Q1 2024 Aaron's Company Inc Earnings Call

Participants

Marc Levee; Vice President, Finance and Investor Relations; Aaron's Company Inc

Douglas Lindsay; Chief Executive Officer, Director; Aaron's Company Inc

Stephen Olsen; President; Aaron's Company Inc

C. Kelly Wall; Chief Financial Officer, Executive Vice President; Aaron's Company Inc

Bobby Griffin; Analyst; Raymond James

Kyle Joseph; Analyst; Jefferies LLC

Anthony Chukumba; Analyst; Loop Capital Markets LLC

Huang Way; Analyst; TD Cowen

Presentation

Operator

Good morning, everyone, and welcome to the Aaron's Company Q1 2024 earnings call. My name is Angela, and I'll be coordinating your call today. (Operator Instructions)
I will now hand you over to your host, Marc Levee, Vice President, Finance and Investor Relations. Please go ahead.

Marc Levee

Thank you, and good morning, everyone, and welcome to our first quarter 2024 earnings conference call. Joining me today are our Chief Executive Officer, Douglas Lindsay, President, Steve Wilson, 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 dot aarons.com. We also posted a slide presentation that provides additional information about our first quarter 2024 results.
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. Safe Harbor provision identifies certain risks and uncertainties 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, 2023 and our 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.
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 of 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 Lenzie.

Douglas Lindsay

Thanks, Mark. Good morning, everyone. Thank you for joining us and for your interest in the Aaron's Company.
Our performance in the first quarter was in line with our guidance, and I'm encouraged by the positive momentum that I'm seeing in the business so far this year.
In the Aaron's business, we continue to significantly grow our e-commerce channel, driven by our new omnichannel lease decisioning and customer acquisition program that we launched in Q4 of last year due to the seasonal trends in the lease-to-own business.
It's common for our lease portfolio size, the decrease in the first quarter this year, we experienced the smallest decrease in the decade. This improvement was driven by the actions we've taken to generate year-over-year growth in lease merchandise deliveries across all major categories and brand smart.
We exceeded our top and bottom line expectations for the quarter. Despite continued demand pressure, while comparable sales remain negative, we did experience sequential improvements in demand each month in the first quarter based on our first quarter performance and the trends across both businesses, we are reaffirming our full year 2024 outlook provided on February 26th for revenues and adjusted EBITDA and we are raising our outlook for non-GAAP diluted EPS due to a lower estimated tax rate. Kelly will speak to this in more detail in a few minutes.
Now turning to the results of the first quarter. I'm pleased to report that we delivered consolidated revenues and adjusted earnings in line with expectations at the Aaron's business. Our lease merchandise deliveries increased 6.8% as compared to the prior year period. This led the year-over-year growth in recurring revenue written into the portfolio.
We continue to close the gap from the beginning of the year with our lease portfolio size ending the quarter down 4.8% after starting the year, down 7% on a same-store basis. Our lease portfolio size ended the quarter, down only 1.4%. This momentum has continued into April with our leased merchandise deliveries, up 18.6% year over year, driven by over 115% e-commerce growth.
At the end of April, our same-store lease portfolio size was down only 20 basis points as compared to the prior year period. I'm happy to report that we've seen further improvement in May, and we've reached an inflection point where our same-store lease portfolio size is now larger than it was the same time last year.
We remain excited about our new omnichannel lease decisioning and customer acquisition program, which provides leasing power to all Aaron's customers.
As highlighted last quarter, this program is driving significantly higher conversion rates of lease applications, and we continue to expected to drive mid single digit growth in our total lease portfolio size by end of year.
Now turning to brand smart. While profitability remains challenging, brands of ours ended the quarter with revenues and adjusted earnings slightly above our internal expectations. With a sequential quarterly improvement in comparable sales.
We continue to expect improvements in customer demand in the second half of the year, primarily due to an anticipated rebound in our major product categories. We are also continuing to enhance our capabilities in merchandising, marketing and technology to better position the business for long-term growth.
Although the broader demand environment is still challenging, we remain confident in brand Smart's, compelling value proposition and potential to expand to new markets.
Before I turn the call over to Steve, I want to reiterate how encouraged I am with the customer demand trends we're seeing in the Aaron's business. As I just mentioned, we have reached an inflection point where our same-store lease portfolio size is now larger than it was the same time last year.
We expect this to lead to incremental flow-through to profitability, benefiting earnings in the second half of the year and into 2025.
I will now turn the call over to Steve to discuss operational performance of each business segment.

Stephen Olsen

Thanks, Douglas, and good morning, everyone. in the first quarter at the Aaron's Business, lease merchandise deliveries increased approximately 7% year over year and over 10% on a same-store basis. Our new omni-channel lease decisioning and customer acquisition program drove year-over-year growth in our major product categories of appliances, furniture and consumer electronics.
The success of this program gives us confidence that we are winning share in the market. Our lease portfolio size ended the quarter at $116.1 million. As Douglas mentioned, this is one of the best first quarters we've experienced in a decade, the portfolio declined only $1.7 million as compared to a decline of $4.6 million in the first quarter of 2023 and a decline of $4.5 million in 2022.
Now moving to our key lease renewal metrics. The lease renewal rate for the quarter was 87.4% for our company-operated Aaron's stores. This rate was down approximately 110 basis points year over year due to the increasing mix of e-commerce agreements written into the portfolio. Our 32 plus day. Non-renewal rate was 2.2% at the end of the first quarter, which was up 60 basis points year over year, but improved 50 basis points from the last quarter.
During the quarter, we also continued to improve our lease decisioning technology through enhanced controls to mitigate risks. We believe this will generate improvements in write off over time in the first quarter, write-off as a percentage of lease revenues were 5.9%, which was up 50 basis points versus the prior year quarter, but improved 60 basis points from last quarter.
As we mentioned last quarter, we do expect write-offs to be higher than our historical average due to the ongoing strong demand trends. As a reminder, in periods of high growth in merchandise deliveries. We incur inventory purchases, marketing costs, sales-based incentive compensation in write offs in advance of revenue recognition due to the portfolio nature of the business.
Now turning to our strategic growth initiatives for the Aaron's business. Our market optimization strategy, which includes our Gen X stores and hub and Children program, continues to improve our in-store customer experience and operating model. In the first quarter, we opened 11 Gen-X stores, including three in new markets, bringing the total to 265 company-operated Gen-X stores since launching the program.
At the end of the quarter, these stores accounted for more than 33% of our lease revenues in retail sales. That compares to over 26% in the prior year quarter.
Now turning to the Aaron's e-commerce channel. As Douglas mentioned, we continue to experience significant growth in this channel. In the first quarter, revenues generated from leases initiated on Aaron's.com increased 20.8% year over year and now represent 24% of total lease revenues as compared to approximately 18% in the prior year quarter.
Recurring revenue written into the portfolio from e-commerce increased over 94% year over year and represented approximately 34% of total recurring revenue written in the quarter. As Douglas mentioned earlier, we're excited about the momentum and positive trends that we are seeing in the Aaron's business, which have continued into the second quarter with the ongoing enhancements we are making to the business.
Combined with our compelling lease rates and flexible payment options, we are confident that we are attracting new customers and gaining market share.
Now turning to brand smart. Despite the challenging customer demand environment for our product categories. Brand smart experienced sequential improvements, comparable sales during the quarter, which we believe will continue to improve through the rest of the year.
Brands more continued to experience weaker customer traffic and trade down to lower priced products in our key product categories of major appliances and consumer electronics. We also experienced credit tightening with our private-label credit card provider.
As a result of these trends, comparable sales for the quarter were down 9.4% year over year. However, this is a 460 basis point improvement from the last quarter. We continue to invest in our e-commerce shopping experience and digital marketing strategies to attract new customers. We are optimistic that our investments in e-commerce will lead to growth in this channel as customer demand rebound later this year.
I also want to mention that our business-to-business sales experienced significant growth in the first quarter and we are focused on growing this channel.
Now turning to our strategic initiatives at brand support, we are continuing to focus on improving our in-store shopping experience by rationalizing our product assortments. And expanding our furniture product mix to attract new customers. In addition, we are excited about opening another new store later this quarter in Kennesaw, Georgia.
The store will be similar in size and format to the new store that we opened in Augusta last year. We are looking forward to expanding brand Smart's footprint and offering our compelling value proposition to more markets and customers.
Now I'll turn the call over to Kelly to provide further details on our financial performance for the quarter.

C. Kelly Wall

Thanks, Steve. We filed a Form 8-K after the market closed yesterday, which included our earnings release, investor presentation and additional information. We also filed our Form 10-Q for the quarter. 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 into two business segments. Unless otherwise stated, any comparisons I make to prior periods it be on a year-over-year basis.
Consolidated revenues for the first quarter of 2024 were $511.5 million compared to $554.4 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 brands bars. Consolidated adjusted EBITDA was $22.7 million compared to $45.9 million.
This year-over-year decrease is primarily due to lower revenues at both business segments and higher other operating expenses and write-offs, partially offset by lower personnel costs. Other operating expenses were higher, primarily due to increased investments in advertising.
As a percentage of total revenues, adjusted EBITDA was 4.4%, and on a non-GAAP basis, loss per share was $0.15. Adjusted free cash flow was a $33.2 million use of cash lower than Q1 of the prior year, but favorable to our internal expectations.
The year-over-year decrease was primarily driven by higher purchases of leased merchandise inventory to support the growth in new agreement deliveries at the Aaron's business and lower consolidated earnings. This was partially offset by higher proceeds for real estate transactions.
During the first quarter, the Company paid $3.8 million in dividends at the end of the quarter, the Company had a cash balance of $41 million and total debt of $212.9 million, which were both favorable to our expectations.
Now turning to our 2024 outlook. As Douglas mentioned, based on our performance so far this year and the trends we're seeing in the business, we are reaffirming our full year outlook for revenues and adjusted EBITDA, we are raising outlook for non-GAAP diluted EPS due to a lower estimated effective tax rate. The revised estimated effective tax rate is approximately 38%, 12-percentage-points lower than the prior guidance we provided last quarter.
Full year provision for lease Merchandise write-offs is still expected to be between 6% and 7% of lease revenues and fees.
Before I hand the call back to Douglas, I want to review our capital allocation priorities. These priorities have not changed from our prior earnings call. We continue to focus on investing in the Aaron's business and brand smart 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 $0.125 per share on July third to shareholders of record as of close of business on June 14th.
Now I'll hand it back to Douglas to make a few remarks before we turn to Q&A.

Douglas Lindsay

Thanks, Shelly. As we look to the remainder of 2024 and beyond, I want to reiterate that our management team and Board remain highly engaged and committed to taking all actions that will deliver additional value for our shareholders. We continue to execute our multiyear strategic plan driving efficiencies and innovating our business to better serve our customers.
I'm confident that the investments we are making will continue to enhance our distinct competitive advantages and allow us to increase market share at both Aaron's and brand smart.
And with that, I will now turn the call over to the operator for Q&A.

Question and Answer Session

Operator

Thank you, Douglas, (Operator Instructions)
Bobby Griffin, Raymond James. Your line is open.

Bobby Griffin

Good morning. With 100 minutes on for Bobby. Thank you for taking our question. Maybe first on the store optimization efforts at Aaron. The recall is the acceleration in store closures in 1Q. Can you talk about how your store optimization efforts are progressing? And then any updated thoughts on the right level of store count moving forward?

Douglas Lindsay

Yes, Alex, I think thanks for the question. As we've stated previously, we continue to trying to rationalize markets and lower our cost base in each market, and we're doing that as you can see through growing our e-comm portfolio but also make sure that we're serving our customers in a strong way as we can in each market.
And so in doing that, we're constantly assessing to our real estate committee the right number of stores, the right position of the stores. So we did open 11 generic stores in the quarter. We also closed due of 30 to 40 stores within within the timeframe.
We continue to do that over the course of the year. We're not going to state a number in terms of the number of stores that we will ultimately close all I'll say is that we're continuing to optimize our margins to best serve our customers and to be as cost-efficient in those markets as possible.
One thing we're super excited about as we're now opening opening incremental net new stores on both in full stores and showrooms. And we think the showrooms, in particular, a very efficient way to cover the markets. We're in more thoroughly with lower working capital, smaller footprints and of sort of a more efficient box in terms of profitability.

Bobby Griffin

Okay. That's helpful. Thank you. And then we want to see a sequential improvement in the lease portfolio in April and May. Is there anything specific that you notice to drive that improvement by traffic, trade down, anything like that?

Douglas Lindsay

Yes. Well, listen, we're super excited about what we're seeing in terms of our growth in the portfolio. In Q one, as you heard, deliveries are up considerably and they continue to be a year to date in the year. The way our business works is that, you know, because of our revenue recognition and cost of goods sold that we spread over the life of the agreement.
We don't see the ultimate impact of that until later on in the current period, we incurred things like marketing and incentive-based compensation and near write offs. But as we grow the portfolio we see flow through to profitability.
We noted that there is an inflection point that we're expecting this year that our portfolio starts to turn positive. And with that, once we start to turn positive, which we have in our same-store portfolio, little some movements in the growth there.
I mean a lot to the bottom line. I'll just give you an example, for every million dollars of portfolio size growth we have we get about $600,000 of gross margin a month. And if you look at that on an annual basis, that equates to about little over $7 million of gross margin addition, because of the high operating leverage we have in the business, we see significant flow-through to adjusted EBITDA after write offs. So we're super excited about that.
As we think about the rest of the year, our projections assume Now why do we hit an inflection point to growth? Whether we grow our total monthly lease portfolio up by the end of the year by mid single digits. We believe that will benefit not only the second half of 2024, but the full year of 2025.
And as you think about '25 being up mid single digits over at the end of '24, we started 2024 with about $117 million. Portfolio size of being up mid-single digits by the end of the year equates to kind of like a $4 million to $8 million increase in portfolio value.
And so that's very meaningful as we enter into it. And that's $48 million a month. So that's very meaningful as we enter into 2025. So I mean really what we're seeing is just great success of this program. We still are in a challenging market in terms of demand for our products, but we are capturing more share of the business that's coming in and our customers are wanting to interact with us in a more omnichannel way. We mentioned that e-com is up over 100% and the month of April. And that's very encouraging as we see this flow through to the bottom line.

Bobby Griffin

Okay. Thank you. That's very helpful. And then maybe just lastly for me, switching over to brands' March. What gives you confidence to accelerate the top line growth at brand smart as we move throughout 2024 to hit that annual guidance? Is it primarily a factor of, you know, just comparisons get easier in the back half on a multiyear basis?

Stephen Olsen

Yes, this is Steve. Yes, exactly what you said. So it is comparisons on definitely some slightly lower comps that we are comping over last year, but as well as the release of the pull-forward demand that we're expecting in the back half of the year, starting in consumer electronics and then moving onto furniture and appliances.

Bobby Griffin

All right. Thank you so much and best of luck here in 2Q.

Operator

Thank you.
Kyle Joseph, Jefferies. Your line is open.

Kyle Joseph

Hey, good morning, guys. Thanks for taking my questions. On this one and talk about margins on leasing or on leases in the quarter were really strong I'm not sure if that's a function of buyout activity or kind of Agennix contribution or what's the driver there and the outlook for the rest of the year?
Yes.

Douglas Lindsay

I'd say that your comments, Kelly, the growth in the margin is, is you typically see an improvement as you go from Q4 into Q1 of any year. And as you mentioned, that is largely driven by the higher early purchase option activity.
And so we did it kind of experienced that as expected in the quarter. And then I think, as Douglas mentioned, attempt team has done a great job balancing risk in the portfolio as we've achieved the growth quarter to date are improvement in deliveries.
And so while write-offs are up slightly, they continue to be in line with our expectations again, which encourages us because as we as we grow the tools and processes that we've put in place to manage the risk in the portfolio is working.

Kyle Joseph

And then just an update on brand smart. What kind of trends are you seeing in recent sales of brands, Martin, how are those more kind of akin to what you're seeing on the eastern side of the business? Or just is, I guess, kind of update us on the integration now that we are where we are post this deal?

Stephen Olsen

Sure. Hey, Kyle, it's Steve. Glad to answer that question. So I'd first like to state that we fully rolled out our integrated financial decision waterfall to all brands, Smart Storage in the February timeframe and the team both on the press release inside with Aaron's and the brand smart store team continue to find ways to improve performance, both from an operations, customer experience and technology standpoint.
But specifically regarding your question on performance, we did see growth in the portfolio as well as the attach rate of restaurant leasing and the retail sales on a year-over-year basis, the brands weren't. So we continue to improve. And but we're really focused on and finding ways to drive efficiencies and effectiveness in the model.

Kyle Joseph

Got it. Very helpful. And last one for me. Just I appreciate the color on credit and appreciate your growth. And specifically e-com growth is going to take a higher, but just give us an update on kind of the health of the underlying consumer, which obviously drives both demand and credit performance. And they just continue to chug along inflation has been stubborn, but just an update on the health of the underlying consumer would be great.

C. Kelly Wall

Yes. I mean, I think you've read about it, Charlie. I mean, underlying consumer inflation's eaten into them, United's, it's been tough. We found that our customer has been pretty resilient. As we've said in the past, most of the increase you're seeing in write offs and lowering of renewal rate is really just a mix shift between channels and ultimately, the underlying and the trends are, I would say, decent and our models are predicting or sloping risk appropriately.
So we're really happy with lease decisioning and what's going on there. And we continue to optimize that in certain ways to sort of maximize profitability, but also to set our customer up for success, which is ultimately what our leasing power and our decisioning is all about.
And I'd say in terms of what we're seeing out there on things like trade down a brand smart, we are seeing the providers above us tightening lease standards. So we know there's some pressure out there in the economy and we saw that starting at the beginning of at the end of last year.
And going into this year. However, we haven't seen material signs of customer trade down yet at Aaron's, but we're well poised to capture that when it does. And when the opportunity arises.
Last thing I would say just on state of the customer, as you know, while the market for our product categories, furniture, appliances and electronics are slow across the broader economy, we're seeing great success there and capturing the opportunity that's out there.
Customers are wanting more and more we're seeing even our existing and previous customers and our new customers wanting to transact with us in an omnichannel way. And most of the growth that we're seeing right now has to do with the changes we've made to our omnichannel lease decisioning and customer acquisition program, which is providing leasing power across all of our channels to all of our customers. And we believe that is driving significantly higher.
We know it's driving significantly higher conversion rates, but we're also getting add-on sales. So we're seeing more customers do more deals with us, and we're getting more share of wallet, which is really encouraging.
And you can sort of the numbers that are there to show that and being up 19% deliveries in April. So really encouraged about what we're seeing and really encouraged about our ability to take share in this market.

Kyle Joseph

Great. Thanks very much for taking my questions. It counts queue.

Operator

Scot Ciccarelli, SunTrust. Your line is hey, guys.

This is Joe on for Scott. Just a quick question on lease write-offs came in a little bit better than we were expecting. You guys kept obviously the 67% for the year just wanted to know if you could give a little color on the trajectory you're expecting through 2024?

C. Kelly Wall

Yes, Joe, it's Kelly. As we said on the call, we continue to expect write-offs for the full year to be between 67%. And you can kind of Keno what Douglas was saying earlier, right? Customer does continue to be challenged on a year over year.
What we're seeing though, in terms of the impact of write-offs is the increasing mix of the lease portfolio, including e-com originated deals. But as you noted, are performing in line with expectations and continue to feel really good about our forecast for the full year.

Stephen Olsen

Yes. The other thing I'm not going I mean, the sorry, as of you if you look at our 32 plus day delinquency rate in our investor presentation, I mean, we've seen sequential improvement in our trends from Q4 as with our write offs in that same presentation, you'll see sequential improvement. So while we while we naturally see that during tax season, we think those trends are are encouraging in line with what we expect Got you.

And then I'm just wanted to check in on the kind of long-term thoughts, but 5% to 6% long term, does that still make sense?

Douglas Lindsay

Yes.
I think long term that's in line with our general expectations. What I'd say is a lot will largely depend as we get into 2025 on the mix of the portfolio. So again, how much is originated through our e-comm channel versus versus in-store. But we're not seeing anything at this point. We just don't believe any differently.

Got it. Thanks so much queue.

Operator

Anthony Chukumba, Loop Capital Markets. Your line is open.

Anthony Chukumba

Thank you and great. Great job, pronouncing my last name correctly. So I guess my first question on two questions on brand smart.
First one on, I know it's still relatively early, but would love to and I know there's a lot of noise because obviously, there's just it's just tough right now in terms of consumer demand for major appliances and consumer electronics. But how is the Augusta Georgia store performing relative to your expectations?
If they had.

Stephen Olsen

Steve, thanks for the question on. So just so just to remind you, we reopen the store at the end of September of last year. And so we're about six months into it and on the store continues to ramp. And we're really excited about the markets and the feedback we're getting from the customer, both on the in-store experience as well as the brand promise with great pricing and broad assortment.
And we continue to train our team to improve their selling skills. So we're ramping where we thought, and we just continue to push our way through this environment. This now challenging demand environment.

Douglas Lindsay

And one of the things that encouraging about it, just as we were able to do it relative to our our underwriting on that deal, we were able to sort of come in better than what we thought on on our build out and we get it is our first stores are we're still learning about kind of how these stores ramp.
I think net-net, our OpEx is coming in more favorable. We are seeing pressure in that store from the macro environment. That's out there, but we feel we feel good about where it's trending and the return on our capital there.
And we continue to sort of and find ways to store market to that market, if you will, and sort of break into our core customer base there. So it's really great learning ground. I think what's encouraging to me is that, Tom, this is a smaller format store and that has lighter CapEx than what we've spent a brand smart historically.
And when we look at that and you know, it's really important to how we do Kennesaw and how we potentially open stores in the future, which is really encouraging.

Anthony Chukumba

Got it. And then. Yes, so that's I guess that second new store will be also in Georgia is should we read into that? I mean, do you see, George as a better opportunity in terms of new stores relative to Florida? Or is it just just kind of happenstance.

Stephen Olsen

It's Steve again. And it now, as you know, Florida is, you know, a primary key market for us on as we look at our real estate strategy, it really comes down to availability of real estate sites and then what's the associated occupancy and development costs to build that out?
So we are working hard to look across Florida, all the key major markets and hopefully we'll find a site that works for us in the coming quarters.

Anthony Chukumba

Got it. Thanks for taking my question.

Operator

Thank you.
[Huang Way, TD Cowen], your line is open.

Huang Way

Hi, team and congrats on the quarter and just wanted to ask about average ticket. Can you give some comment around that? I mean in 1Q and maybe into April and May and I guess as a corollary correctly, and maybe and Tim talk about, you know, not originations because I think I mean, you are up in deliveries by 90% raise happy margin that, you know, you're not growing in gross dollar volume. Maybe can you talk a little bit more data to think you for your just resonate area.

Douglas Lindsay

As we said in the quarter, we were up 6.8% deliveries, but only I would say only a very strong quarter, but up 2.3% and recurring revenue written. The delta between those two numbers is ticket. And so we've seen ticket down sort of 4% to 5% year over year, and we continue to see that we're working on ways to.
And Steve, you're talking about there's a little bit more to position our product offerings to look at term and look at product mix in order to drive ticket. But ultimately, we're optimizing for for recurring revenue written. And so we are doing certain things at certain price points to drive volumes, and we're always looking at that trade-off.

Stephen Olsen

So yes, just to add to it on a, as David mentioned, a little pressure on ticket at the Aaron's business in Q1. So did we did see some trade down on some of our cat as category, especially of appliances and consumer electronics.
But with that, with a lot of that growth we're seeing in deliveries at least merchandise deliveries and the growth in our strategies around our marketing campaign, we're definitely focusing on putting strong price message messages out there are at are really our key value items in those low price points and strong promotional offers to drive those particular products.
So some of that obviously is dragged down, but also some of it is our it is our desire to drive new customers.
And the last thing I want to mention is not only trying to attract new customers. We're also trying to get more share of wallet from our existing customers so with our new omnichannel lease decisioning engine that provides leasing powered all of our customers, not only are we making that getting that first lease agreement, but we're getting add-on lease agreements as a second deal with them, the customers leasing power and many of those new agreements are lower price points.
And so there is sort of while we're getting more agreements per customer. The average ticket is down because of that add-on agreement, and that's putting some pressure on ticket as well. But we see that as a very good thing, more share of wallet.

Huang Way

Got you. I think you mentioned about your private label provider and slightly tightening. I mean, could you remind us maybe, you know how much penetration do they have in your sales and Yes, hi, this is Keith.

C. Kelly Wall

Glad to answer that. So yes, so we had just to recall, we saw tightening in Q4 and again in Q1 from a private label credit card standpoint, mix of our business, it's a little more than 25% of our overall sales. So considerable amount of they've been a great partner for many years and we work closely with them. It is to drive marketing and our promotional activities around key holidays.

Huang Way

Got it. And my last one is on expenses. I mean, how should we think about personnel in other operating expenses going forward?

C. Kelly Wall

I think yes, Doug, it's Kelly. I'd say that again or reaffirm that we didn't change our guidance. So our margin expectations continue to be the same for for remainder of '24. And I believe what I may have mentioned on the last call was that from a personnel perspective, we are expecting some kind of, call it a 50 basis points to 100 basis points improvement as a percentage of revenue as well as on the OpEx side, we're seeing a bit of the opposite about a 50 basis points increase.
The improvements that we're seeing in personnel as well as improvements that we're seeing on the OpEx side is driven by the cost savings initiatives that we outlined on the prior call as well, where we expect to deliver I'm sorry, $30 million to $35 million of cost savings this year. The increase in other OpEx year over year is driven by really two things. One, increased investment in advertising, particularly at the Aaron's business, which is a component of what's driving our growth that we're seeing there.
Also, there are some new store opening costs associated with the store that we're opening and brands mark now. So that's what's driving that 50 basis points increase in operating margin. And I also want to just give you kind of a quick update on the spread of earnings through the course of the year. We're currently expecting that consolidated revenues for the our full year are in line with expectations, but they're going to grow sequentially each quarter with Q2 representing about 20% to 25% of the full year.
And then as that translates down to adjusted EBITDA, we're expecting that Q2 is going to represent about 25% of the full year there. And then you probably also heard us talk about the change in tax rate on the prepared remarks. So there that 12-percentage-point improvement did lead to our increase in outlook for non GAAP EPS. But the tax rate will be different in each quarter of the year.
And I think more specifically, we're expecting that Q4 will be about 300 basis points lower than Q2 and Q3 with Q2 and Q3 roughly the same. So hopefully that helps you all with some of your modeling for the year.

Huang Way

Thank you.

Operator

Here. We currently have no further questions. I will hand back to Douglas for any closing remarks.

Douglas Lindsay

Thank you, operator. Thank you for joining the call today, and thank you to all of our Company and franchise team. Members of Aaron's brand smart brands, smart leasing and Woodhaven for your continued focus on delivering exceptional value and service to our customers each and every day. We look forward to speaking to each of you again next quarter. Thanks so much.

Operator

Thank you. This concludes today's call and thank you for joining. You may now disconnect your lines.