Aaron's (AAN) Q1 2016 CEO John Robinson On Results - Earnings Call Transcript

| About: Aaron's Inc. (AAN)

Aaron's, Inc. (NYSE:AAN)

Q1 2016 Earnings Conference Call

April 28, 2016 8:30 AM ET

Executives

Garet Hayes - Director of Public Relations

John Robinson - Chief Executive Officer

Douglas Lindsay - President of Sales & Lease Ownership

Steven Michaels - Chief Financial Officer & President of Strategic Operations

Ryan Woodley - CEO of Progressive Leasing

Analysts

John Baugh - Stifel

Budd Bugatch - Raymond James

J.R. Bizzell - Stephens, Inc.

Anthony Chukumba - BB&T Capital Markets

Brad Thomas - KeyBanc Capital Markets

David Magee - SunTrust

Operator

Good morning, welcome to the Aaron's Inc. First Quarter 2015 Earnings Conference Call. All participants will be in listen-only mode [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions [Operator Instructions]. Please note this event is being recorded.

Participating this morning are John Robinson, Aaron's CEO; Douglas Lindsay, President of Aaron's Sales & Lease Ownership; Steve Michaels, Aaron's CFO & President of Strategic Operation; and Ryan Woodley, CEO of Progressive Leasing.

At this time, I would like to introduce Garet Hayes, Director of Public Relations. You may proceed.

Garet Hayes

Thank you and good morning everyone. Welcome to our conference call to discuss Aaron's first quarter results issued today. All related materials including Form 8-K are available on the company's Investor Relations website, investor.aarons.com, and this webcast will be archived for replay there as well.

Before the results are discussed, I would like to read the company's Safe Harbor statement. Except for historical information, matters discussed today are forward-looking statements. As such, they involve a number of risks and uncertainties, which could cause actual results to differ materially from those predicted in Aaron's forward-looking statements. Please see our SEC filings for certain risk inherent in our business that may cause actual results to differ.

Forward-looking statements that may be discussed today include Aaron's Progressive and Dent-A-Med's projected results for future periods, Aaron's strategy, the company anticipated sale [indiscernible] to our business, and other matters including those listed in the forward-looking statements disclaimer in our earnings press release published today. Listeners are cautioned not to place undue emphasis on forward-looking statements and we undertake no obligation to update any such statement.

During this call, we will also be referring to certain non-GAAP financial measures, including EBITDA, adjusted EBITDA, non-GAAP EPS, non-GAAP net earnings, and pre-tax pre-provision loss 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.

I will now turn the call over to Aaron's CEO, John Robinson. John?

John Robinson

Thank you, Garet. Good morning, everyone. Thanks for joining us today. As I said during last quarter's call our goal this year is to increase revenue and invest in future growth while maintaining discipline around profitability. I feel good about the progress we made in the first quarter [indiscernible] and I'm optimistic we can build on our progress as we move forward.

We started 2016 with a new team in our core business and acceleration in door growth at Progressive, a stronger balance sheet and a sharper focus on our key segment. We delivered on the company's financial goals for revenue, adjusted EBITDA, and adjusted earnings per share in the quarter.

Consolidated revenues increased 4% on strong performance from Progressive and we maintained adjusted EBITDA margins in both segments. Our core business results were mixed in the quarter. Comparable store revenues and customer accounts improved on a sequential and year-over-year basis and we achieved a flat adjusted EBITDA margin in the quarter. With that said, deliveries in the quarter were weaker than we expected. As you recall, we had a significant management reorganization during the first quarter.

In February, Douglas Lindsay was brought in as President to run the core business and Tristan Montanero was elevated to Chief Operations Officer for Aaron's Sales and Lease Ownership. Douglas and Tristan have hit the ground running.

The core strategy will evolve and take time to implement, but I'm encouraged by the initiatives they're pursuing to improve store performance. Douglas brings an analytical process driven approach to the business and has created renewed energy and enthusiasm in the core. I'm optimistic about his plans which he will share with you in a moment. Progressive had an outstanding quarter with a mid-teens increase in active doors and a 23% gain in EBITDA.

Investments to grow this segment were offset by positive trends in gross margin, merchandized write-off, and bad debt expense. The team is executing extremely well and we will continue to build partnerships with regional and national retailers. Aaron's infrastructure, balance sheet strength, and transparency are key differentiators for existing and potential retail partners and our recent investments in Improve Me and [indiscernible] have further enhanced our offering.

As we announced in this morning’s press release we have signed an agreement to sell our HomeSmart division. While I am really proud of our team for getting HomeSmart to profitability we came to a conclusion that it wasn't core as an asset for us. Selling this segment will ensure we're concentrating our resources around assets with the highest potential for return. During the quarter we also sold our headquarters building for approximately $14 million in cash. As we monetized non-core assets we'll look to use excess cash to augment shareholder return.

With that I will turn it over to Douglas to discuss the core business.

Douglas Lindsay

Thanks John. As John mentioned trims in the core business were mixed in the quarter. Total revenues were $543 million down 4.8% versus a year ago period. Lease revenues and fees were down 2% in part due to a 1% decrease in store count as well as lower agreement balances entering the year and softer deliveries in the quarter. Non-retail sales declined 17% reversing at 17% gain we saw in the fourth quarter of 2015, as franchisees worked through inventory balances they carried over into the first quarter of this year.

On a positive note, comparable store revenues improved on a sequential and year-over-year basis. In the quarter comparable store revenues were down 2.1 % and down 0.8% excluding Texas, which represents 18% of our store-based revenues. Customer accounts were up 0.4% on a same-store basis and up 0.9% excluding Texas, which were also sequential and year-over-year improvements.

Turning to our profit metrics, adjusted EBITDA for the core business was $70.9 million for the first quarter or 13.1% of revenues. Our adjusted EBITDA margin was flat with the year ago quarter. Gross margin improved as the mix of lower margin sales to franchisees declined in the quarter. Merchandise write-offs were 3.5% versus 3.0% in the year ago quarter. Merchandise write-offs have been higher than we'd like, and we're working hard to improve these and I've seen some recent progress in that area.

I'm excited to announce that we're also launching a national partnership with Cricket Wireless. We expect our rollout to be completed by the end of the second quarter. This offers our customers a full service smart phone solution and an incremental revenue stream in our stores. As I outlined in February, my focus is to improve operating consistency, increase same-store revenues, and drive profitable growth.

I spent much of the quarter visiting our stores and spending time with the team members across our organization. And I'm very encouraged of the pieces we have in place. I believe the opportunity before us is well within our control. Let me share some initial observations on where I see opportunities to improve the business. The first opportunity encompasses what I'll call the front of the Aaron's Sales, how we attract customers, drive traffic, and profitability convert sales. This will touch many of our primary functions, in a way we market our product, and merchandise our stores, to the way our associates interact with customers. Ultimately there is a significant opportunity to reinforce a sales culture at Aaron's. We're making changes to drive higher conversion rates in our stores and we're planning to leverage internal resources to better support the revenue function.

A second major opportunity involves the middle of the Aaron's sales, how we manage account relationships, execute on our operations, and develop our associates. Our associates are the most important asset that we have, and we need to ensure we put a framework in place that properly train them, holds them accountable to goals, and rewards them for their accomplishments.

Finally we're looking at the back of the Aaron's Sales, our inventory and supply chain management. With a strong distribution network supporting our stores, we have the opportunity to be more efficient in our inventory levels and mix. We're also assessing our promotional strategy to find the right balance between providing compelling value and earning a suitable margin. While there is significant opportunity for improvement I'm energized about the great culture and drive that permeates our organization. Our associates are passionate about helping customers and maintaining Aaron's leadership in the leased owned business. I'm encouraged by the foundation that has been built here at Aaron's, so I'm excited about the opportunities that lie ahead of us.

Now I'll turn the call over to Ryan to discuss Progressive's results.

Ryan Woodley

Thanks, Douglas. We're very happy with the first quarter performance of Progressive. Total revenues were up 22% to $307 million. This gain was driven in part by an acceleration in new door growth as we continue on boarding a strong pipeline. Total invoice volume increased 10.9% versus the first quarter of 2015. The number of active doors increased 14% an acceleration from the 7.6% increase last quarter. Door growth is a leading indicator of future invoice volume, so we're happy with our position going into the remainder of the year.

Invoice volume per active door was down 2.7%, reflecting a large number of new stores entering in our active door count. EBITDA for the first quarter was $34.8 million up 23% versus the first quarter of 2015. EBITDA margin was 11.3% of revenues in both periods. Our gross margin was favorable over the last year. Write-offs were 6.2%, versus 6.4% in a year ago period. Our customer service hub operations are positively impacting that metric. Bad debt expense was 9% of revenues versus 9.6% a year ago, continuing the improvement we saw in the fourth quarter of 2015. Lower write-offs and bad debt expense offset investments we're making in SG&A to grow and harvest our pipeline.

Turning to Dent-A-Medications which was acquired by Progressive last October revenues were $4.8 million in the first quarter of 2016 losses before income taxes were $2.9 million and pre-tax pre-provision loss for the first quarter was $1.2 million these were in line with our expectation.

I'll now turn it over to Steve to discuss e-commerce and our combined financial results.

Steven Michaels

Thank you Ryan. E-commerce activity represented 4.7% of total core deliveries in the quarter and 3.7% of core business lease revenues. The contribution to lease revenues is up from virtually zero in the year-ago period and up from 2.6% in Q4 of 2015. We continued to believe this will be a mid-single-digit lease revenue contributor for 2016.

In the quarter, we continued to refine our product line, promotional offerings, and processes. The profile of our online customers continues to skew younger than our in-store traffic. The product mix is very similar to what we lease in stores and nearly 60% of our online customers have not previously done business with Aaron's. We're executing on our roadmap for future enhancements and we are bullish about this exciting channel.

Now I'll turn to the financial details for the quarter. Revenues for the first quarter were $854.4 million up 4% over the same period a year ago, driven by a 22% increase in revenues at Progressive.

Net earnings for the quarter were $49.7 million versus $49.2 million a year ago. Earnings per share, assuming dilution, were $0.68 in both periods.

Net earnings for the first quarter on a non-GAAP basis, were $52.1 million compared to $53.4 million for the same period in 2015. On a non-GAAP basis EPS as $0.71 compared to $0.73 a year ago. The year-over-year decline is due to the inclusion of Dent-A-Med results in 2016 and a higher tax rate in the quarter. Non-GAAP net earnings and diluted earnings per share in 2016 exclude the effects of amortization expense from the acquisition of Progressive, a gain on the sale of the company's headquarters building, charges related primarily to the retirement of our former CFO, and an impairment charge incurred upon writing down the net assets of HomeSmart to their estimated value. In 2015 non-GAAP results exclude the effects of Progressive amortization. The sale of the assets of our HomeSmart division is scheduled to be completed in the second quarter and we will provide an update about this transaction after it closes.

Adjusted EBITDA for the company, which excludes all special charges and adjustments just mentioned, was $104.0 million for the first quarter of this year compared to $103.7 million for the same period last year. At the end of the first quarter the company had $119 million of cash on hand compared to $15 million of cash at the end of 2015. Cash generated in the quarter was a result of cash flow from operations as well as a $120 million tax refund received in February.

Our total debt was reduced $89 million during the quarter and at the end of March we had no outstanding balance on our $225 million revolving credit facility. Consolidated customer accounts increased 6% to $1.590 million at March 31, 2016 up from $1.5 million a year ago.

Regarding our outlook for the year the guidance the company provided on February 18, 2016 remains unchanged. Those were the financial highlights for the quarter.

I'll now turn it back over to John.

John Robinson

Thank you, Steve. Overall I'm very pleased with our results at Progressive the quarter and how it is positioned for the remainder of the year. I'm also optimistic about the new management team we put in place in February and believe they will capitalize on the execution opportunities in our core Aaron's business. Lastly our already strong balance sheet continues to improve which puts us in a great position to expand our business and drive shareholder value. I would like to thank all of our associates and franchises in the Aaron's family for your efforts during the quarter. We appreciate all you do to make Aaron such a success.

With that operator, you can open the line for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions]. Our first question is from John Baugh of Stifel. Please go ahead.

John Baugh

Thank you good morning John, Douglas, Ryan and Steve.

John Robinson

Good morning.

Douglas Lindsay

Good morning John.

Ryan Woodley

Good morning.

John Baugh

I guess first a question for Douglas there were several comments around delivery being weak I think a little more promotional activity. I was curious where were early payouts in the first quarter. Were they elevated? Did people not renew? With anymore additional commentary on what you saw during the quarter and what you're doing I thought like traffic was reasonable, so just the puts and take to start driving comps? Thanks.

Douglas Lindsay

Yeah no problem, yeah we saw some softness in deliveries in the quarter yeah part of that due to the heavy promotional activity that we did in the fourth quarter of this year so we think we pulled some customers in the fourth quarter and we talked about that in our yearend call. The other thing as we experienced a delay tax season which we believe impacted the customer buying behavior or payment behavior and that caused deliveries to be a little softer and when those payments are delayed we never quite make what miss in January and the other impact of that as we have lower early payouts which we experienced this year.

John Baugh

Okay. And what made you the two or three things you're doing I guess maybe on the front of that to drive deliveries going forward?

Douglas Lindsay

Sure we continued to test promotional activity. We've been promotional over the course of the last year and we'll continue to do that. In my experience and my opinion, we've tried a number of different things and what I'm doing right now is pulling back and looking at the returns on each of those promotions and really understanding where we're getting most bang for the buck. The most important thing to us is I mean adding profit to the bottom line, and so we're in the process of doing the ROI analysis on each of those promotions. So I think we'll continue to be promotional and then it's all about execution, so driving the field, and driving the sales process. My main focus right now is how do we become better sellers and better closers in the Aaron's stores.

John Baugh

Okay. And last question on the core before I ask on capital allocation, any early thoughts on store count. What's the right number corporate owned in the system going forward?

Douglas Lindsay

We continue to assess that John and I'm putting in place processes right now that will allow us to do more frequent reviews of our store count and profitability on those stores, but that is an initiative that's in the work, so I wouldn't want to comment any store count numbers.

John Baugh

Okay, perfect. And then John on capital allocate I don't expect it to [indiscernible] with the proceeds maybe from HomeSmart or you guys have proceeds from the headquarters, your business generates cash. And I know you want to keep the balance sheet ready in case there is a big opportunity. Could you sort of help us think about your comment on shareholder value, is that implying you want to buy in stock or keep the powder dry or it's a combination?

John Robinson

Yeah, good question John. We thought about it in the past. In terms of prioritization of capital allocation. We certainly want to grow organically in our businesses which are. We've got a lot of organic growth opportunity in Progressive and as we talked about we want to have dry powder for the pipeline that we believe we're going to execute on. And so that's certainly a top priority there. We always keep our eye out for other opportunities, whether it be acquisitions, to enhance our businesses as we did with Dent-A-Med. And then as you mentioned the ability to return capital to shareholders is something we also understand, we take seriously, and are continually evaluating. As we move forward and we generate cash, we will continue to evaluate that, and hope that there is an opportunity to potentially execute on some or all of those is probably the way to think about it.

We haven't really changed our position, but certainly we're evaluating it and understand the urgency around between judicious with our capital, and so we're going to stay focused on that. I would say, just right now we're not updating our position on it, other than feel good about where we sit right now and are expected to be a real competitive advantage for us going forward and also is something we can drive shareholder value within the next two quarters and beyond that.

John Baugh

Great, thanks. Good luck.

Operator

Our next question is from Budd Bugatch of Raymond James. Please go ahead.

Budd Bugatch

Good morning, everybody and thanks you for much of the detail and also thank you for the additional disclosure on today's malaise on the revenue side. I do have a question. One of the areas we get beat up about regarding Progressive even with the growth is the revenue per door issue and of course we see that down 2.7% this quarter year-over-year. I wonder if there's a metric that you could share with us and maybe revenues per same-door since new doors are less productive as they're entering into the pool of the business. Can you - is there anything Ryan that you can help us with may be allay some fears that investors have about per door revenue?

John Robinson

Yeah it's a great question Budd. We've discussed the topic a lot, because we want to convey the enthusiasm we have for the growth we see in the business. At the end of the day the challenge is that it’s the product of those two metrics that really get us excited. It's the product of A) the growth in doors and B) the invoice volume per door and as you seen both of those can be lumpy for innocuous reasons, positive reasons really grow. One of the things that we've observed overtime is the dynamic that I mentioned in the prepared comment which is get a lot of those new doors on the system that have yet to mature into the program, they'll will be less productive than a mature door obviously.

And so you experience the evolution maturity of those doors, but it's also true that we've observed over the years there is a variance in door level productivity among retailers especially across industry verticals, but even within. What I mean by that is larger tickets, smaller tickets, pure transactions, many which of course translates into overall volume. And some of those doors mature at a lower or a higher level of volume than others. I think the great think about the model is that regardless of vertical or what you might call the natural volume level of a retail door, we've proven two things. One thing is that wherever we start with that door or whatever you might consider its natural volume level to be we can increase the productivity of that door overtime and we've proven that in every vertical we've worked in. And the second things which is the biggest point is the Progressive model being virtual allows us to deliver similar margins of profitability across verticals, because there is almost no incremental cost to serve given that it's delivered by technology.

So those trends influence the metrics that we're seeing in the business today. We're obviously really excited about the 14%. We thought about other metrics we could share and we keep circling back to the fact that given the lumpiness of the pipeline and just the nature of the decision being made by those larger retailers, it's tough to pick any one of those and say that is the single best metric, but we'll continue to think about how we can better communicate that.

Budd Bugatch

Okay. Second question for me on Progressive too is what was the penetration at 90-day programs in the first quarter, what percentage was that?

John Robinson

We saw it come down a little bit in the first quarter. We think about it more on a percentage of static pool, but we also look at it as a percentage mix of revenue in the period, because that's what drives the gross margin. And we did mention that gross margin came up in the quarter and that was driven in part by a decrease in the mix of revenue attributable to 90-day buyouts.

Budd Bugatch

So a decrease which does increase the gross margin, and gross margin I think last year was around $39.7 million for the full year, can you give us, share with us where it was for the quarter and maybe how that grew in the quarter?

Steven Michaels

It's a good question, but on gross margin we haven't yet got to the point where it's shown on a quarterly basis, but it was definitely up versus same period last year.

Budd Bugatch

Was it up over the year than the full year number?

Steven Michaels

No guidance on that.

Budd Bugatch

Okay. And finally from me, the issue with Wal-Mart or the issue with the large retailer test, anything that you can share with us on that, how that's progressed?

Steven Michaels

We don't refer to it as an issue. We're obviously very pleased to have the opportunity to partner there. I appreciate the question. I understand the sensitivity there. No further information to share at this time including guidance [indiscernible] as the pilot continues approximately on the doors.

Budd Bugatch

Okay. And lastly from me that DAMI, the provision which you did for DAMI is that about the same provision level, we'll see over the next quarter or two, when do you get the provision to the level that you're comfortable with?

Steven Michaels

Yeah that, I admit I'm learning as we go on in the acquisition accounting there. The early results are definitely impacted by the effects of the acquisition accounting on the acquired receivables and the buildup in the provision. Essentially you have to start through scratch on doubling up that loan loss provision, so we'll see that continue to build for the next few quarters.

Budd Bugatch

Got it. About a $1.6 million a quarter, is that about the right way to look at it?

Steven Michaels

I honestly don't know.

Budd Bugatch

Thank you very much.

Operator

Our next question is from J.R. Bizzell of Stephens, Inc. Please go ahead.

J.R. Bizzell

Yeah, good morning, guys and thanks for taking my questions. First one on smartphone update, congrats on the Cricket carrier implementation. Just wondering now I know in the last couple of calls we've talked about marketing, you'd been kind of tampering the smartphone rollout and kind of controlling that. Just wondering how you're thinking about it now that you have the carrier and the stickiness factor that comes with that. Just wondering how you're thinking about the marketing around that product and do you kind of expect to see a smartphone acceleration as we move throughout the remainder of the year?

Douglas Lindsay

Yeah, I mean, this is Douglas. Cricket is very exciting opportunity for us and we're energizing our field operations and our marketing efforts around the rollout. We've been focused on smartphones selling really without a plan for the last quarter, but as we move into the implementation of launch here which should be done by the end of the second quarter, we're going to incorporate Cricket into our marketing messaging and sort of co-market with them both in our stores and through other media outlets, so that will be a major part of what we do at Aaron's in the second quarter.

J.R. Bizzell

Are the early results in the smartphones kind of in line with expectation?

Douglas Lindsay

The early results are early, so we launched this month about three weeks ago. We have it in 47 stores and we should have it in all of our stores by the end of June and so those 47 stores are tracking to our expectations and our associates and our customers are very excited that we've got a full service plan in our stores, so more to come on that.

J.R. Bizzell

Excellent and kind of next question Ryan. This is maybe pointed towards you. I know maybe [indiscernible] about this, but the retail partner update Wal-Mart. Just wondering how that rollout is going with those retail partners you all announced in 4Q that you were fully launching in. And just wondering the timing how you're all thinking about it, where we're at in the innings of rollout with those partners and how the early results are kind of tracking?

Douglas Lindsay

Yeah we appreciate your question, we're really excited. The sales team is doing a phenomenal job executing on the pipeline. We're really excited about 14% door growth, I guess for a couple of reasons, one, it really to us helps convey the broader appeal of the model and on the value preposition to a pretty wide range of retailers, but better also obviously it communicates with some of those opportunities that are coming in and turning into new doors in the platform which will hopefully translate into new invoice and then in turn in new revenue.

They are still in various stages of deployment, but each are scaling in line with what I would consider to be our expectations. There is still some room to grow in the opportunities that we're currently deploying and we've since added some new opportunities to the pipeline. So excited about what we're rolling out, we're excited about what's yet to come. Our team is doing a phenomenal job.

J.R. Bizzell

Right. And then last one from me, on HomeSmart congrats on selling that and I know you had been working hard to get it profitable. Just wondering with that staff that was turning that business around for you all are you going to be able to leverage any other staff and redeploy it throughout Aaron?

John Robinson

Good question J.R. it's John. We're not sharing any detail of the transaction right now. When the deal closes we can get into those sorts of details, but we're just not talking about it since it's not closed so. Overall it was with a heavy heart that we've made the decision to sell it, because it has been a lot of work. Our associates have done a great job getting it to profitability, it's been a process. But at the end of the day it's about focus for us, at Aaron's we want to focus on our core Aaron's brand and concept and so that's why we made the decision and as we said we'll get into the detail once we close which we think is this quarter so.

J.R. Bizzell

Fair enough. Thanks for taking my questions.

John Robinson

Thank you.

Operator

Our next question is from Anthony Chukumba of BB&T Capital Markets. Please go ahead.

Anthony Chukumba

Good morning and thanks for taking my question. I guess I was just looking for a little bit of color in terms of your skips and stolen. So it looks like it was up 50 basis points year-over-year in core whereas in Progressive it was actually down about 20 basis points. So I was just wondering if you could just provide a little color in terms of maybe what led to the increase in core and then also what you're doing to drive that lower in Progressive? Thanks.

Douglas Lindsay

This is Doug. I'll probably just address the core. So we were up 50 basis points in core. I mean, I'm optimistic about the things we're putting in place around that. We've seen increases in our charge-offs in the last two quarters and that continued on a year-over-year basis this quarter, although we're seeing improvement in certain areas. To me it's all about execution. I don't think anything has necessarily changed in our business. We have opportunities to be stronger in what I called the middle of the house in my remarks and how we collect and have conversations with our customers. Ultimately it's about building the relationship with the customers through our accounts department. Then we have a wide range of sort of outcomes in that area and I'm working hard to create more discipline around that process and I think that will bear improvements over the next year.

Ryan Woodley

And then, Ryan here. On the Progressive side of the house, it's really driven by excellent work in both our ops and underwriting teams. So from the ops perspective we're getting the benefit of customer service hubs. We now have 22 of them across the country. It's an advantage that we didn't have at the [indiscernible] acquisition and the underwriting team has done a phenomenal job improving the quality of the lease portfolio over the last several quarters, couple of quarters. So that's what's showing through on the financials for Progressive.

Anthony Chukumba

Got it. Now that's helpful color. And then just one follow-up question. You talked about Texas continues to be a drag and you talked about what the comp would have been excluding Texas. I was just wondering going back to my earlier question, are write-offs or skips and stolen higher in your Texas stores than in the rest of the nation in the core business?

Douglas Lindsay

Anthony, this is Douglas, given that we're not seeing that, so we're seeing Texas at the same level as the rest of the business.

Ryan Woodley

But the fact that Texas is really reflected in the delivery number more than the collection side.

Anthony Chukumba

Got it, that's helpful. Thank you.

Ryan Woodley

Thank you.

Operator

Our next question is from Brad Thomas of KeyBanc Capital Markets. Please go ahead.

Brad Thomas

Yes, hi, thanks. Good morning. I wanted to follow up on the Progressive side first and ask another question at the invoice volume per active door and Ryan I was hoping you could share may be a little bit more color around perhaps some of your larger accounts and what the trend has been with them. Are you seeing any pressure from what perhaps has been a little bit choppier retail environment over the last couple of quarters? Are you seeing any changes as a result of perhaps any adjustments in the approval rates that you all have?

John Robinson

Yeah, I appreciate the question. Our largest accounts continue to grow nicely driven by a couple of things. We have the good fortune of being partnered with really good retailers who are growing their businesses and that's certainly help provide a nice stable support to ours, but they've also been great partners in finding ways to increase the volume of our programs within their doors by gelling in on the way we deliver the product at the point of sale, revisiting the range of marketing activities associated with our offering and really partnering with our fields sales team which is doing a phenomenal job of driving new growth there, so that's been positive. That's good and then we are excited to complement that with the infusion of some new opportunities through the pipeline which is going well.

Brad Thomas

Great. A question I guess maybe for John about the regulatory landscape. Recognizing that there is not really a government agency looking at rents owned, but we tend to hear more from traditional players in the credit world is that they are making more investments as they anticipate current or future regulatory scrutiny. I guess as you look at your business what changes or investments are you all making today or may anticipate having to make?

John Robinson

Yeah good question. Certainly the regulatory environment is something we think a lot about and have invested significantly in over the last few years and honestly at Progressive we were doing it along the way and then when we are purchased by Aaron's, Aaron's is along the way as well. We have made some significant investments. We've actually brought in the last year a Chief Compliance Officer for the whole organization that will just further augment the work we have going on in each of the divisions which has been going on for a while as I mentioned. So we're definitely investing there. At the end of the day for us it's all about doing what's good and right for the customer and making sure whereas compliance we can absolutely be in and so that's an area that in this age you just have to be focused on. We believe it can be a core competitive advantage for us, but it takes efforts and investment and it's something that we have been investing and will continue to invest in going forward.

Brad Thomas

Great. And then lastly just as we look out for the second quarter and try to incorporate the DAMI number and in factor in what's perhaps a difficult comparison on the Progressive front in terms of the margins that you booked in the second quarter of last year. Any advice for us as we model EBITDA and earnings for the second quarter?

Steven Michaels

Yeah, Brad, this is Steve. I mean we obviously have our annual guidance policy and have said as it relates to DAMI that we thought that it would be up to $0.10 drag for the year and then that would be including, that will be the GAAP numbers and then we are not really providing any guidance on a quarterly basis, so the guidance we provided earlier for the year remains unchanged.

Brad Thomas

Okay, thank you very much.

Operator

Our next question is from David Magee of SunTrust. Please go ahead.

David Magee

Yeah, hi, good morning everybody. First on the core side you mentioned, I look at the promotions and the effectiveness. Are you also looking at just the overall pricing? Knowing that you raised prices over the last couple of years in the core side, do you think that is something that needs to be maybe rolled back a bit or not?

Steven Michaels

Yeah, I mean I can speak to that. This is Douglas again. So we're managing as I mentioned before the business ultimately for the EBITDA, so there is a trade-off between our promotional activity and our advertising activity and ultimately it's going to affect margins in various areas, but we're focused on EBITDA and really the return on that capital that we put into both promotions and in advertising. So we're going to continue to be promotional and we're going to continue to advertise, but it may be heavier in certain periods rather than others as we go throughout the year and we may do it with more intensity within certain periods than others. So we'll continue to assess that and we'll continue to pursue that strategy. And in terms of pricing, that will offset some of the pricing increases we put in place, but we'll only do it if we think it's in that positive to our bottom line.

John Robinson

And ultimately, David, from a competitive standpoint, we still feel like our prices are very competitive in the market and relative to our franchisees, they're lower in most cases. And so that's always a good control for us from a test perspective. So we work on that when we made the decision to increase prices and we feel good about this decision, but as Douglas said it's more complicated than that given the promotional strategies that go into any quarter, so that will all continue.

David Magee

Okay. Thank you, John. And then secondly, on Progressive, as you are competing for new business, your primary competitor suggested a few days ago, that maybe things have eased a bit in terms of the intensity of the environment out there. Is that something that you would agree with, are you seeing that as well?

John Robinson

Yeah. Good question. We have seen a couple of folks move out at the market. I would say, I haven't detected a material change in the competitive landscape maybe during the last quarter, not that that was implied in the comment. The market continues to be relatively more competitive in the regions for the smaller opportunities and less competitive for the larger national accounts where scale and access to capital are large barriers to entry. We're obviously happy with what's implied in the 14% growth in door accounted. It validates the value proposition of the Progressive offering and proposition with respect to opportunities that are out there. We have said in the past, that pipeline includes opportunities in our traditional core of furniture and bedding, as well as those outside of that which I think is another good indicator of broad appeal of the offering.

David Magee

Okay. Thanks Ryan. And lastly with regard to [indiscernible], are you engaged, cross align that with customers, retail customers at this point and if so are you seeing opportunities for traction?

John Robinson

Yeah a good question. So we've said that it's a great addition to the Progressive business and our strategy. Retailers has been asking for it and we think that it's a nice fit for those retailers who decide that they would like to have a one stop shop for non-prime lending and leasing under one roof. We've been focused in the early days on building the team and the infrastructure and plan to introduce it strategically into the relationships, the retail relationships that we're working with, and that's really still the plan.

David Magee

Thanks Ryan. Good luck.

John Robinson

Thank you.

Operator

And that ends our question and answer session for today. Now I'll turn the conference back over to John Robinson.

John Robinson

Thank you very much. Thank you all for participating in the call and your interest in Aaron's and we look forward to updating you on our second quarter on our next call. Thank you.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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