), one of the largest rent-to-own operators, recently delivered
third-quarter 2012 earnings. The Wall Street analysts had more
than a week to ponder over the earnings results and eventually
made their estimates revision. In subsequent paragraphs, we will
cover the results of the recent earnings announcement, estimate
revisions by analysts as well as the Zacks Rank and long-term
recommendation on the stock.
Earnings Report Review
Rent-A-Center's earnings of 67 cents a share came in line with
the Zacks Consensus Estimate, and bolstered 11.7% from 60 cents
earned in the prior-year quarter, aided by top-line growth.
Rent-A-Center's total revenue, which comprises store and
franchise revenues, rose 5% to $739.3 million from the year-ago
quarter but fell short of the Zacks Consensus Estimate of $757
million. Comparable-store sales for the quarter rose 1.2%. The
boost in the top line was attributable to higher revenue from the
RAC Acceptance segment, partly mitigated by a decline in the Core
Rent-A-Center projects 2012 top-line growth between 7% and
8.5%, attributable to a low single-digit jump in Core U.S.
segment and more than $325 million contribution from the RAC
Acceptance business. Management expects comparable-store sales
growth of 2% for the fourth quarter and 2012.
Management envisions 2012 earnings in the band of $3.05 to
$3.15 per share, including 30 cents cost related to its
international expansion initiatives.
Management forecasted a 175 basis points contraction in gross
profit margin for 2012. It also hinted at a 50 basis points
reduction in operating profit margin for the year.
(Read our full coverage on this earnings report:
Rent-A-Center Meets Expectations
Agreement of Estimate Revisions
Clearly, a negative sentiment is evident among analysts
following the company's third quarter earnings as 7 out of 10
estimates were lowered in the last 7 days for the fourth quarter
of 2012, while 1 was raised. Looking out to fiscal 2012, 6 out of
9 estimates were lowered, while 2 moved in the opposite
During the last 30 days, 7 out of 7 out of 10 estimates were
lowered, while 1 was raised for the fourth quarter. For fiscal
2012, 6 out of 9 estimates were lowered, while 2 were raised.
Analysts remain concerned about the slowdown in the company's
core business and rising inventory level. Moreover, higher cost
of revenues is likely to remain a drag on the margins of the
company as evident from the company's truncated margins outlook
for fiscal 2012.
Magnitude of Estimate Revisions
Given the large number of downward estimate revisions, the
Zacks Consensus Estimate decreased by 2 cents to 84 cents a share
for the fourth quarter in the 7 days. Moreover, the story remains
the same for fiscal 2012, as estimates waned 2 cents to
The Zacks Consensus Estimate declined 3 cents in the last 30
days for the fourth quarter and fiscal 2012, respectively.
The company remains optimistic about its future growth
prospects, with store openings in international markets and
accelerated rollout of RAC Acceptance kiosks. Due to continued
tightening of the credit market, customers see rent-to-own as a
more viable option to credit. However, the sluggish recovery and
a fragile job market may make customers reluctant to enter new
rental-purchase deals. Moreover, margins remain under pressure
due to higher cost of revenues.
Currently, we have a long-term 'Neutral' recommendation on the
stock. Moreover, Rent-A-Center, which competes with
) and Advance America, holds a Zacks #3 Rank that translates into
a short-term 'Hold' rating.
As a PhD from MIT, Len Zacks proved over 30 years ago that
earnings estimate revisions are the most powerful force impacting
stock prices. He turned this ground breaking discovery into two
of the most celebrating stock rating systems in use today. The
Zacks Rank for stock trading in a 1 to 3 month time horizon and
the Zacks Recommendation for long-term investing (6+ months).
These "Earnings Estimate Scorecard" articles help analyze the
important aspects of estimate revisions for each stock after
their quarterly earnings announcements. Learn more about earnings
estimates and our proven stock ratings at
AARONS INC (AAN): Free Stock Analysis Report
RENT-A-CENTER (RCII): Free Stock Analysis
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