) posted second-quarter 2014 earnings of 38 cents a share that came
in line with the Zacks Consensus Estimate but fell 50% from 76
cents delivered in the year-ago quarter due to higher operating
costs and softness across the Core U.S. segment. The company held a
tough retail environment responsible for sluggish demand. To
overcome this, the company rolled out smartphones and no-contract
airtime plans at its Core U.S. outlets.
Rent-A-Center, Inc - Earnings Surprise |
Including one-time items, earnings per share came in at 33
cents, down 56.6% year over year.
Total revenue of this rent-to-own operator grew 1.7% to $773.2
million from the year-ago quarter but fell short of the Zacks
Consensus Estimate of $781 million. The increase in the top line
was attributable to higher revenues from the Acceptance Now and
Mexico segments, partly offset by a decline in the Core U.S.
Comparable-store sales for the quarter grew 0.6%, reflecting an
increase of 25.1% and 17% in the Acceptance Now and Mexico
segments, respectively, partly offset by a 4.7% decline in the Core
The company's business model, called Acceptance Now, continues
to gain traction. Revenues from Acceptance Now surged 32.6% to
$155.8 million from the prior-year quarter, whereas revenues from
the Core U.S. segment declined 4.9% to $592 million. Mexico
segment's revenues came in at $17.7 million, up 56.4% from the
year-ago quarter. Total franchise revenue fell 16.8% to $7.7
million during the quarter.
Rent-A-Center's gross profit increased 1.1% to $536.5 million,
whereas gross margin contracted 40 basis points (bps) to 69.4%.
Adjusted operating profit decreased 42.3% to $44.5 million, while
operating margin shrank 440 bps to 5.8%. Adjusted EBITDA declined
32.9% to $65.2 million, whereas EBITDA margin contracted 440 bps to
During the quarter, the company opened two new Core U.S.
locations, acquired one outlet, consolidated 144 stores with
existing locations and closed nine locations, bringing the total
store count to 2,847. The company also opened 25 Acceptance Now
stores and consolidated 21 stores with existing locations,
resulting in 1,359 stores.
In Mexico, eight stores were opened and five stores were
consolidated with existing locations bringing the count to 176
stores. Rent-A-Center Franchising, which is a wholly owned
subsidiary of Rent-A-Center, added eight new locations and closed
six locations, with the total store count coming to 180.
Management's target of opening approximately 30 rent-to-own
locations in Mexico in 2014 was accomplished in the quarter under
review. Moreover, the company aims at about adding 190 domestic
Acceptance Now kiosks in the year.
Other Financial Aspects
Rent-A-Center, which competes with
), ended the quarter with cash and cash equivalents of $68.1
million, senior debt of $393.2 million and shareholder equity of
$1,370.6 million. Management estimates capital expenditures of
approximately $95 million for 2014.
Glance at Guidance
Management lowered its projection citing macroeconomic headwinds
in the back half of the year that would soften demand in the Core
Rent-A-Center now projects 2014 top-line growth of 2.5% to 4%,
down from the earlier forecast of 3% to 6%. Management envisions a
1.5% to 2.5% jump in comparable-store sales. EBITDA for the year is
projected between $300 million and $310 million.
Management now anticipates 2014 earnings in the band of $2.00 to
$2.15 per share, including a cost of 25 cents related to its
Mexican expansion initiatives. The current Zacks Consensus Estimate
for 2014 is $2.14. The company had previously projected full-year
earnings between $2.30 and $2.50 per share.
For the third quarter, Rent-A-Center projects top-line as well
as comparable-store sales growth in the range of 2% to 3%,
reflecting comps increase of 25% to 30% in the Acceptance Now
segment and 15% to 20% in the Mexico segment, partly offset by a
decline of 3.5% to 4.5% in the Core U.S. segment.
The quarterly earnings are expected in the band of 43 cents to
51 cents a share. The current Zacks Consensus Estimate for the
quarter is 52 cents.
Rent-A-Center offers consumer electronics, appliances and
furniture products under rental purchase schemes that allow
customers to own merchandise upon completion of the rental period.
Due to continued tightening of the credit market, customers see
rent-to-own as a more flexible and viable option. However, sluggish
recovery may make customers reluctant to enter new rental-purchase
Currently, Rent-A-Center holds a Zacks Rank #5 (Strong Sell).
Better-ranked stocks include
AerCap Holdings N.V.
) both of which hold a Zacks Rank #1 (Strong Buy).
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RENT-A-CENTER (RCII): Free Stock Analysis
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