The firm also lowered its estimates for the 2016 fiscal year as the company's prior sales and margin outlook was "too aggressive."
"We believe our prior expectation for same store sales to turn positive in the core segment in 2016 was overly optimistic given the sustained topline deceleration and customer count declines the company has suffered over the last eight quarters," the firm said in an analyst note.
The Atlanta-based company is a specialty retailer of furniture, consumer electronics, computers, appliances and household accessories. The company acquired Progressive Finance Holdings, a merchandise lease-to-own company, in 2014.
While the firm expects healthy sales growth to persist for Progressive, Cantor Fitzgerald analysts have growing concerns over the segment's limited visibility into delinquencies following the spike in its charge-off rate in the third quarter of 2015.
Shares of Aaron's closed down by 0.57% to $22.59 on Tuesday.
Recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:
We rate AARON'S INC as a Hold with a ratings score of C. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and compelling growth in net income. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow and a generally disappointing performance in the stock itself.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- AAN's revenue growth has slightly outpaced the industry average of 4.3%. Since the same quarter one year prior, revenues slightly increased by 9.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The current debt-to-equity ratio, 0.37, is low and is below the industry average, implying that there has been successful management of debt levels.
- AARON'S INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, AARON'S INC reported lower earnings of $1.08 versus $1.59 in the prior year. This year, the market expects an improvement in earnings ($2.12 versus $1.08).
- AAN has underperformed the S&P 500 Index, declining 21.23% from its price level of one year ago. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- Net operating cash flow has significantly decreased to -$6.04 million or 137.97% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full analysis from the report here: AAN