Aarons Holdings Company, Inc.

Hello everyone and welcome to the Aaron's Company Inc Q4 2023 earnings conference call. We will begin shortly. If you'd like to register a question ready for the Q&A, please press star followed by one on your telephone keypads. Thank you for your patience. Thank you. Hello everyone and welcome to the Aaron's Company Inc Q4 2023 earnings conference call. My name is Charlie and I'll be coordinating the call today. You will have the opportunity to ask a question at the end of the presentation. If you'd like to register a question, please press star followed by one on your telephone keypads. I want to hand over to our host, Mark Levy, VP of Finance and Investor Relations, to begin. Mark, please go ahead.

Thank you, and good morning, everyone. Welcome to our fourth quarter and full year 2023 earnings conference call. Joining me today are Aaron's Chief Executive Officer, Douglas Lindsay, President Steve Olson, and Chief Financial Officer Kelly Wall. After our prepared remarks, we will open the call for questions. Yesterday, after the market closed, we posted our earnings release on the investor relations section of our website at investor.ehren.com. We also posted a slide presentation that provides additional information about our fourth quarter and full year 2023 results and our full year 2024 outlook. During today's call, certain statements we make may be forward-looking, including those related to our outlook for this year. For more information, including important cautionary notes about these forward-looking statements, please refer to the Safe Harbor provision that can be found at the end of the earnings release. The Safe Harbor provision identifies risks that may cause actual results to differ materially from the content of our forward-looking statements. Also, please see our Form 10-K for the year ended December 31, 2022 and other filings with the SEC for a description of the risks related to our business that may cause actual results to differ materially from our forward-looking statements. We plan to file our Form 10-K for the year ended December 31, 2023 later this week. On today's call, in the earnings release and in the supplemental investor presentation, We refer to certain non-GAAP financial measures, including EBITDA and adjusted EBITDA, non-GAAP net earnings, non-GAAP EPS, adjusted free cash flow, and net debt, 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 in our earnings release and the supplemental investor presentation posted on our website. With that, I will now turn the call over to our CEO, Douglas Lindsay.

Thanks, Mark. Good morning, everyone. Thank you for joining us and for your interest in the Aarons Company. Today, in addition to providing more detail on our fourth quarter and full year 2023 earnings, we'd like to discuss the strong actions we've taken and continue to take to drive demand, further reduce costs, and improve performance across the company. While the retail environment for consumer durables continues to experience headwinds, including elevated levels of inflation, low housing starts, and increased consumer debt, our lease to own business model remains resilient, and we continue to innovate to better serve our customers. We have recently enhanced our lease decisioning technology and customer acquisition programs, which are leading to an improved customer experience, higher conversion rates, and greater efficiencies in our business. Because of this, in the fourth quarter of 2023, we experienced growth in most of our major product categories at Aarons. These benefits are carrying over into the first quarter of 2024, and we expect them to continue over the course of the year. We have also continued to streamline our cost structure and delivered over $40 million of cost reductions in 2023, exceeding the high end of our target range. Today, we'll also provide our 2024 outlook and why, given the fundamental strengths of our business, we believe we are well positioned to deliver enhanced long-term value to shareholders. Now I'll turn to our consolidated financial performance and then cover each of the business segments. Consolidated company earnings for the fourth quarter were below our expectations primarily due to softer than expected demand at BrandSmart. For the full year 2023, we delivered consolidated company revenues in line with the revised outlook we provided on October 23rd. We consolidated adjusted earnings from approximately $4 million below the low end of our outlook range. We continue to maintain a strong balance sheet. reducing our net debt balance from $215 million at the end of 2022 to $135 million at the end of 2023, a reduction of over 37%. We also delivered strong adjusted free cash flow in 2023 that exceeded the high end of our revised outlook by approximately 28%. Now turning to the business segment. The Aarons business delivered revenues for the year that exceeded our revised outlook and adjusted earnings that were within our revised outlook. However, we ended the fourth quarter with our lease portfolio size down 7% year over year due to the ongoing challenging demand trends. Throughout 2023, we took actions to improve our lease decisioning technology, in-store operational procedures, and marketing programs. In the fourth quarter, we launched a new omni-channel lease decisioning and customer acquisition program that provides leasing power to e-commerce customers, allowing them to shop across whatever channel they prefer. This has resulted in higher conversion rate of lease applications. In the first eight weeks of 2024, we're seeing total lease merchandise deliveries up high single digits. And our e-commerce channel is up over 100% as compared to the prior year period. Our 2024 earnings outlook for the Aarons business reflects the benefits of our enhanced customer acquisition program, which is partially offsetting the impact of a lower lease portfolio size to start the year. We expect our lease portfolio size to grow sequentially beginning in the second quarter and to end the year up mid-single digits as compared to year-end 2023. Now turning to BrandSmart. BrandSmart continued to experience softness in customer demand during the fourth quarter due to lower customer traffic and continued trade down to lower priced products across our major product categories. As a result, BrandSmart ended the year with revenues and adjusted earnings below our revised outlook. Although demand is challenging, we remain confident in BrandSmart's compelling value proposition. strength of the brand, and potential to expand its market. Our full year 2024 outlook for BrandSmart assumes that high inflation and other macroeconomic factors experienced in 2023 will continue to put pressure on customer demand in the first half of the year, followed by improvements in demand in the second half of the year, primarily due to the anticipated rebound in our product categories. As we look to 2024 and beyond, I want to reiterate that our management team and board are highly engaged and committed to taking actions that will deliver additional value for shareholders. We continue to execute our strategy, including transforming the Aarons business and enhancing and growing BrandSmart. We also remain focused on streamlining our cost structure and generating greater efficiencies across both businesses. In the first quarter, we reduced our store support center personnel by approximately 15% and adjusted the compensation of our top executives to better align to company performance. We also plan to implement additional expense reduction initiatives throughout 2024. With the investments we've made to innovate our business and the strength of our balance sheet, We are better positioned than ever to drive long-term profitable growth at Aarons and BrandSmart. I will now turn the call over to Steve to speak about the operational performance of each business segment.

Thanks, Douglas, and good morning, everyone. The Aarons business delivered revenues in the fourth quarter that were in line with our internal expectations, despite experiencing choppy customer demand in the quarter. Leased merchandise deliveries increased 1.4% year-over-year. largely due to our new omni-channel lease decisioning and customer acquisition program. This new program not only drove a higher conversion rate, but also improved customer shopping experience. During the quarter, we continued to see pressure on average ticket as customers selected lower-priced items across all major product categories. Our lease portfolio ended the quarter with a value of $117.7 million. This represented a 1.1% increase as compared to Q3, but was 7% lower than the prior year quarter. Now moving to our key lease renewal metrics. The lease renewal rate for the quarter was 85.2% for all company operated errand stores. This rate was down approximately 60 basis points year over year. Our 32 plus day non-renewal rate was 2.7% at the end of the fourth quarter, flat year over year. We are pleased with enhancements to our lease decision technology, which we believe will continue to contribute to improvements in our write-offs. In the fourth quarter, write-offs as a percentage of lease revenues were 6.5%, which is an improvement of 60 basis points versus the prior year quarter. Now turning to our important strategic growth issues for the Aram's business. Our market optimization strategy, which includes our GenNext stores and Hub and Showroom program, continues to deliver meaningful financial performance through the transformation of our in-store customer experience and operating model. In the quarter, we opened nine GenNext stores, bringing the year-to-date total to 43 stores and 254 company-operated GenNext stores since launching the program. At the end of the quarter, these stores accounted for more than 32% of our lease revenues in retail sales. That compares to just over 25% in the prior year quarter. Occurring revenue written in GenNext stores opened less than one year continued growing at a rate of more than 20 percentage points higher than our legacy store average. In addition, we ended the fourth quarter with a total of 114 showrooms in the chain and are pleased with the cost savings this program is delivering. I'm excited to report that we opened seven airmen stores in new markets in 2023, including four Gen X stores and three showrooms. In 2024, we plan to open approximately 20 Gen X stores, including five to ten stores in new markets. Now turning to the Aarons e-commerce channel. During the fourth quarter, we rolled out a new omni-channel lease decisioning and customer acquisition program, which now allows customers to shop across all of our channels by submitting just one lease application. We now approve customers through a consistent lease decisioning model. As part of this, each approved e-commerce customer now receives what we call leasing power. Leasing power is a customer's maximum total monthly lease payment amount that can be used to shop our full product selection, both online and in stores. While leasing power had previously been available in our stores, expanding it to e-commerce has improved the overall customer shopping experience and led to higher approval and conversion rates during the fourth quarter. Also during the fourth quarter, we continue to focus on improving our digital marketing strategies, enhancing the online shopping experience, and expanding the assortment with over 11,600 products on Aarons.com. In the fourth quarter, Revenues generated from leases initiated on Errands.com increased 10.4% year-over-year and now represent over 20% of total lease revenues as compared to approximately 17% in the prior year quarter. Recurring revenue written into the portfolio from e-commerce increased 60% year-over-year. With continued enhancements to our e-commerce channel, we expect e-commerce to represent over 30% of our total recurring revenue written in 2024. We also continue to see growth in our weekly payment option, both in stores and on Aarons.com. We believe our compelling lease rates and payment options will continue to attract new customers and help us gain market share over time. As Douglas mentioned earlier, we are excited about the trends we are seeing in the Aarons business so far this year. Through the first eight weeks of the year, we are up high single digits in lease merchandise deliveries as compared to the same period last year. and we expect to end 2024 with a larger lease portfolio than the end of 2023. Now turning to BrandSmart. As Douglas mentioned, we continue to operate in a challenging macroeconomic environment where customer demand for our product categories has not rebounded from the demand pull forward that occurred during the pandemic. During the fourth quarter, BrandSmart continued to experience weaker customer traffic and trade down to lower-priced products in our key product categories of major appliances and consumer electronics. As a result, BrandSmart's comparable sales were down 14% year-over-year. Consistent with overall sales performance, we experienced pressure in our e-commerce channel. E-commerce product sales represented about 10% of total product sales in the quarter, down from 10.5% in the prior year quarter. We continue to invest in our e-commerce channel and digital marketing strategies to attract new customers. We are optimistic that our investments will equip BrandSmart to improve sales performance as customer demand rebounds later this year. Also in 2024, we plan to focus on improving our in-store shopping experience by rationalizing our product assortment, expanding our furniture product category to attract new customers, and opening another new store in the second half of the year. In addition, we continue to focus on cost control and optimizing profitability of the business. Now, I'll turn the call over to Kelly to provide further details on our financial performance and outlook for 2024. Thanks, Steve.

We filed the form 8K after the market closed yesterday, which included our earnings release, investor presentation, and additional information. These documents can be found on our investor relations website. Please refer to these documents for additional detail regarding our financial performance and outlook for the consolidated company and the two business segments. We plan to file our form 10K for the year ended December 31st, 2023, later this week. Unless stated otherwise, any comparisons I make to prior periods will be on a year-over-year basis. Let's start with the fourth quarter. Consolidated revenues for the fourth quarter of 2023 were $529.5 million, compared to $589.6 million. This year-over-year decrease is primarily due to lower lease revenues and fees at the Aaron's business and lower retail sales at BrandsMart. Consolidated adjusted EBITDA was $22.4 million compared to $29.9 million. This year-over-year decrease is primarily due to the lower revenues at both business segments, partially offset by lower total consolidated operating expenses, including lower write-offs at the errands business. As a percentage of total revenues, adjusted EBITDA was 4.2% compared to 5.1%. On a non-GAAP basis, dilutive loss per share was 26 cents compared to earnings of 9 cents. Adjusted free cash flow was $15.9 million, a decrease of $8.8 million. This decrease was driven by lower earnings and higher inventory purchases to meet increased demand. This was partially offset by increases in working capital and proceeds from real estate transactions that were $7.8 million higher. Now I'll summarize our full year 2023 consolidated financial results. Again, comparisons here are year over year. Consolidated revenues were $2.14 billion, down 4.9% due to lower lease revenues and fees and retail and non-retail sales at the Aarons business, as well as lower retail sales at BrandsMart. Adjusted EBITDA was $136 million, down from $177.1 million due primarily to the same factors that impacted the fourth quarter year-over-year performance that I discussed earlier. As a percentage of total revenues, adjusted EBITDA was 6.4% compared to 7.9%. On a non-GAAP basis, diluted earnings per share were 81 cents compared to $2.07. During 2023, the company paid $15 million in dividends and repurchased about $6.5 million of the company's common stock. At the end of 2023, the company had a cash balance of $59 million and total debt of $194 million. This represents a $13.2 million reduction to our net debt balance from the end of the third quarter and a $79.8 million reduction from the end of 2022. Now turning to our 2024 outlook. Our full year 2024 outlook for total revenues at the consolidated company is $2.055 billion to $2.155 billion. And adjusted EBITDA is $105 million to $125 million. Our 2024 non-GAAP EPS outlook ranges from a loss of 10 cents per share to earnings of 25 cents per share, which has been impacted by lower adjusted EBITDA, higher depreciation expense, higher interest expense, and a higher effective tax rate versus last year. For the full year of 2024, we are assuming an effective non-GAAP tax rate of about 50%. a diluted weighted average share count of 31.1 million shares, and no share repurchases. The non-GAAP tax rate includes the impact of certain permanent items impacting the 2024 outlook. Our adjusted free cash flow outlook is $15 to $30 million. This reduction year over year is from the purchase of higher levels of leased merchandise at the errands business and merchandise inventories at BrandsMart. At the Aarons business, the additional investment in inventory is driven by the continued increase in demand that we are currently experiencing. At BrandsMart, this investment in merchandise inventory is driven by growth in comparable sales and the new store we plan to open in the second half of the year. Several factors are influencing our 2024 outlook. We started the year with a 7% lower lease portfolio size at the Aarons business. Our outlook assumes the lease portfolio size grows mid-single digits in 2024 and reflects the growth in recurring revenue written that we are currently experiencing. And as Douglas mentioned, we expect the portfolio to grow sequentially beginning in the second quarter. We also expect that lease renewal rates will be lower and write-offs will be higher, driven by an increasing mix of e-commerce agreements written into the portfolio. At BrandSmart, our outlook assumes that demand improves in the back half of the year with sequential improvement in comparable sales in each quarter of the year. We expect higher operating costs in 2024 to be partially offset by the additional cost reductions we began to action in Q1 of this year and the full run rate of actions taken in 2023. We expect to recognize these savings primarily at the errands business segment and within unallocated corporate expenses. We have identified additional areas to improve efficiencies across our stores, supply chain network, and corporate functions. As we think about the financial performance over the course of 2024, the lower lease portfolio size at the Aarons business to begin the year, combined with incremental marketing investments, will put pressure on the P&L. and earnings increases will lag the expected lease portfolio size growth. As a reminder, our lease portfolio typically shrinks in the first quarter due to customers exercising early purchase options during the income tax refund season. In addition, we continue to experience pressure on demand at BrandsMart that we expect to persist through the first half of the year. As a result, We expect first quarter consolidated adjusted EBITDA to be lower year over year and to represent roughly 20% of total adjusted EBITDA for the year. We also expect Q1 to be a net loss. The latter part of the year is expected to benefit from the demand improvements at both businesses, partially offset by a lower lease renewal rate and higher write-offs, with Q2 and Q3 generating the majority of earnings in 2024. We also expect non-GAAP EPS to follow a similar spread with Q1 being the low point and the middle of the year, the high point. Given the continued demand environment challenges and uncertainty, which have impacted our 2023 results and 2024 outlook, we are withdrawing the multi-year adjusted EBITDA margin outlook we provided last year and are not providing an update at this time. Before I hand the call back to Douglas, I want to review our capital allocation priorities. These priorities remain largely unchanged. We continue to focus on investing in the Aarons business and BrandsMart to drive revenue and earnings growth while maintaining a conservative leverage profile of 1 to 1.5 times net debt to adjusted EBITDA. After this, we look to return capital to shareholders through dividends and share repurchases and we'll continue to evaluate acquisitions on an opportunistic basis. As it relates to returning capital to shareholders, yesterday we announced our quarterly dividend. We will pay 12.5 cents per share on April 3rd to shareholders of record as of close of business on March 14th. Now, I'll hand it back to Douglas to make a few remarks before we turn to Q&A.

Thank you, Kelly. While 2023 was a challenging year, we've taken decisive actions to improve performance. And I'm excited about what we're seeing so far in 2024. We have a resilient business model and a healthy financial profile. And I believe we're well positioned to take advantage of the significant opportunities in front of us. Now we will take your questions.

Thank you. If you'd like to ask a question, please press star followed by one on your telephone keypad. If you'd like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure you're unmuted locally. As a reminder, that's star followed by one on your keypads now. Our first question comes from Bobby Griffin of Raymond James. Bobby, your line is open. Please go ahead.

Good morning, guys. Thanks for taking my questions. I guess first up, You guys, we talked about seeing some written signs of written growth here in the core errands business around the holidays and carrying some of that forward into 2024. But we do have probably a mix of higher e-commerce, so that's driving the lease renewal rate to be a little of a headwind, I guess, into the lease revenue. As you think about this business changing, the composition of it changing, does the underlying earnings stream that we're used to in this business look different? Or is it just a function that we got to kind of lap some of these comparisons before we'll start to get some more of the earnings kind of bleeding that we're used to?

Yeah. Hey, Bobby, it's Douglas. I would say, first of all, we're seeing really strong signs. And But this new customer acquisition program that we rolled out, and it's specifically benefiting e-com, but it's also benefiting our stores. We're seeing more and more customers getting approved online and shopping in stores with their remaining leasing power, which is encouraging. You know, e-com was up 60% in the quarter in recurring revenue written, and we said it's going to be, you know, tracking in the first eight weeks over 100%. In the first quarter and so that's really encouraging as we think about the business going forward, you know post pandemic more and more customers. But their existing and new customers have decided to come to us via the Ecom channel that's just the way. The customer wants to interact so that's a really important channel that we're investing in our customer wants flexibility and optionality to shop with us in a really an omni channel way. It's important to note, though, that our e-com originated agreements are serviced by our stores. Our stores are a very critical component to this. We have customers applying online and conversions are actually happening in our stores. Our folks are calling from stores to follow up on drop cart leads and other remaining leasing power opportunities. We're also servicing these customers out of our stores, so renewals, Deliveries, returns, pre-leased product is all coming out of our stores. And while we expect renewal rate and write-offs to be up, we believe the decisions we're making are managing risk appropriately and driving incremental revenue and earnings. Probably equally as important, I know we say this all the time, is our decisioning model is solving for risk-adjusted margin on a dollar basis. And we're making each decision on an application-by-application basis, regardless of the channel that it comes in.

Okay. So to maybe take that just a step further, just like as this composition continues to change a little, does it change like the historical margin profile of the business or do you still kind of look at the business combined kind of being able to deliver what we're, I guess, when I say we just the investors or the street are kind of used to seeing from a, you know, margin EBITDA growth here of the business. I'm just trying to, you know, e-commerce has taken off, but the lease for foil is still kind of trending down. So just trying to wrap my head around, you know, the mix and how it's changing and then how we get kind of that path back into growing the lease portfolio and as well as growing earnings of the, of the store business, the Aaron store business.

Yeah. Hey Bobby, it's Kelly. So, uh, as we're seeing growth in e-comm here in the near term, uh, it is putting pressure on margin as, as we've talked about in the past, right? The lease renewal rates are, tend to be lower, uh, for agreements that are originated in that channel and write offs tend to be higher. But as the portfolio, so that is in the near term, again, putting pressure on margin. Also, our increased investment on the marketing side, really in the first half of the year and continuing into the back half of the year, is also impacting margin this year. But as the lease portfolio size grows, whether it's coming from e-comm or through store-originated deals, by virtue of the larger lease portfolio size, size, we're getting more gross profit dollar flow through, which would help with overall EBITDA margins as well. But again, as I mentioned in my prepared remarks, you would see that lag, right? Portfolio would grow first and margin improvement would come down the road.

Yeah, and Bobby, just one last thing. As I mentioned in my comments, we're expecting to see sequential lease portfolio growth after Q2. The way the lease, as you know, the way the lease-to-own business operates is we incur marketing costs and incur initially more write-offs in the first 90 days and also working capital to fuel the growth but once we get beyond there we really start to see the margin flow through benefits in the portfolio which will carry over for our average lease is a is a little over 20 months written and so we get that benefit over a you know multi-year period okay very helpful i guess two final questions for me i mean one

Tax refunds off to, I guess, there's some commentary out there, a little bit of delay. So just anything there you guys are seeing for us to keep in mind. And then two, just on the BrandSmart side of things, if we're kind of in this environment of rough comps or kind of tough comps, is there further cost to be removed there to kind of help maintain the EBITDA profile? Or is it really just revenue dependent on getting EBITDA margins back up to kind of the mid-single-digit level or low single-digit level?

Sure. I'll take tax season first. As you know, refund season has just started, and we'll provide more detail in our Q1 earnings call, which will be right around the corner. But tax season is a little delayed in starting. I'm sure everybody is aware of that, and we're just starting to get in some impacts of checks being released here. Our 2024 outlook assumes that this year's tax season will be similar to last year's. And, um, as you know, uh, tax season is never over until it's over. And, um, you know, we'll, we expect that, um, because similar to last year, we should see similar payment activity and, uh, early purchase options as we did last year. Um, in regards to brand smart, um, you know, we continue to look to optimize the cost structure, but ultimately you're right. It's, it's going to really be about top line demand. and winning share in this market. The marketplace for appliances and electronics has been challenging and we're forecasting demand to improve over the course of the year. A bright spot is the new store we opened in Augusta is off to a good start. And as we mentioned earlier, we're going to open another store in the back half of this year. We really believe in the growth opportunity, market growth opportunity at BrandSmart and the compelling brand positioning that we have in South Florida and Georgia in particular. The four-wall economics of these stores are very compelling, and we can layer this on top of our existing store support and corporate overhead structure. And we believe when demand does improve in the second half of the year, we'll see great flow through. Steve and his team have done a really good job on managing costs and improving margin in that business. And ultimately, it's going to be a top-line story going forward.

Thank you. I appreciate the details this morning. Best of luck here in the first quarter.

Thank you, Bobby.

Thank you. Our next question comes from Kyle Joseph of Jefferies. Kyle, your line is open. Please proceed.

Hey, good morning, guys. Thanks for taking my questions. Just want to, you know, obviously it sounds like Aaron was consistent with your expectations, brand sparks lagging, and don't get me wrong, we understand how how difficult consumer retail is right now. But in your perspective, is that a function of the customer base at the respective stores, or is that kind of a function of the discretionary nature of the purchases between the two? What's really driving the variance in performance in recent periods?

Hey, Kyle. This is Steve. I would say it's a combination, one, these being durable goods that we really drive at BrandSmart, appliances, consumer electronics, and furniture. But the breakdown of that is really between transactions and ticket is what's driving the decline in comparable sales. So that's about, call it two-thirds of a mix on transactions and one-third on ticket.

Kyle, you did bring up the difference between our lease-to-own business and BrandsMart, which is a pure retail business. Again, we've talked about this in the past. Aaron's business has the benefit of being a portfolio business. We're originating these leases and then customers are renewing them and we're receiving payments over time, which is providing a bit more consistency. when you see growth in demand in general for consumer durable goods, you see greater growth on a pure retail company than you would typically in a lease-to-own business. And the same thing happens on the downside. And again, part of that, as you mentioned, is related to the customer mix. Most of our customers on the lease-to-own side, it's more of a needs-based You know kind of transaction. They need a new refrigerator. They you know, they need new furniture They don't have access to traditional payment options.

And so we're there to meet their needs Got it very helpful and then one follow-up for me probably for Douglas on credit I know you talked about higher write-offs being a function of ecom growth, but you know aside from that any changes to underwriting or kind of the outlook for the health of your consumer and

No changes, really. We continue to optimize our decisioning model. Obviously, the rollout of this one decisioning model across all of our origination channels has been very helpful in approving customers. Our algorithms and models continue to slope risk and continue to be predictive, so we have great confidence there. I'm really happy with what we've done there and continue to do. In terms of the consumer, you know, Kelly said it right. I mean, Aaron's model has been really resilient. We've seen our, you know, the Aaron's customer be very resilient as a needs-based customer. You know, if you look at our recurring revenue written in the portfolio, which was down in the mid 4% range as compared to retail, we feel like the business has hung in there pretty well. As Kelly said also, in terms of pull forward of demand, Aaron's didn't have as much pull forward in the stimulus aided period. And so we don't expect as much release there, albeit we do expect a release. But most of the ups we think will be more materially seen in the BrandSmart business. But BrandSmart continues to be challenging going into Q1. We are expecting 3% comps, favorable comps at BrandSmart in Q1 and in sequential, I mean, I'm sorry, for the full year of 24 and sequential improvement throughout the year, but we are expecting Q1 EBITDA at BrandSmart to be negative due to these demand trends.

And comps, comp sales at BrandSmart to be negative in Q1 as well. The other thing I would point out here, Kyle, is from write-offs of the percentage of lease revenues Our view on 2024 is that they will be higher, again, driven by greater mix of e-comm originated agreements, as well as more new customers. And so our view this year is that we're going to land on a full year basis, somewhere between 6% and 7%, and we'll be higher in each quarter of this year, year over year.

Kyle, one last thing, just to wrap that conversation up, is we are seeing that those higher write-offs are because of the growth that we're seeing, this 100% e-com growth and high single-digit overall delivery growth in the business. So we're super excited about that, and we're deploying working capital into this growth cycle.

Got it. That's it for me. Thanks for answering my questions. Thanks, Kyle.

Thank you. As a reminder, if you wish to submit a question by the telephone lines, please dial star followed by one on your keypad. Our next question comes from Scott Ciccarelli of Truist. Scott, your line is open. Please go ahead.

Hey, guys. This is Joe Trivello. I'm for Scott. Thanks for taking my questions. Just wanted to follow up on the BrandSmart discussion a little bit, the recovery you kind of think about in the second half. If you could just talk about the drivers of that, you know, on the product side maybe or anything. Any color we can get there would be great. Thank you.

Yeah. Hey, Joe. This is Steve. So what we believe and what we're expecting is some of the demand pull forward that we experienced during the pandemic to release. And we're already seeing some signs of that in some of the short life cycle products like computers, cell phones, gaming systems, and things like that. What we believe is, as we move further and further away from those peak periods during the pandemic, that even these are larger durable categories like appliances, like TVs, we should start seeing some of that demand pull forward release.

Gotcha. Great.

And then just real quick, we're also obviously comping over weaker comps last year, so that's helping with the guide as well.

Got it. Great. Uh, and then just switching gears a little bit, I think last quarter you guys talked about seeing like slightly higher income credit customer shopping a little bit. Uh, can you just talk about any trends there?

Yeah. You know, we haven't really seen anything material at this time, um, in terms of, um, changes in our customer coming into errands. However, brand smart, I think we've mentioned before, we've got a first and second look credit provider there that represents about 30% of our business. And, um, We're seeing them tightening credit standards. It started at the end of last year, and that's continued through the first quarter. That's helping our brand-smart leasing business, but we've not seen any material increase to the decisioning scores at Aarons. Importantly, we have not also baked in any benefit from a credit trade down in 2024 in the Aarons business outlook provided.

Got it. Thanks so much.

Thanks, Jeff. Thank you. As a final reminder, if you wish to submit a question, please dial star followed by 1 on your telephone keypad now. At this stage, we have no further questions registered, so I'll hand back over to Douglas Lindsay for any closing remarks.

Douglas Lindsay Thank you, operator. Thank you for joining the call today, and thank you for all Thank you to all of our company and franchise team members at Aarons, BrandSmart, BrandSmart Leasing, and Woodhaven for your continued contributions. We look forward to speaking with you again next quarter. Take care.

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.