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Remaining Negative On Rent To Own

Jan. 13, 2014 1:20 PM ETAAN, UPBD, HGG
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We're grossly negative on the rent- and lease-to-own business. Since our late October call, Aaron's (AAN) is flat, hence the reason for the revisit. However, Rent-A-Center (RCII) is down 10% since we called them out in mid October, and hhgregg (HGG) is down 45% since the mid September call. Granted, during our onslaught of negativity concerning the rent-to-own industry, Aaron's was the only company that reached out to us to clarify their business model.

Aaron's called me the other day. They had the wrong number, but the premise for the call was that they were trying to reach someone's reference. So, they were calling this reference to track down the individual in an effort to collect a past due balance.

As far as a turning point for Aaron's, investors on the short side of Aaron's got a big boost today. The stock was down over 7% as the company lowered its 4Q guidance to 27 cents to 31 cents, compared to previous guidance of 38 cents to 41 cents. This comes as same store sales turned negative for the quarter. As a result, fiscal '1 EPS is now projected (by the company) to come in at $1.80 to $2.00, versus consensus of $2.17. While its major peers have been hammered, it's stayed steady. However, we believe there is downside to come.

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