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Aarons Inc (NYSE:AAN)
Q2 2021 Earnings Call
Jul 27, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, my name is Lashana and I will be your conference coordinator. At this time, I would like to welcome everyone to The Aaron's Company Second Quarter 2021 Earnings Conference Call.

[Operator Instructions]

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 second quarter 2021 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. After our prepared remarks, we will open the call for questions. 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. 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.

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.

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. Once again, I'm pleased to report another quarter of strong operating performance and continued positive momentum at The Aaron's Company.

In the second quarter, we exceeded our expectations for total revenues, same-store revenues and adjusted EBITDA. We also returned significant capital to our shareholders.

Total revenues increased 8.5% year-over-year in our second full quarter as a stand-alone public company, primarily due to the strong underlying business trends and the execution of our strategic priorities. Same-store revenues grew 11.2% in the second quarter of 2021, compared to the prior year; the fifth sequential quarter of positive growth and the eighth positive quarter over the last 10 quarters. The improvement was roughly two-thirds, driven by a larger lease portfolio size entering the second quarter, and the remaining one-third is primarily due to better customer payment activity in the prior year.

Strong demand for our products, combined with the favorable impact of centralized decisioning, and continued but moderating government stimulus to our customers, led to an 8.7% increase in our quarter ending same-store leased portfolio size compared to the prior year.

Our overall lease portfolio continues to perform well. As of the end of the second quarter, approximately 80% of our total lease portfolio is comprised of lease agreements that were originated through our centralized decisioning platforms. This decisioning technology allows us to better match the customers' lease payment with their financial position, with the goal of helping our customers achieve ownership. We believe the continued optimization of our decisioning technology, combined with improved operations, is a significant contributor to our strong lease portfolio performance, resulting in fewer lease merchandise returns and lower write-offs in both our store and e-commerce channels.

Our e-commerce channel continues to grow at a healthy pace, representing 14% of total lease revenues in the quarter. The ongoing investments that we're making in our digital technologies, such as an enhanced online shopping experience, expanded product assortment, greater visibility into products available for Express Delivery and self-service account management, are driving growth in this important channel. The growth in our portfolio of leases generated online is driving improvements to our overall margin performance, as we leverage the fixed cost structure of our store and supply chain assets to serve the large lease-to-own market.

Moving from revenues to earnings.

The company delivered a strong 16.3% adjusted EBITDA growth in the second quarter. This resulted in an adjusted EBITDA margin improvement of 100 basis points from the prior year's second quarter and the fifth straight quarter of year-over-year adjusted EBITDA margin expansion. Continued improvements in operating performance and strong execution by our team gives us the confidence to continue reinvesting into business, to support our multi-year strategy of promoting the Aaron's value proposition, digitizing the customer experience and aligning our store footprint to the customer opportunity.

One of the key investments that I want to highlight is our GenNext real estate strategy that is accelerating, with a growing store pipeline and performance that is exceeding our expectations. As of the end of June, we have 64 GenNext stores and have generated result have generated result for their meeting or exceeding our targeted 25% internal rate of return in five-year payback period. At the end of the quarter, there were several GenNext locations nearing completion, and we expect to open an additional eight stores by the end of July.

Equally as encouraging, monthly lease originations in GenNext stores, open for less than one year, grew at a rate of more than 20 percentage points higher than our average legacy store in the second quarter. As we previously communicated, we plan to open more than 60 GenNext stores in 2021. While we're excited about both the early financial results and the infrastructure we are building to accelerate our progress, we continue to maintain a disciplined approach around our execution of this strategy.

Before I turn the call over to Kelly, let me reiterate how pleased I am with the strong performance of the company in the second quarter.

Over the last several years, we have significantly transformed Aaron's, with the goal of continuing to provide an exceptional customer and team member experience, while also driving greater productivity in our operating model. I remain confident that we have the right team, strategy and market opportunity, which when combined with our financial strength will enable us to deliver long-term growth for all of our stakeholders.

I'll now turn the call over to Kelly to discuss our financial results.

C. Kelly Wall -- Chief Financial Officer

Thank you, Douglas.

For the second quarter of 2021, total revenues were $467.5 million, compared to $431 million for the second quarter of 2020, an increase of 8.5%. This increase was primarily due to the improved quality and increased size of our lease portfolio and continued strong customer payment activity during the quarter. The increase in total revenues was partially offset by the net reduction of 42 company-operated stores and 71 franchised stores for the 15-month period ended June 30, 2021.

On a same-store basis, revenues increased 11.2% in the second quarter, compared to the second quarter in the prior year. As Douglas mentioned, this is our fifth consecutive positive quarter of same-store revenue growth. Leases originating in both our in-store and e-commerce channels contributed to our revenue growth, which was primarily driven by a larger same-store lease portfolio size and continued strong customer payment activity.

Similar to the last four quarters, we believe that customer payment activity has been positively influenced by centralized decisioning and other operational improvements, as well as the positive impact of government stimulus programs to our customers.

E-commerce revenues increased 15.8% versus the second quarter of 2020 and represented 14% of overall lease revenues compared to 12.8% in the second quarter of the prior year. We continue to believe that the strategy and initiatives we are undertaking to optimize our e-commerce offering will allow us to achieve our long-term growth goals in this important channel.

The company ended the second quarter of 2021 with a lease portfolio size for all company-operated stores of $132.8 million, an increase of 7.6%, compared to a lease portfolio size of $123.4 million on June 30 of last year. As a reminder, lease portfolio size represents the next month's total collectible lease payments from our aggregate outstanding customer lease agreements, and management believes this is one of the metrics that is important in understanding the drivers of lease revenue growth in any given period.

Operating expenses, excluding restructuring expenses and spin-related transaction costs, were up $21 million in the quarter, as compared to the second quarter of last year. This increase is due to higher personnel costs and other operating expense, offset by lower provision for lease merchandise write-offs.

Personnel costs increased $3 million in the second quarter of 2021, as compared to the prior year, primarily due to higher labor hours and performance-based compensation in our stores, higher stand-alone public company cost, and comping over the cost cutting measures we took in the second quarter of 2020, partially offset by lower performance-based bonus accruals this year.

The $13.3 million increase in other operating expenses in the quarter is primarily due to the launch of a new marketing campaign during the second quarter of 2021, lower vendor marketing contributions and a reduction in marketing initiatives during the second quarter of 2020 that resulted from cost-cutting measures the company implemented in response to the COVID-19 pandemic.

In addition, we had higher occupancy, store maintenance, and shipping and handling costs in the second quarter of 2021, primarily due to the temporary closure of our showrooms in the second quarter of 2020. The provision for lease merchandise write-offs, as a percentage of lease revenue and fees, decreased to 2.9% for the three months ended June 30, 2021, compared to 3.7% for the comparable period in 2020. The improvement in write-offs was primarily due to the continued favorable impact of our in-store and online decisioning technologies, strong operational execution and the benefit to our customers from government stimulus.

Adjusted EBITDA was $65.3 million for the second quarter of 2021, compared with $56.2 million for the same period in 2020, an increase of $9.1 million, or 16.3%. As a percentage of total revenues, adjusted EBITDA was 14% in the second quarter of 2021, compared to 13% from the same period last year, an improvement of 100 basis points. The increase in adjusted EBITDA margin was primarily due to the item that drove the total revenue's increase and the 80-basis-point reduction in overall write-offs previously discussed.

On a non-GAAP basis, diluted earnings per share were $1.05 in the second quarter of 2021, compared to non-GAAP diluted earnings per share of $0.83 for the same quarter in 2020, an increase of $0.22, or 26.5%.

Cash generated from operating activities was $40 million for the second quarter of 2021, a decline of $117.7 million compared to the second quarter of 2020. This decline was primarily due to higher purchases of lease merchandise to meet increased customer demand and to return the company to more normalized inventory levels.

During the second quarter, the company repurchased approximately 1,166,000 shares of Aaron's common stock for a total purchase price of approximately $38.6 million, and through a 10b5-1 plan, continue to repurchase shares into the first month of the current quarter. For the full year-to-date period ended July 23, 2021, the company has repurchased 1.84 million shares for approximately $57.4 million. As of July 23, we had approximately $92.6 million remaining under the company's $150 million share repurchase program that was approved by our Board in March of this year and ends December 31 of 2023.

To wrap up the material capital allocation activities from the second quarter, in May, the company's Board of Directors declared a regular quarterly cash dividend of $0.10 per share, which was paid on July 6. As of June 30, 2021, the company had a cash balance of $48 million, zero debt, and total available liquidity of $281.5 million, which includes $234 million available under our unsecured revolving credit facility.

Turning to our outlook, we have raised our full-year revenue and earnings outlook for 2021.

For the full year, we have increased our outlook for total revenues to between $1.775 billion and $1.8 billion. We also increased our outlook for adjusted EBITDA to between $215 million and $225 million.

For the full-year 2021, we increased our outlook for the effective tax rate modestly to 26%; did not change depreciation and amortization; and lowered the diluted weighted average share count for the full-year 2021 to 34 million shares. We have not assumed any additional share repurchases beyond what has been previously described.

We have also increased our full-year same-store revenue outlook from a range of 4% to 6% to a range of 6% to 8%. We have increased our expected capital expenditure range by $10 million to a range of $90 million to $100 million. This increase is primarily the result of a higher number of GenNext stores added to the pipeline. We have held our free cash flow estimate for 2021 flat at $90 million to $100 million. The expected adjusted EBITDA increase is offset by higher GenNext pipeline investment and additional lease merchandise inventory purchases.

We believe that the benefit to our customer from government stimulus programs will moderate in the second half of 2021. At the same time, the favorable impact of centralized lease decisioning, our digital servicing platforms and other operational enhancements are contributing to a sustainable improvement in customer payment and write-off activity. More specifically, our outlook assumes customer lease payment activity remains elevated in the second half of 2021, when compared to pre-COVID-19 pandemic levels, but lower than the second half of 2020. Additionally, we expect write-offs will continue to be lower in the second half of 2021, when compared to the pre-COVID-19 pandemic levels, but higher than the second half of 2020.

Finally, our updated outlook assumes no significant deterioration in the current retail environment state of the U.S. economy or global supply chain as compared to their current conditions.

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

Questions and Answers:

Operator

[Operator Instructions]

Your first question comes from the line of Kyle Joseph with Jefferies.

Kyle Joseph -- Jefferies LLC -- Analyst

Hey, good morning guys. Congratulations on a great quarter and thanks for taking my questions.

Kelly, appreciate the color you gave on, kind of, the outlook for credit normalization. I know it's early. But, can you give us a sense for how you expect the changes in the child tax credits to impact the business? Obviously, we have stimulus in the rear view. But, checks from changes in child tax credits started dating this month.

But, just talk about kind of the impacts you see both on the credit as well as on, kind of, the sales and demand side of the business?

C. Kelly Wall -- Chief Financial Officer

Hey, good morning, Kyle. Appreciate the questions.

So, what I had indicated in the prepared remarks is that in the back half of this year, we do expect that between the child tax credit or having enrolled out centralized decisioning, just with the excellent level at where our team is performing right now. But, all these factors are contributing to customer payment activity; we often refer to that as customer renewal percentage. That's going to continue to be elevated or higher than what we saw come before or coming in a pandemic early last year.

At the same time, we don't expect that the liquidity at our customers is going to be as strong as it relates to bylaws provided by the government. So, what we've looked at and I think a lot of companies maybe looking at, is that the enhanced unemployment and other stimulus that our customers benefiting from at the back half of last year, it's just a greater number, it's a larger number. I mean, if you were to take any estimate of the child tax credit benefit and multiply, that accounts 48 [Phonetic].

So, just the magnitude of liquidity of the customer have in support that, if any contribution of stimulus and enhanced unemployment, then we may have benefited from -- and our customers benefited from last year is just not going to be as high as this year. So, we've factored that into our view in outlook, which is different, right, to what we did in the prior two conversations we've had on this.

But, listen, I mean, it's our best estimate at this point in time. We did see a lift last week on the 15, as that liquidity started to come into the market. We're watching that daily, we're paying very close attention to what that's going to look like at the end of the month. That will continue to inform our views on the business for the rest of the year, but it's early. And there are a number of factors that could continue to impact how customer uses that liquidity.

Douglas A. Lindsay -- Chief Executive Officer

Yes. And, Kyle, this is Douglas.

Good morning, I just wanted to tick one other thing, if you may have noted in our comments, now 80% of our lease portfolio has been decisioned through our centralized decisioning algorithms and we believe that the second half of the year will reflect that in propping up our renewal rates and our write-offs as well. So, there is a stimulus going on, but there is also all the investments we've made in optimizing our decisioning, that are reflected in our outlook, and we're really happy with the results of that.

Kyle Joseph -- Jefferies LLC -- Analyst

Got it, very helpful.

One follow-up from me, in this day and age, we remain repeating that, the question about inflation. But, to be honest, it feels like we are actually recently talking about equation of consumer electronics prices not negatively impacting the business. So, can you talk about some of the puts and takes about inflation, in terms of really essentially demand for credit from the consumer for any number of products?

Douglas A. Lindsay -- Chief Executive Officer

Yes. This is Douglas. I'll start and I'll let Kelly and Steve chime in.

But, we're experiencing the same economic impacts as everyone else is, in terms of inflation. We're seeing price increases in our products and the raw materials for our products and fuel, transportation, and to a lesser extent, wages. [Indecipherable], our merchandising team has just done a phenomenal job of keeping pace with all of these cost increases and we are able to pass along a lot of this cost increase to our customers in terms of lease rates. And we're really careful about how we do that and making sure we're hitting the right price points for our consumer.

As inflation increases, we tend to see, historically, pressure on retail. And if you think about it, you've got an appliance cost of $1,000; if you've got a 15% inflation out there in the marketplace, that appliance goes from $1,000 to $1,150, which is all upfront cost for the consumer. In our lease-to-own world, where we're leading with the payment, we may be able to pass on only $10 in additional payment costs to that consumer and spread it over 24 months, which makes it a lot more manageable for the consumers. So, the carry-on effect of that is we see more demand falling into our segment and we get the benefit of an expanding lease-to-own marketplace.

So, I would say if there is any counter there on inflation, as cost of living increases for our customer, we see a bit of pressure on the collection side of the business and renewal side of the business. However, that's historically been in periods without stimulus. And as Kelly mentioned, we will have ongoing stimulus for the foreseeable future.

C. Kelly Wall -- Chief Financial Officer

Yes. And, Kyle, I would add just a few quick things, right.

We're clearly seeing inflation in our business without surprise, right; everybody in the retail world is. Some of the places where it's showing up and we're tying this back to our outlook, right, we are expecting to spend more money on lease merchandise inventory this year. There are two factors driving that. One, we've written more agreements this year, right. So, we're growing our lease portfolio size, so we need to backfill that inventory that we're putting out into our customers' hands. That's a great thing, right. The other side of it is that we're seeing, across all our categories, right, 3% to 8% increases in costs; and those costs include transportation costs as well, both in terms of landing that inventory as well as the cost to complete that last mile delivery from our stores to our customers' homes.

So, those factors are baked into the outlook that we provided; I mean, again, it's our best estimates at this time. It's an interesting world we're all operating in right now. So, we're paying very close attention to all these inputs. The great thing is with centralized decisioning, the improvements in operations, just how dialed in our teams are right now. We feel like we're reacting pretty quickly at least at this point, hopefully, as our performance in the first half as we have demonstrated we've stayed ahead of these curves a little bit.

Kyle Joseph -- Jefferies LLC -- Analyst

Got it, that's it from me. Thanks a lot for answering all my questions.

Douglas A. Lindsay -- Chief Executive Officer

Thanks, Kyle. We have a question from the line of Anthony Chukumba with Loop Capital Markets.

Anthony Chukumba -- Loop Capital Markets LLC -- Analyst

Good morning. Thanks for taking my question. Let me add my congratulations. I know this probably won't continue, but I could get used to these double-digit comp store sales increases.

So, I guess my -- just a couple really quick housekeeping questions. What was the ending company-operated and franchised store counts?

C. Kelly Wall -- Chief Financial Officer

Yes, let me give that for you, Anthony. The ending company-operated store count was 1,087 stores and the franchise was 247 stores, bringing us to 1,334 stores total.

Anthony Chukumba -- Loop Capital Markets LLC -- Analyst

Got it, thanks.

And so, my next question, I know it's probably hard to parse this out, but would just love to get even just sort of directionally. It sounds like when you think about lease merchandise write-offs and these much lower levels that we've seen, obviously, a lot of that is all the stimulus money, right, which is actually helpful from a customer payment activity perspective. But, it seems like part of it is the centralized decisioning, right; you're just making better credit decisions. And if you make better credit decisions, all else being equal, you can have lower merchandise write-offs.

So, how do you think about into back half of this year, right, you sort of like -- you've got enhanced unemployment benefits going away and you probably don't have much of an impact from that last round of stimulus. But then, you do have the expanded child tax credit and then you also have the, as you said, 80% of your lease portfolio generated through centralized decisioning. So, I'm almost thinking that could be a wash from a lease merchandise write-off perspective. But, how do you sort of think about that or parse that out?

C. Kelly Wall -- Chief Financial Officer

Yes, it's a great question, Anthony. This is Kelly.

And what I'd say is that, as you kind of look through that, you can see there are a lot of things that are factored into that right now; we operate a fairly complex business in an environment right now, which is probably as complex as anybody in this market has ever seen it. So, appreciate that you're recognizing there are a lot of puts and takes that are kind of going into that.

I think we always say in general, it's kind of coming back to our longer-term view on write-offs, which is that we do continue to expect the business to operate in a 4% to 5% annual write-off percentage. As we think about the back half of this year, I think what we had indicated, again, in the outlook and tried to give you some guidance here in my prepared remarks is that, we do expect write-offs to be lower than kind of our pre-pandemic levels. And that's largely driven by centralized decisioning, the improvements in operations, all the things that you kind of hit on there, as well as the benefit of the child tax credits and liquidity in our customers' hands. At the same time, right, we would expect it to be higher than last year. I mean, just to put into context, right, Q3 of 2020, our write-offs were 2.4%; that was an all-time historic low, as best as any of us can look back and see in this business. So, we're not anticipating that we would be at those levels.

And then, if you look at the back half of the year in total from a write-off perspective, we do expect to be slightly above what we did last year, but again below what we've seen from a historic, kind of, long-term perspective of the business.

Douglas A. Lindsay -- Chief Executive Officer

Yes. Just to reiterate the virtues of centralized decisioning with 80% of our portfolio, having gone through that. And we're effectively sizing the right payments for the customer to set them up for success and also to set ourselves for success, reduce servicing costs, etc. and take the friction out of the relationships. So, we have happier customers ultimately long term and returning customers. And what this all sort of results in is lower product return back to us and lower write-offs, which means we have a healthier portfolio, we have happier customers, and we see a revenue benefit from more on-time payments. And that's further benefited by all the technology we put in place for our customer payments, where they can pay on an app, pay on our my account online. We now have 77% of our customers paying outside of store.

And so, when we make it easier for the customer to pay us and we set them up for success, the centralized decisioning translates to both the top line and the bottom line, which is reflected in our outlook.

Anthony Chukumba -- Loop Capital Markets LLC -- Analyst

Got it, that's very helpful. Keep up the good work, guys.

Douglas A. Lindsay -- Chief Executive Officer

Thank you.

C. Kelly Wall -- Chief Financial Officer

Thank you, Anthony.

Operator

Your next question comes from the line of Bobby Griffin with Raymond James.

Bobby Griffin -- Raymond James. -- Analyst

Good morning, buddy. Appreciate you taking my questions and good job this quarter, and congrats on the ongoing strong performance.

Douglas A. Lindsay -- Chief Executive Officer

Thank you.

Bobby Griffin -- Raymond James. -- Analyst

I guess the first one, I want to dig into, was the child tax credit. But, not really the impact this year, just based on, is really kind of next year. Based on how I understand it, it lowers the refund partly for the receiver of those tax credits next year; I mean, spread the payment out over this year. So, typically you guys see earlier buyouts, when you get big refunds, I believe.

So, do you think this has the potential to maybe smooth that out a little bit in first half of next year or is the offset that your consumer won't have quite as much liquidity in the hand ahead, just trying to unpack how that might play out and understand it, and first time this has ever happened? So, we're still kind of working from estimates here.

Douglas A. Lindsay -- Chief Executive Officer

No, I appreciate that question, Bobby, and also the kind of color there at the end. I mean, you're spot on working in an environment that no one has ever operated in. So, we're trying to making our best estimates based upon what we know today.

So, first off, I mean, in child tax credit, not only did the recent change in the law kind of accelerate the payment, right, expand the universe of the folks that are receiving it, it also increased kind of these overall size of the total credit with half of it being received over monthly payments in the back half of this year and the rest will be received as part of an individual's annual tax return later next year. So, we'll see how this plays out. But, it's -- roughly half of that will come to our consumers that receive the child tax credit this year in the form of those monthly payments and the other half next year.

So, your question about impact on EPOs, you're right. I mean, our business in that regard has remained consistent in terms of when our customer has more liquidity, they pay us better; and that includes typically an increase in early payouts. So, we would expect to see some of that in the back half of the early, certainly factor that in, as we've thought about portfolio size through the course of the year, the impact that has on revenues, and the rest of the business.

It's still too early for us to really understand what's going to happen on a monthly basis, through the course of this year. And it's still early to start to anticipate what's going to happen in February, March, April next year, in terms of how these dollars are used. But, I think it is important to know what's at the beginning, right. It's -- the absolute dollars provided to this tax credit are significantly higher than what they were kind of coming into this recent change. And so, our view right now is that, that element would have much of an impact as to how the liquidity had impacted early next year, [Indecipherable] our customer tax returns.

Hopefully, that's a little bit helpful color we've provided there.

Bobby Griffin -- Raymond James. -- Analyst

Yes, that's helpful.

And then, I guess, perhaps I want you to unpack the second half EBITDA margins a little bit. And your commentary just there might have helped answer some of it. But, the lease portfolio is performing very well, I think, high-single digits, you referenced, year-over-year.

And then, we look the second half implied EBITDA margins are down notable from the first half and understanding some of that is merchandise write-offs. But, what's some of the other parts because it does seem like the business has a pretty strong momentum right now; good payment, a lot of things have been working on and it seems like there could be some upside to those second half EBITDA margins. I just want to make sure if there is some other areas that we're not missing.

C. Kelly Wall -- Chief Financial Officer

Great question, Bobby.

I mean, two things are kind of going on in that regard, right. One, we are catching up on some of the underspend, if you will, that happened last year, right. We're certainly in Q2 and trail that into Q3 and Q4, tighten our belts more probably in Q4 in a few different areas; one is via marketing, right. And so, we have some catch-up that's going to go on there from an opex perspective.

The other is -- and we're taking this opportunity to invest in the growth of our business, right. I mean, we've often talked in the context of capital allocation around. First and foremost, investing into business as long as we're achieving the appropriate returns and we have that opportunity right now. So, there is an increase in opex around marketing, some personnel, some consulting, some other projects that are going on that we do expect to deliver not only value this year, but value into 2022 and beyond.

Douglas A. Lindsay -- Chief Executive Officer

Bobby, this is Douglas.

The last thing I would mention is, if you look at our renewal percentages of our lease portfolio in the first two quarters of this year, they're running in several 100 basis points ahead of where we've been. And we are going to see that normalize in the latter half of the year, that normalization to higher rates than we were pre-pandemic, but nonetheless lower than we were in the first and second quarter; that's kind of a 100% margin normalization. So, that brings our margins back in line with what the outlook is indicating there.

And as Kelly mentioned, on top of that, we've got some additional investments in the third and fourth quarter that we believe will benefit to 2022.

Bobby Griffin -- Raymond James. -- Analyst

Awesome. I appreciate the details. Congrats again on the good first-half performance.

C. Kelly Wall -- Chief Financial Officer

Thank you, Bobby.

Douglas A. Lindsay -- Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Brad Thomas with KeyBanc Capital Markets.

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

Hi, thanks, Douglas and Kelly, and congrats on a strong first half here.

I wanted to just follow-up on the last line of questioning around the second-half guidance and maybe talk a little bit more about the revenue side of things. It does feel like you really had some nice momentum in the size of the portfolio. And so, as I go back and look at the numbers, it does feel like your second half has revenues trending down year-over-year and down sequentially. So, just trying to understand how we should be thinking about the puts and takes as we think about revenues?

C. Kelly Wall -- Chief Financial Officer

Yes. Hey, Brad, this is Kelly. Good question.

Again, I would remind you, and I know you know this well, we have a seasonal business and typically, Q3 is our low point, right, in a normal year as it relates to revenue. And last year was anything but normal, as we all know. This year, if we think about, there has been stimulus in the market in Q1, Q2, Q3 and in Q4. So, we should see a somewhat-normal distribution of revenue from quarter to quarter. So, you're right. We're expecting sequentially that from Q2 to Q3 revenue would be down and we would expect that in, kind of, any typical year.

From a year-over-year perspective, and Douglas hit on this, as part of his description of same-store revenues. The biggest driver in Q2 was the increase in our portfolio. And so, we are going to enjoy the benefit of that going into the back half of the year. At the same time, Douglas just mentioned a second ago, the other component to our revenue is customer renewal activity, right; their payments.

And in Q1, -- late Q1 and all of Q2, we were running at customer renewal percentages that were 300 to 400 basis points higher than our pre-pandemic levels. So, we expect to start to normalize, hang on to certainly the benefits that we've driven through centralized decisioning and other operational changes in investments. But, we don't expect to kind of continue to comp over those kinds of levels. So, when you chalk to, kind of, pull that down, revenue to be flat to slightly up from last year on a back-half basis, but not the type of year-over-year growth that you saw kind of 2019 going into 2020, if that helps.

Douglas A. Lindsay -- Chief Executive Officer

Yes. The last thing I would say is, we're also comping over the third and fourth quarter of last year, where we saw strong payment activity as well. So, we've got -- it's really, Brad, the story of great portfolio held, great portfolio size. But, the differences in the revenue is the renewal rates year-over-year.

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

Got you. That's very helpful.

And to follow-up on Bobby's question about the EBITDA, if you try to bucket [Phonetic] into the write-offs versus the cost inflation that you're seeing, versus some of the investments that you're making into business, could you hazard a guess as to how much, each of those is a headwind for you, based on where you're guiding right now?

C. Kelly Wall -- Chief Financial Officer

Yes. I'd say that they're all kind of a year-over-year basis, contributing to kind of an increase, if you're looking at in terms of absolute dollar cost, but also as a percentage of revenue. So, they're not exactly equally rated, weighted, Brad, but each of those are impacting it across the board there.

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

Great. Really helpful. Thanks so much and congratulations again.

C. Kelly Wall -- Chief Financial Officer

Thank you.

Douglas A. Lindsay -- Chief Executive Officer

Thanks, Brad.

Operator

Your next question comes from the line of Bill Chappell with Truist Securities.

Bill Chappell -- Truist Securities -- Analyst

Thanks, good morning, and congratulations.

Douglas A. Lindsay -- Chief Executive Officer

Hey, Bill.

Bill Chappell -- Truist Securities -- Analyst

Hey, two questions. First on centralized decisioning. Doug, as you said, I guess, we're now at 80%. Where should that number go to and where did -- in the second half, where -- you will see the full kind of benefits from that, or is that really carry over into 2022?

Douglas A. Lindsay -- Chief Executive Officer

Yes. As you may recall, we launched centralized decisioning to our entire store portfolio in April of 2020, as the pandemic hit. We'd had 200 stores or so. Prior to that, that we've been testing for over a year and seeing great results. We rolled it out for the rest of the portfolio then. So, what you're seeing now is this 80%, is effectively we're approving everybody that comes into our store, almost everybody through centralized decisioning.

But, it has to bleed into the portfolio. We have leases that were manually decisioned, pre-roll out, that are rolling off and so. And we would expect to see kind of mid next year us getting to approximately 100% of the portfolio decisions through that. But, we're enjoying the benefit of that this year and we should sort of get that additional 20% over the next six to nine months.

Bill Chappell -- Truist Securities -- Analyst

Got it, thank you.

And then, also, just as I look at kind of year-over-year same lease growth, how much is impact of kind of product selection? That I would think that starting with the lock-down a year ago and for the first couple of quarters after that, it was heavily on home furniture and housing and stuff like that, as we were all going to stuck at home and needed new refrigerators and what have you.

Has that changed materially, and is that affecting the numbers or are we still seeing pretty much the same product selection?

Douglas A. Lindsay -- Chief Executive Officer

Sure. I am going to let Steve Olsen here. Let Steve handle that.

Steve Olsen -- President

Hey, Bill, thanks for the question.

Yes, you've nailed it. We're absolutely seeing very similar product selection and results that we saw throughout Q2. So, seeing nice growth across our entire business, whether it's furniture, appliances or electronics.

Bill Chappell -- Truist Securities -- Analyst

So, no real change in -- on it over the past six to nine months, even as we reopened?

Steve Olsen -- President

No real change as we reopened, as I said in prior calls. So, nice growth in the appliance business early, but that actually continued and we're seeing nice growth in furniture, whether it's upholstery, bedroom, or the associated accessories. So, nice consistent business that we've seen from the start through now.

Bill Chappell -- Truist Securities -- Analyst

Great, thanks so much.

Steve Olsen -- President

Thanks, Bill.

Operator

Your next question comes from the line of Vincent Caintic with Stephens.

Vincent Caintic -- Stephens Inc. -- Analyst

Hey, thanks, good morning.

First question about the GenNext store roll-out. So, seen some great success there. Maybe, if you could talk about, now you're sort of six to nine months into this, any learnings you've had versus when you initially started? And then, I know you talked about the roll-out and trying to be disciplined about it. But, given the success you've had, just sort wondering when you're thinking about the build-out, if you could accelerate it or how you think about potentially expanding that?

Thank you.

Douglas A. Lindsay -- Chief Executive Officer

Sure. Great question, Vincent.

Well, first of all, as you know, GenNext is part of our larger market repositioning strategy that includes reinvesting in stores that we love that are keepers and renovating them; that also includes relocating stores maybe down the street to better center in the markets that we love, and consolidating stores, where we feel like we have multiple stores in a market that needs fewer stores and larger e-com, fewer larger stores. And so, we're doing all the above. We've created pro formas for each of those, that are unique to each of those scenarios. And I'm happy to say that as of today, we've opened 64 stores and we're on track to our expected returns, which as we said are 25% IRR in five-year payback.

We typically look for a payback within the initial lease term of our of our real estate, which is typically five years. And so, we're really happy with that. But, we don't just look at these in terms of how we're doing to our pro forma, we really measure how these stores are doing versus our control group, which are our core stores in our portfolio. And so, we're really happy about this. We're up over 20 points and our recurring revenue written into the portfolio, which is our sales metric over our core portfolio, which is very promising, and our customer accounts are exceeding our expectations.

So, all that being said, we're very bullish. We are moving as fast as we can on this. As I think I've mentioned in prior quarters, we've intentionally been shortening our lease term over the last five years to be able to pivot our portfolio. And so, we're building a robust, analytically driven real estate team who's really hit the ground and they're producing a lot.

We have a lot more stores in our pipeline. The pipeline is building for next year, part of our capex guidance going up, is related to the pipeline of stores we have slated for 2022. And that's really a timing issue because we're going to spend money in advance of our of our openings. Importantly, we can move fast, but we can only move as fast as the real estate market will allow us to move and that's based on sort of market conditions, what availability there is, permitting, landlords and construction timelines.

And so, we've built infrastructure in both our capital allocation and in our opex. Part of the investments, Kelly had mentioned before, in the second half of the year are investments to build squads that we have on the ground to launch these stores, to build more infrastructure in our operations team to make sure we have the people ready to run these stores, and to grand open our marketing functions and making sure we have field teams available to do that. And so, we're building all that into the latter half of the year in our outlook.

And trust me, I'm aligned with you. We want to move -- based on the results we're seeing, we want to move as fast as we can. But, we also want to be judicial and prudent about our site selection and making sure we're making the right decisions.

Vincent Caintic -- Stephens Inc. -- Analyst

Okay. That's really helpful and it's exciting to hear that you're over 20 points [Phonetic] versus the control group, so really appreciate that.

The next is probably just a quick question. But, on this KPI with lease portfolio size, I know you introduced it earlier this year. But maybe, Kelly, if you could help us understand how to use that when we think about modeling the revenues going forward? Thank you.

C. Kelly Wall -- Chief Financial Officer

Yes, Vincent, a great question.

So, what that represents, right, is as we start every month, the size of the revenue that we collect across all of our leases, so if you think about where we ended the quarter, right, $132.8 million; if all of our customers paid 100% of their lease payment, then we would collect $132.8 million in the month of July, right. And so, it's that potential monthly collectible revenue. Now, we don't collect 100%, right. And so, that factors into what we end up reporting in revenue. And then, within the month and then within the three months of a quarter, right, you would typically see growth or change in that portfolio size, which also would impact that revenue calculation for the quarter and for the year.

But, as Douglas mentioned, the growth in that portfolio year-over-year of over 8% contributed to about two-thirds, right, of that 11.2% positive same-store revenue growth that we posted. So, we're trying to help you and others understand how impactful, right, the portfolio is on delivering kind of long-term sustainable growth to the top line of the business.

Douglas A. Lindsay -- Chief Executive Officer

Yeah. And that last third is related to collecting at a higher rate. And we are renewing our customers' at higher rate than we did last year and so. And to the extent we renew at the same rate as last year, our same-store revenues would be closer to the portfolio size.

Vincent Caintic -- Stephens Inc. -- Analyst

Great, that's very helpful. Thanks very much

Operator

Your next question comes from the line of Jason Haas with Bank of America.

Jason Haas -- Bank of America -- Analyst

Great. Good morning, and thanks for taking my question.

Have you had a chance to take a look at how collections have been in states that have pulled back the enhanced unemployment versus states that still have it?

C. Kelly Wall -- Chief Financial Officer

Yes, Jason. Great question and I appreciate the question here.

What I'd say is, yes, we've looked at it. And we watch our business daily at the store level. So, it's something that we're very tuned into. And so, we watch the impact that has had across the portfolio and that certainly has weighed into how we think about the outlook for the back half of the year. We don't typically provide that level of detail, right, kind of down at the state level. So, I'm not going to comment specifically there.

But, what I will say is this, you've heard this from us before, right. In general, when our customer is more liquid, they pay better. And so, it's based on that -- it's a fair assumption to kind of carry that one step further. And I think that in those states that discontinued the enhanced unemployment, we saw a slightly different payment activity than we did in the other states.

Jason Haas -- Bank of America -- Analyst

Okay, got it.

And then, as a follow-up, so you're definitely tracking well above where you had expected, based on the longer-term plan that you outlined during the spin-off, both in terms of top line and margin. So, I'm curious as we think longer term, both like as we get into next year, -- sort of like -- some of this has been driven by external strength. So, I'm curious to know how long that could last for? Do you think there could be some benefit that flows all the way into next year from that?

And then, just in terms of what you're doing internally, it sounds like you're tracking above plan there. So, just kind of curious with what the big pieces are in terms of, relative to where you thought maybe at beginning the year, tracking above them [Phonetic], do you think -- expect to continue?

C. Kelly Wall -- Chief Financial Officer

Yes, Jason. I appreciate that.

So, it's a bit too early for us to provide guidance as it relates to 2022, particularly in light of all the moving parts that we're continuing to see in the market, right. But, what I would say kind of bring it back to that five-year outlook that we did provide before, where we sit today, our lease portfolio size is larger than where we anticipated being halfway through 2021. So, that is clearly something that's going to help kind of carry into 2022 and beyond, in terms of, kind of, where we fall across that five-year execution strategy.

As it relates to the roll-out of our new store format, right, the consolidation in certain markets, we're kind of right on schedule with what we had penciled out. So, the big drivers, next year, right, as we think about kind of resetting relative to that initial five-year plan that we provided is, number one will be that lease portfolio size; number two, it's where are we collecting the [Indecipherable] customer paying, kind of comping off any government stimulus and enhanced unemployment benefits they've provided in 2020 and 2021. But, we certainly are paying close attention to that and will guide you all as we have kind of better clarity into next year and beyond.

Jason Haas -- Bank of America -- Analyst

Got it, really helpful. Thank you.

C. Kelly Wall -- Chief Financial Officer

You're welcome.

Operator

Your next question comes from the line of Tim Vierengel with Northcoast Research.

Tim Vierengel -- Northcoast Research -- Analyst

Good morning. Thank you for taking my question.

This one is for either Steve or Douglas. We view, you guys, e-commerce capabilities as truly a key differentiator versus the rest of the market. Can you highlight just the growth stats, again, you're seeing in that channel, and maybe outline what you guys see as the biggest hurdle for -- to see -- for accelerating growth through that channel? Feel like, I think sequentially, it was about the same growth rates. Just kind of curious what might be big hurdle to see continue accelerating growth in that channel?

Thanks.

Douglas A. Lindsay -- Chief Executive Officer

Tim, this is Douglas. I'll start off and I'll let Steve finish.

We're really happy with the performance of our e-com channel. We had 15% growth in the quarter year-over-year. And while that is a slowing of our overall rate, we are comping over the large increases in our e-com business that we experienced in Q2 of last year when the pandemic hit. And so, we've got, which was up roughly 54%, I believe, during that quarter. And so, while we're comping 15% or 54%, we were happy with that. So, last year -- and I'm sorry that 54% was what we wrote into the portfolio. So, we're still comping at 15% up.

Last year, we saw a surge in demand. I think as the year went on and the pandemic continued, we went through some inventory challenges and have since corrected themselves. And where we stand today, we're super happy with the demand and the optimization of our decisioning on our e-com platform and the technology advancements that we've made -- we're really proud of. And I think they're going to add a ton of value for us as we move forward.

I'll let Steve just talk about those.

Steve Olsen -- President

Tim, thanks for the question.

Just to add to it, I would definitely say the focus of our technology investments is where the opportunity lies. First and foremost, I would call it out, or just [Phonetic] our digital marketing in our pivot to putting more of our marketing dollars in that area to target engaged customers in a broader sense. But, as far as the technology investments, we just need to continue to improve that user experience that we have in our e-commerce platform through content, personalization and functionality. We need to continue to broaden our assortment, give that customer a broad selection of product in our core categories, as well as an expansion into new categories that we're not even in yet.

Additional piece would be around the inventory visibility. Doug has mentioned that we're pleased with our inventory position; in that, inventory that supports our e-commerce business. But, the more and more focus that we put on visibility of that inventory to our customers, so they can get that product faster in their homes.

And the last piece would just be a focus on turning the controls over to the customer and really create that self-service environment that allows them to access their account, manage their account through the mobile app or our online portal, with My Account. So, I would change it more to where the opportunities lie and where we need to continue our focus to drive continued growth.

Tim Vierengel -- Northcoast Research -- Analyst

That's really good color guys. Thank you so much.

Operator

There are no additional questions. At this time, I'll turn the call back over to Mr. Douglas Lindsay for final remarks.

Douglas A. Lindsay -- Chief Executive Officer

Thank you, operator. I really appreciate it.

Let me just conclude by saying, I could not be more pleased with our second quarter results. Consistent strong results don't happen without a lot of hard work by a lot of team members. And I want to thank all of our stakeholders, from our shareholders to our franchise owners to all of our team members in our Aaron's stores, in our Aaron's store support centers, and at Woodhaven manufacturing, whose supporting partnership is critical to our success.

I continue, as you can tell by the tone of this call, to be confident. We have the right team, the right strategy and the right market opportunity to continue to grow our business, to returning capital to shareholders, and to create a rewarding future for our stakeholders and customers. I want to thank you for joining us today and have a wonderful afternoon. Take care.

Operator

[Operator Closing Remarks]

Duration: 58 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

Kyle Joseph -- Jefferies LLC -- Analyst

Anthony Chukumba -- Loop Capital Markets LLC -- Analyst

Bobby Griffin -- Raymond James. -- Analyst

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

Bill Chappell -- Truist Securities -- Analyst

Vincent Caintic -- Stephens Inc. -- Analyst

Jason Haas -- Bank of America -- Analyst

Tim Vierengel -- Northcoast Research -- Analyst

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