.

Douglas A. Lindsay -- Chief Executive Officer

Thank you, Anthony.

C. Kelly Wall -- Chief Financial Officer

Thank you, Anthony.

Operator

And your next question will come from Kyle Joseph from Jefferies. Your line is open.

Kyle Joseph -- Jefferies LLC -- Analyst

Hey, good morning, guys. Congratulations on a good quarter. Regarding the outlook, to your point, is better than when you provided it in November. Can you give us a sense of that, because you had a bigger portfolio at the end of the fourth quarter. Was that because of some incremental performance following the stimulus in December? And what really drove the improvement in the outlook?

C. Kelly Wall -- Chief Financial Officer

Yeah. It was really a few things, Kyle. So, we did continue to have strong collection activity, right, as we believe as we moved to the end of the year that was less impacted by stimulus and continued to be positively impacted by the roll out nationally of our centralized decisioning platform earlier in the year, as well as just the incredible performance that our operating team is putting forward in the field. So, those are two things that continue to kind of drive that. The other is, we are ending the year slightly higher, right, than what we were thinking as we were completing the roadshow. And then, to a much lesser extent, we did get some stimulus in December, which has helped in the first few weeks of the first quarter.

Kyle Joseph -- Jefferies LLC -- Analyst

Got it. And then just one follow-up from me, focusing on credit. Would you, in this '21, sort of anticipate write-off levels normalizing? And then can you walk us through the outlook for credit performance in kind of the post-centralized underwriting, how performance has been versus your expectations? And then I guess the third leg of this question would be, highlight how e-commerce credit performance has been versus your expectations.

Douglas A. Lindsay -- Chief Executive Officer

Yeah. Hey, Kyle, it's Douglas. I'll let Kelly talk about the outlook and what we've assumed there, but I'll just make a general comment on. As you know, and just to remind everybody, we rolled out centralized decisioning in the second quarter of 2020. A large piece of our portfolio now has been centrally decisioned. While we can't exactly differentiate our collections -- our strong collection performance this year, how much was related to that versus stimulus, we do look at the pools by sort of scoring bands, and we have great confidence that centralized decisioning is improving our results, sort of keeping customers in the right-size deal and making a stronger and healthier portfolio as we move forward. So, that's been really successful.

I think the biggest win there is probably the reaction by our team members. It simplified processes in our stores and made us more efficient in our labor model, which is great and sort of a win-win from all sides for Aaron's for the customers and for our team members. In terms of e-commerce, this is, again, a big win. As you know, we had centralized decisioning in e-commerce for a long time. We've been continuing to optimize our models there and really restrict, and we've commented on this, and our recurring revenue written was down. Part of that down recurring revenue written was us further optimizing our decisioning on e-com. And that has really benefited us over the course of the year and by the end of the fourth quarter, we are seeing losses that were close to half of what they were the previous fourth quarter.

So, we're seeing considerable margin flow-through in e-com and we're really happy about the decisioning there. I'll let Kelly talk about 2021 write-offs.

C. Kelly Wall -- Chief Financial Officer

Yeah. So, Kyle, we've obviously enjoyed lower write-offs this year than we experienced last year and also lower than what I would consider our more normalized historic levels. As it relates to our outlook, we do expect to start to return back to those more normalized levels as well. I believe on -- during our roadshow discussion, I had put out there a range of 4% to 5% in 2021, and we currently expect that the year will play out in that range.

Kyle Joseph -- Jefferies LLC -- Analyst

[Technical Issues] answering my questions, and congrats on a [Technical Issues] end to 2020.

Douglas A. Lindsay -- Chief Executive Officer

Thanks, Kyle.

Operator

And your next question will come from Brad Thomas from KeyBanc Capital. Your line is open.

Bradley B. Thomas -- KeyBanc Capital Markets, Inc. -- Analyst

Hi, good morning. Douglas, Kelly, Mike, let me add in my congratulations as well on a great year and a first quarter here as a public company.

C. Kelly Wall -- Chief Financial Officer

Thanks, Brad.

Douglas A. Lindsay -- Chief Executive Officer

Thank you.

Bradley B. Thomas -- KeyBanc Capital Markets, Inc. -- Analyst

One of my --- Sure, sure. One of my first question -- I have two questions. My first question is going to be around how you all are thinking about write-offs, and you've addressed this a bit. But at this point, in overall, just trying to look at crystal ball as we figure out how will behavior in America change over the next 12 to 24 months ahead, but how are you thinking about what normalized write-offs should look like, particularly as a vaccine gets out there and some of the stimulus gets behind us?

Douglas A. Lindsay -- Chief Executive Officer

Yeah. I mean, just a couple of thoughts on that. But if you look at our total collection percentages, forget write-offs, last year in 2020, I mean, we were collecting 200 plus basis points higher on our portfolio than we had if we look at historic years or five years prior to that, sort of a normalized range. While we believe that stimulus helps that, we think as the vaccine rolls out and as potentially we get more stimulus and there will be a normalizing of write-offs over time, so as we move into the year, we'll see more normalizing. If we get further stimulus, we should be supported in some way. That 200 basis points of improvement is not necessarily all stimulus. It also included the benefit of centralized decisioning, which Kelly mentioned. And so, as we look forward, if we have no stimulus, we would expect it to revert back to kind of our five-year averages, which is losing the 200%. And that obviously translates into both revenue reductions in the portfolio because revenue is our collected revenue, not our potential revenue, and it also translates into write-off performance, which we would see normalizing as well.

So -- Kelly, I don't know if you have any additional comments to them?

C. Kelly Wall -- Chief Financial Officer

No, I think you covered it properly.

Douglas A. Lindsay -- Chief Executive Officer

Okay.

Bradley B. Thomas -- KeyBanc Capital Markets, Inc. -- Analyst

That's great. And then, my follow-up question, Douglas, is going to be if you could help talk about some of the things that you're doing with e-commerce and with customer intention, just given the changes in the competitive landscape. And I would say that I'm on the receiving end of more calls to look at this space than I have in a long time, given SPACs that are happening in the group and acquisitions of B2C players that are occurring. And so, it seems that competition is definitely heating up. On the other hand, you've just put up three of the best quarters of same-store sales in a long time. So, if you could talk a little bit about the competitive landscape and how do you feel, like, your in-store offering and e-commerce offering are perhaps better positioned than maybe investors perceive to face the competition? Thanks.

Douglas A. Lindsay -- Chief Executive Officer

Sure. I mean -- First, let me say, I'm really proud of what the team has accomplished over the past five years. We've modernized our platforms, we've centralized processes, we've built a fully transactional e-commerce business at scale, and our analytics and data systems are driving value in our company every day. And all of this is on the back of our growing e-commerce platform and an omnichannel experience for our customer that we think is definitely leading in the industry. As you know, e-com has always been a competitive advantage for us. We've got a large store network that we can leverage with global supply chain and last-mile logistics. And as we grow that, we really feel like we can drive margin performance over time. Also importantly, we're acquiring on the e-com a younger, newer customer to Aaron's; many of those that are shopping on our e-com site after our store hours. And so, we think we've got a huge benefit of our embedded infrastructure and layering e-com on top of that. As you saw in the quarter, we continue to drive more traffic to our site. I think the big number there was traffic was up 29% in the quarter, thanks to the terrific work that our teams are doing in customer acquisition and search; and conversion of that traffic while lower during the quarter due to inventory has also been improving over the course of the year and we expect that to get back to normalized levels in 2021. So, we're super excited about that. It's currently 13% of revenue. We expect it to be a bigger part of the business as we move forward. And as I mentioned on the last questions from Kyle, probably what's most encouraging is the control of the health of the e-com portfolio and the loss rates that have been coming down.

So, as we think about e-com, we're kind of it -- I mean, even though we feel like we're in, like, inning three, I really feel like we're in inning one. We've got a lot to do. I'm going to let Steve just talk briefly about our roadmap for it on e-com.

Steve Olsen -- President

Sure. Thanks, Douglas. As we discussed in the investor roadshow, we have a multi-year roadmap to drive our e-com business really focused around digitizing that journey for the customer and then putting them in control. A few things in '21 that we're working on in this area are, first, I'd call up personalization. We want to continue to connect our site to the point of entry for the customer and then give them content that's relative maybe to their prior site experience. We want to continue to enhance the shopping experience, whether that's content, whether that's better filtering of functionality and obviously, an expanded assortment that we continue to add to. We're going to continue to focus on our site performance to make that a great experience and hopefully remove any friction for that customer and modernize our self-service platform, so really putting the customer in control, allowing them to really manage their accounts, their payments, get servicing that they need and asking questions. So, we're really excited about the road map we have for e-com and it's really going to build upon as we move throughout the year.

Douglas A. Lindsay -- Chief Executive Officer

Yeah. So, Mr. Brad, I think as we look to the future, direct-to-consumer online is hugely -- a big part of our strategy and hugely important to us. We're adding more products and we will be looking at any and all things and going to help advances in that area.

C. Kelly Wall -- Chief Financial Officer

Yeah. And Brad, it's Kelly. I have just one more thing to add, right, that we view as a differentiator around our model. I mean, we take a true omnichannel approach and stores are key element of our strategy, which enables the return of product from customers. So, that does a few things. Right? Obviously, better experience for our customer. Right? And the second thing is that with returns, with that model, we can go deeper into the risk portfolio to serve more customers. And then finally, we're able to extend terms. So, up to 24-month terms, which allow for lower monthly payments for our customers.

Bradley B. Thomas -- KeyBanc Capital Markets, Inc. -- Analyst

Perfect. That's all really helpful. Thank you all so much.

Douglas A. Lindsay -- Chief Executive Officer

Thank you.

Operator

And your next question will come from Bobby Griffin from Raymond James. Your line is open.

Douglas A. Lindsay -- Chief Executive Officer

Good morning, Bobby.

Bobby Griffin -- Raymond James -- Analyst

Thank you for taking my questions, and congrats on having spinned on and now operating as a public company on your own.

C. Kelly Wall -- Chief Financial Officer

Thanks, Bobby.

Bobby Griffin -- Raymond James -- Analyst

I guess, ultimately, I want to dive a little bit into 2021 guidance and just maybe understand a little better what's assumed for written revenues into the portfolio in 2021? If we start to lap the centralized decisioning changes you guys made in 2Q of 2021, written revenues then start to grow back into the portfolio as we lap that?

C. Kelly Wall -- Chief Financial Officer

Yes. Bobby, there's kind of a few things going on there as it relates to the portfolio. Obviously, as part of our real estate repositioning and remodeling strategy, we expect to continue to consolidate stores. As we laid out in the roadshow, over the next five years, there's -- 20% to 30% of our current company-owned stores will be merged into existing stores with their markets. That leads to a reduction in the portfolio. So -- But I'd say that on a same-store set, right, we have a combination of continuing kind of at our current pace of revenue written in. But at the same time, collections, as we've mentioned before, will begin to return to more normalized levels. We believe that offsets though, in terms of the impact that has on revenues with a higher quality portfolio. So, one of the real benefits for our centralized decisioning is that we sit here today with a much higher quality book of leases. And so, as we collect more on those leases and have less returns as a percentage of the total pool, the expectation is that will ultimately result in kind of 0% to 2% positive comps for the year.

Bobby Griffin -- Raymond James -- Analyst

Okay.

Douglas A. Lindsay -- Chief Executive Officer

And Bobby, the way I'd...

Bobby Griffin -- Raymond James -- Analyst

[Speech Overlap] I'm sorry.

Douglas A. Lindsay -- Chief Executive Officer

The way I think about it is, we'll be comping through the second quarter against that revenue written. So, our approval rates are down 6% to 8%. So, you should expect pressure over the first two quarters against the prior year. And then, a relief of that pressure in the second half of the year. I think one of the bridging items that Kelly was getting to on same-store revenues is that while revenue written into the portfolio is a leading indicator of the size of the portfolio, so is what we churned out of the portfolio. And last year, we churned out considerably less customers than we had previously and we'd mentioned that product returns were lower, as were write-offs, and that's a component of our portfolio health that we're keeping customers in the portfolio. We would expect in 2021 to have higher churn than we did ex-stimulus, than we did in 2020, which puts pressure on the portfolio and therefore, even though we have a larger size to begin the year, we see it more normalizing and that's why we're guiding to a 0% to 2% same-store sales.

Bobby Griffin -- Raymond James -- Analyst

Okay, that's helpful. Yeah, I was -- I should have probably cleared my question up, but I was thinking more on a comp basis, realizing you guys are closing stores. Just for modeling purposes, is there a rough estimate of store count closures that we should assume or relocation that we should assume in 2021 in our models?

Douglas A. Lindsay -- Chief Executive Officer

Yeah. I think our plan this year is probably to close roughly 50 stores.

Bobby Griffin -- Raymond James -- Analyst

Okay. Okay, perfect. And I guess lastly from me, you mentioned you saw a little bit of uptick with the recent stimulus, I think the $600 checks. But just looking at that, was the customer behavior similar to the first stimulates where the prepayments or what they looked at or what they bought or just anything that help us think about how your customers behave this round? And maybe we can kind of translate that a little bit into what would happen if there is another around of stimulus versus the first time we got it back in the summer months, in the heart of the pandemic?

C. Kelly Wall -- Chief Financial Officer

Yeah. Bobby, that's a great question. I mean, unfortunately, it's very difficult for us to answer. Right? Because -- I mean, first -- when that first round of stimulus came in, we also rolled out centralized decisioning nationally. There was also the proven operations under our new Chief Store Operations Officer, Ryan Malone, that was driving that as well. So, it's hard for us to disaggregate exactly how much of the lift that we saw in 2020 is attributable to stimulus. You put on top of that, it's -- the way it's flowing out is different. So, you might recall that customers received the stimulus over a longer period of time back in Q1 and Q2, whether that was checked in [Indecipherable] or just delays in the electronic transfer of funds. And on top of that, the one-time stimulus also includes the enhanced weekly unemployment benefit. You roll forward to December, what did we see. Right? So, the $600 rolled out. It rolled out much quicker, because folks were expecting it and it was more quickly delivered. On top of that, that $600 did not include any monthly unemployment benefit, which quite candidly, I think, as we sit back and think about it, is the bigger driver of the stimulus, because we benefited from that over a period of months [Phonetic] in 2020, whereas this $600 stimulus in December was a one-time pop. At the same time, and I mentioned this earlier, our customers are just in a different spot at the end of 2020 and at the beginning of 2021 than they were going into pandemic. So, how they used the stimulus was likely much different.

Bobby Griffin -- Raymond James -- Analyst

Okay, that's helpful. And then I guess lastly for me, just on the supply chain. You guys called it out in the release that the guidance assumes in moderating, giving a little better. But when we look at it sequentially, has all categories that were seeing issues started to improve? Or has there been some categories that have taken a step back in terms of availability or move in the right direction across the board?

Steve Olsen -- President

Hey, Bobby. This is Steve. I'm glad to answer that. I would say that we've seen moderate improvement across all categories. So, from a demand perspective, you're seeing that the categories that throughout the summer and into the fall, that we're continuing to grow, whether it was appliances, computers, things like that. But from a supply perspective, we work daily with our suppliers to pre-plan the flow of inventory wins coming and what their outlook is. So, we're optimistic and believe that we'll see continued modest improvement across all our categories as we moved into '21.

Bobby Griffin -- Raymond James -- Analyst

Great. Well, I appreciate the details. Best of luck here in the first quarter.

Douglas A. Lindsay -- Chief Executive Officer

Thank you.

Operator

Your next question comes from Alex Moroccia from Berenberg. Your line is open.

Alex Moroccia -- Berenberg Capital Markets -- Analyst

Good morning, guys. Thanks for taking my questions. Just starting with macro-level one. Can you discuss the impact that a minimum wage increase would have on your business from both an expense standpoint, as well as how it may change your customer profiles?

C. Kelly Wall -- Chief Financial Officer

It's a great question, Alex. So, the $15 minimum wage. I'd first want to kind of point out a few things, right? It's kind of working its way through the system in DC. But there seems to be some consensus around how that may look, although there doesn't seem to be consensus yet that it's going to pass. But in terms of how it's going to look, it will be phased out over a five-year period. And with that, what we can say is that in 2021, so this year, there would be no impact to our personnel expense, if it goes through as contemplated. And as you roll into 2022, the impact on our business would be less than $1 million in terms of the increase to personnel expense. Beyond that, it just becomes much more difficult for us to kind of forecast, because there's a few moving parts, right? We are continuing to consolidate our stores. We're also continuing to invest in technology, which not only improves the customer experience, but it's also improving our efficiencies. So, again, while no impact this year, modest impact in 2021 and beyond that, difficult for us to forecast as our operations continue to evolve.

Douglas A. Lindsay -- Chief Executive Officer

Yeah, Alex, and this is Douglas. It's important to note that our base wage rate across our store networks is close to that number. And we have also variable pay that, as well, makes sense of that number. And so, our comp ranges are higher than $15 in total -- on average, across the portfolio.

Alex Moroccia -- Berenberg Capital Markets -- Analyst

Okay, and I understood. That's really helpful. And then just a follow-up on the comments you made regarding inventories in the supply chain at the moment. How much revenue do you think was left on the table in 2020? And then how do you make sure customers come to Aaron's before other peers, ones of appliances and electronics in particular, get restocked?

Steve Olsen -- President

Yeah, sure. So -- Hey, Alex. This is Steve. I'll answer the second half of the question first. Through all of our marketing, whether it's broadcast, whether it's email, whether it's digital, we are weekly marketing messages around our assortment offering, around our price points and really tying that to our value proposition and why we think Aaron's is a great place to shop. And we are seeing the benefits of that through Q4 in the performance. As far as impact of inventory, I guess earlier in 2020 and as it moved through, tough to quantify. I'd say that like most people out there, we saw probably a low point during the summer months, but that has continued to improve. What we definitely can say, and we mentioned in our prepared remarks, is definitely we saw an impact to e-com as our e-com business is supported by our new inventory that we carry in our fulfillment centers. But we have the luxury of having pre-leased or returned merchandise in our stores. So, that allows us to balance our inventory between new and improved products throughout our network.

Douglas A. Lindsay -- Chief Executive Officer

Yeah. I think it's also important to note, we serve a large target market of just roughly 30% of the U.S. population with products that they look for on the payment. And that's what really differentiates us, payment, and we believe our payments are very competitive in the marketplace. And that combined with our high approval rates and best-in-class service, I think, is a compelling value proposition for our customers and that's why customers continue to shop. We, as part of our strategy, will continue to evangelize that and use that in our marketing and other customer acquisition channels and we think we've got a lot of room to run there. So, we're super optimistic about that and the technology and support systems that we put behind it.

Alex Moroccia -- Berenberg Capital Markets -- Analyst

All right, great. Thank you both.

Operator

And your next question will come from John Haas from Bank of America. Your line is open.

Jason Haas -- Bank of America Merrill Lynch -- Analyst

Thanks. It's Jason Haas. Thanks for taking my question.

Douglas A. Lindsay -- Chief Executive Officer

Hey, Jason.

Jason Haas -- Bank of America Merrill Lynch -- Analyst

Hey, guys. So, I wanted to ask on decisioning. Maybe if you could provide some color on whether that's -- if you've been able to loosen that at all relative to 3Q, just given the stimulus that's coming. It sounds like maybe your customer base is maybe more mixed in terms of the health of them. But, yeah, just curious, any color on how that decisioning compares?

Douglas A. Lindsay -- Chief Executive Officer

Yeah. I don't want to speak specifically to any loosening or tightening or anything else we've done. What I will say is, we continually optimize our decisioning and we did so all of last year in 2020. We are optimizing our e-com decisioning, which led to great benefits in that portfolio for us and as we rolled out our centralized decisioning at our stores, we've continued to see performance of lease pools and we're optimizing. Some of that optimization is giving sort of our higher-scored customers and our decisioning matrix more purchasing power with us, and some of it is finding areas where we need to sort of adjust our model. And so, I think we've been doing that over the course of the year and we're seeing the benefits of that, and we will continue to do that on a monthly basis.

Jason Haas -- Bank of America Merrill Lynch -- Analyst

Great, thanks. And then final question, a little more longer-term focus. Is there still an expectation that -- I understand EBITDA will be, I guess, down year-over-year in 2021. But I think there is an expectation that it would grow after that, due to the store consolidation strategy. So, I'm curious if that's right, that's how we should be thinking about it longer-term?

C. Kelly Wall -- Chief Financial Officer

Jason, yes, it's Kelly. You're correct in continuing to think about it that way. You recall it correctly. In our road show presentation, we did outline kind of a five-year view, and that included sequential year-over-year growth in earnings after kind of this 2021 reset year, if you will. Revenues are expected to decline at the front end of that five-year period and then about midway through reverse course and start to grow, as we continue to roll out our new stores and see the benefit of those stores and kind of the growth that they're currently demonstrating and that kind of takes a larger percentage of the portfolio and then translates into both top line growth and bottom line growth.

Jason Haas -- Bank of America Merrill Lynch -- Analyst

Great, thanks. And if I could add in one more question, you mentioned that staffing levels have picked up, I think, sequentially quarter-over-quarter. I think -- I know there were some cuts there due to the pandemic. It's been tough to get a read on that just because I'm not sure to what extent centralized decisioning has allowed you to take out some labor hours. So, I'm curious if 4Q staffing levels have returned to normal, or are we still running at a lower rate because of the pandemic, or is there sort of like a lower term, long-term rate because of that centralized decisioning? Thanks.

Douglas A. Lindsay -- Chief Executive Officer

Sure. Jason, it's Douglas. So, first of all, we're open for business on all of our stores across the U.S. and Canada right now. And so, what you're seeing in our labor costs in Q4 is reflective of full portfolio being open. What I would say generally is, we're better staffed now than we were in Q2 and Q3. So, labor has come up. We're still understaffed relative to historical perspectives and not at our target levels for this year. Our 2021 outlook, however, reflects full staffing of our portfolio. So, that's really important to know that reflects full staffing. It does also reflect sort of, what I call, sort of right level staffing for the technology that we introduced last year in centralized decisioning. For the payments, we're now taking 70 plus percent of our payments outside of store. And so, we've really made it easier to run an Aaron's store and that's all reflected in our staffing outlook for 2021.

Jason Haas -- Bank of America Merrill Lynch -- Analyst

Great, thank you. That's really helpful.

Operator

And your final question for today will come from John Rowan from Janney. Your line is open.

John Rowan -- Janney Montgomery Scott -- Analyst

Good morning, guys.

Douglas A. Lindsay -- Chief Executive Officer

Good morning.

John Rowan -- Janney Montgomery Scott -- Analyst

Doug, I think you said earlier that there'll be tax liabilities this year for the consumers that they are not expecting or haven't been there in the past. Just wondering if you could be specific as to what you're referencing.

Douglas A. Lindsay -- Chief Executive Officer

Yeah. We were -- I think Kelly referred to that. We were referencing, as we look out to the end of the first quarter, beginning of the second quarter, our customers will be receiving tax checks as they usually do. So, from what we can tell, those tax checks may be -- the size of those checks may be pressured by withholdings for unemployment taxes that were not withheld or chose not to be withheld by the consumer during the year. And so, we may have pressure on those checks that could put pressure on that overall tax season.

C. Kelly Wall -- Chief Financial Officer

Yeah. So, John, unemployment benefits, right, are taxable. So, to the extent that that's not addressed in any legislation that may come forward, all right, then it would create a tax liability for our customers they're not accustomed to seeing, given the unprecedented level of unemployment benefits they received last year.

John Rowan -- Janney Montgomery Scott -- Analyst

Okay.

C. Kelly Wall -- Chief Financial Officer

Well, yeah, in some states, they are -- they don't withhold those federal taxes. At some stage, you have to opt in. So...

Douglas A. Lindsay -- Chief Executive Officer

Correct.

C. Kelly Wall -- Chief Financial Officer

If you have bigger order consumers, you don't opt in to pay those taxes. They will owe those taxes this year, for last year.

John Rowan -- Janney Montgomery Scott -- Analyst

And then, are you going to be seeing or did you see any weather interruptions? And is that included in the guidance for one-half earnings being stronger than two-half earnings?

Douglas A. Lindsay -- Chief Executive Officer

Yes, of course. We, like everyone else, experienced the weather issues over the last few weeks. We had stores in Texas and in the middle part of the country shut down for a period of time. A bigger news about our business is, we have a recurring revenue model that allows us to withstand the shocks to the system as we did last year with COVID-19. And so, we've got a portfolio that keeps on rolling. Our customers have returned to us once the weather cleared up and we've seen a rebound there. But all of that has been reflected in this guidance for 2021.

John Rowan -- Janney Montgomery Scott -- Analyst

Okay, and then just lastly. I think, Kelly, you said 50 store closure for 2021 is a good guide. Is that kind of a good cadence to get us down to the correct store number through the 2025 guide? Or is there going to be a deviation from that run rate post 2021? Thank you.

Douglas A. Lindsay -- Chief Executive Officer

Yeah. So, it is Douglas. So, what we think about that is we're going to continue to be optimizing and repositioning our portfolio over the course of the year. We have a number of opportunities I mentioned, collapse two or three stores into one store in certain markets with our new GenNext concept, and we'll be doing that. I believe what we guided to on the roadshow was about a 20% to 30% reduction in our portfolio over the next five years, which equates to roughly 300 stores. So, that should put us on track for that. I think in any given year, we may accelerate or decelerate based on real estate opportunities, but that would be tracking to that ultimate goal.

John Rowan -- Janney Montgomery Scott -- Analyst

All right, thank you.

Douglas A. Lindsay -- Chief Executive Officer

Thanks.

C. Kelly Wall -- Chief Financial Officer

Thanks, John.

Operator

This brings us to the end of our Q&A session today. I will turn the call back over to Douglas Lindsay for closing remarks.

Douglas A. Lindsay -- Chief Executive Officer

Yeah. I just want to thank everybody for joining us today. So, in conclusion, I just want to say that we're really confident at Aaron's about our competitive advantage in the growing and evolving direct-to-consumer rent-to-own market. We believe that our strategy is supported by our unique assets, which will deliver expanding margins, earning growth and strong free cash flow to our investors. Our customers come to us because of our name brand products, our value proposition, our competitive pricing, high approval rates and best-in-class service. And we believe we position ourselves to win in the marketplace. I couldn't be more excited about where we are right now and the prospect for Aaron's. And I believe we've got the right strategy and the right team to create a rewarding future for our team members, our customers and our shareholders. Thank you for joining us today, and we look forward to catching up with you next quarter.

Operator

[Operator Closing Remarks]

Duration: 55 minutes

Call participants:

Michael P. Dickerson -- Vice President, Corporate Communications & Investor Relations

Douglas A. Lindsay -- Chief Executive Officer

C. Kelly Wall -- Chief Financial Officer

Steve Olsen -- President

Anthony Chukumba -- Loop Capital Markets LLC -- Analyst

Kyle Joseph -- Jefferies LLC -- Analyst

Bradley B. Thomas -- KeyBanc Capital Markets, Inc. -- Analyst

Bobby Griffin -- Raymond James -- Analyst

Alex Moroccia -- Berenberg Capital Markets -- Analyst

Jason Haas -- Bank of America Merrill Lynch -- Analyst

John Rowan -- Janney Montgomery Scott -- Analyst

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