Let’s now review a couple of stocks that performed well in the quarter. The top positive contributor this quarter was Aaron’s Inc. (NYSE:AAN). Aaron’s has been in the portfolio for several years, and it’s a holding we have described in the past. In short, Aaron’s is categorized as a “Rent-to-Own” (RTO) business. There are two somewhat related divisions owned by AAN. The first division includes AAN’s physical stores, which offer consumer electronic products, furniture, appliances, and other household products to individuals on lease terms with the option to buy the product through over 1,800 company-operated and franchise brick & mortar retail locations.
The second business, Progressive Finance Holdings, is a virtual RTO operation. Progressive is a virtual operation because all of its business is handled through third-party retailer relationships. Essentially, Progressive buys the product from the retailer and immediately leases it to a customer after Progressive has approved the customer’s credit application. According to Progressive, prime and secondary lenders reject 40% of their clients’ applicants. Progressive approves 60% of those rejected, which provides 6-10% incremental revenue to their partners.
AAN shares appreciated over 30% in the quarter after the company reported better-than-expected results, and Progressive exhibited strong financial performance. We anticipate near-term growth to continue its upward momentum at AAN, and at Progressive in particular.
From FPA Capital's second quarter 2017 shareholder letter.
