Aaron’s, Inc. touted its profitable subsidiary Progressive Finance Holding, LLC, as one of its strengths, but, according to the complaint for this class action, it omitted mention of a very important event in Progressive’s story, in violation of the Securities Exchange Act of 1934.
The class for this action is all persons who bought Aaron’s common stock between February 6, 2015 and October 29, 2015.
Aaron’s sells furniture, consumer electronics, computers, appliances, and accessories and offers rent-to-own arrangements for consumers with poor credit. Its most profitable subsidiary is Progressive Finance Holdings, LLC, which claims to have a proprietary algorithm for determining which customers meet its leasing qualifications.
When Aaron’s held its conference call for the fourth quarter of 2014, on February 6, 2015, the company projected revenue for Progressive of $1 billion to $1.10 billion. While the company admitted that Progressive’s write-offs had been increasing, Aaron’s CEO John W. Robinson, III insisted that this was not a problem but a “trend we are monitoring closely and have taken into account in the guidance we’re providing today for 2015.”
The complaint quotes Progressive CEO Ryan K. Woodley, on a same-day call for Progressive, touting Progressive’s “centrally-automated decisioning algorithms … the beauty of the model is our ability to make changes at any time to the underwriting algorithm, which we do on an ongoing basis.”
In April, announcing its first-quarter results for 2015, Aaron’s increased its earnings guidance for Progressive to $1.05 billion to $1.15 billion. Woodley continued to tout the Progressive algorithm, saying it could “deliver the highest sustainable approval rate and highest sustainable conversion rate” and that it was “the market leader in that regard…”
The company’s second-quarter earnings conference call maintained the guidance and continued to praise Progressive: “Progressive continues to exceed our expectations.”
However, according to the complaint, Progressive had been having software problems since February 2015, including the loss of critical data that both undermined its ability to determine which customers met its leasing qualifications and interfered with its collection process.
On October 30, 2015, the company lowered its guidance, admitting that Progressive had lost two critical data feeds in February—nine months previously—and “experienced higher bad debt expense and merchandise write offs” due to the problem.
In an analyst report, BB&T Capital Markets said they were “surprised Progressive could allow ‘mission critical’ functions … to be at risk to third party provider data and faulty software code. We believe these errors call into question Progressive’s long-term growth prospects.”
The disclosures caused Aaron’s stock to decline by roughly $9 per share.