By Sam Boughedda
BofA said on Monday that it has downgraded Aaron's (NYSE:AAN) to Underperform and lowered its price target on the stock to $6.50 per share.
Analysts there said in a research note that the firm had downgraded the stock based on its view that the financial health of the subprime consumer and their demand for big-ticket items has worsened over the past several months.
"For AAN, this will likely result in lower foot traffic, lower collections and higher write-offs. On our recent Charleston store tours, we heard a number of retailers call out softness in big ticket items especially for low income consumers," wrote the analysts. "We've also seen two of Aaron's closest competitors, Rent-A-Center (NASDAQ:RCII) and Conn's (NASDAQ:CONN) pre-announce negative results."
As a result, BofA has lowered its estimates to reflect the fact it believes Aaron's will report a revenue miss and reduce 2022 guidance.
"We're especially cautious on AAN's BrandsMart segment, a ten-store, big box consumer electronics retailer that AAN acquired on 4/1 for $230mn. AAN maintained guidance for this segment on its 2Q earnings call (7/26) and now a cut appears overdue as demand has significantly worsened since April. We'll also be closely watching AAN's corporate segment, which AAN created on its 2Q call to put $50mn of annual costs (230bp of margin). We expect write-offs will accelerate to 8.6% in 3Q22 and reach the high-end of Aaron's 6-7% guidance for FY22," explained the analysts.