With an extensive network of more than 3,000 stores,
) is one of the largest rent-to-own operators in the U.S. The sheer
geographic reach enables the company to effectively penetrate its
target markets and gain a competitive advantage over competitors
) and Advance America.
The company is taking prudent steps to optimize rental
merchandise levels in accordance with sales trends. Rent-A-Center
implemented a centralized inventory management system, including
automated merchandise replenishment. Moreover, a new centralized
purchasing system allows better management of rental
The company, in order to enhance consumers' shopping experience,
has developed a new business model called RAC Acceptance. When the
consumer is denied credit financing for a particular product from
the retailer, Rent-A-Center under its RAC Acceptance program,
acquires that product from the retailer and offers it to the
consumer under a rental-purchase transaction.
Despite a sluggish recovery in the economy, Rent-A-Center is
witnessing healthy demand for its product and services, as evident
from its second-quarter 2012 results. The quarterly earnings of 74
cents a share outdid the Zacks Consensus Estimate of 71 cents, and
augmented 8.8% from 68 cents earned in the prior-year quarter,
aided by growth in the top line.
Rent-A-Center's total revenue, which comprises store and
franchise revenues, grew 7.4% to $749.7 million from the year-ago
quarter but fell short of the Zacks Consensus Estimate of $757
million. Comparable-store sales for the quarter rose 2.8%. The
increase in the top line was attributable to higher revenue from
the RAC Acceptance segment.
Revenue from the RAC Acceptance business almost doubled to $77
million from the prior-year quarter, whereas revenue from the Core
U.S. segment climbed 1.6%.
Rent-A-Center remains optimistic about its future growth as it
opens stores in international markets and accelerates the rollout
of RAC Acceptance kiosks. Management maintained its fiscal 2012
earnings projection of $3.00 to $3.20 per share.
The company also reiterated its revenue growth forecast of 7% to
10% for the year, attributable to a low single-digit jump in the
Core U.S. and more than $300 million contribution from the RAC
Acceptance business. Management expects comparable-store sales
between 2.5% and 4.5%.
Rent-A-Center offers consumer electronics, appliances and
furniture products under rental purchase schemes that allow
customers to own the merchandise on the completion of the rental
period. Due to the continued tightening of the credit market,
customers see rent-to-own as a more flexible and viable option
compared to credit.
Currently, we have a long-term Outperform recommendation on the
stock. However, Rent-A-Center's shares maintain a Zacks #3 Rank,
which translates into a short-term Hold.
We observe that higher cost of revenues kept the gross margin
under pressure that shrunk 220 basis points to 70.3% during the
second quarter. Operating profit margin also contracted 70 basis
points to 10.5%.
(AAN): ETF Research Reports
RENT-A-CENTER (RCII): Free Stock Analysis
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