Here's the thing about David and Goliath stories -- 99 times out of 100, the Goliath smacks around the David, which is why it's a big story when David wins. In the rent-to-own business, though, David, a.k.a. Aaron Rents (NYSE:RNT), is more than holding its own.
While rival Rent-A-Center (NASDAQ:RCII) posted another lackluster quarter earlier in the week, Aaron Rents answered back on Wednesday with a solid report.
Consolidated first-quarter revenue was up 15% to just over $279 million, and earnings climbed 44% from the year-ago period. As those numbers would suggest, the company once again posted a solid improvement in its margins.
Same-store sales were also solid in the first quarter. Up 8.3%, the company slightly improved this metric on a sequential basis. What's more, when looking at stores open longer than two years, the same-store sales growth figure is still positive at 4.9%. Given the pace of expansion in the rent-to-own market, that's an impressive accomplishment that suggests Aaron Rents has found a good retailing formula.
Even though this generated emailed howls of protest from my earlier piece, I continue to maintain that Aaron Rents is succeeding because its stores are nicer (and considerably larger), the merchandise is fresher, and the pricing is much more competitive. For those who disagree (and I'm sure I'll be hearing from you), I'd ask you to explain why Aaron Rents is seeing the growth that it is if it isn't doing something better than the competition. After all, strong same-store sales growth in older stores doesn't happen by accident.
Based on the strong results in this quarter, Aaron Rents has decided to reinitiate a stock buyback program, and the standing authorization covers nearly 2.7 million shares (about 5% of the total outstanding). While this is certainly a good move for shareholders, it's not as though Aaron Rents has actively diluted its shareholder base -- shares outstanding increased less than 1% on a year-over-year basis.
Looking ahead, the company expects to continue a measured and rational store expansion program. What's more, the company's relationship with Dell (NASDAQ:DELL) seems to be working out alright and could become a bigger contributor to growth in the future.
Although Aaron Rents stock isn't nearly as cheap as Rent-A-Center's, I think you could still argue that Aaron Rents is the better buy. While the larger company (that's Rent-A-Center) certainly has the opportunity to turn its business around, Aaron Rents is growing nicely today. While cash flow and margins are lower at Aaron Rents, they're improving, and the company is posting strong organic growth. Time will tell in the end, of course, but for today David is still in the lead.
For more on the world of rented goods, help yourself to these keepers:
- Why Own Rent-A-Center?
- Netflix in Red
- Aaron Rents Reaps Rewards
- You'll Want to Own, Not Rent, This Prize
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
