) rose 4.5% to $26.95 during the after-market trading session
yesterday, as the company posted better-than-expected
first-quarter 2014 earnings. The quarterly adjusted earnings of
57 cents a share beat the Zacks Consensus Estimate by a couple of
cents, but fell 27.8% year over year due to higher operating
costs and softness witnessed across the Core U.S. segment.
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Including one-time items, earnings per share came in at 54 cents,
down 31.6% year over year.
Total revenue of this rent-to-own operator, which comprises store
and franchise revenue, grew 1.8% to $833.7 million from the
year-ago quarter but fell short of the Zacks Consensus Estimate
of $845 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. segment.
On Jan 1, 2014, Rent-A-Center realigned its reporting structure.
It has included 18 Canadian stores in its Core U.S segment, which
was earlier under the International segment.Therefore,
international segment is now referred as Mexico segment.
Comparable-store sales for the quarter dropped 0.8%, reflecting a
6.1% decline in the Core U.S. segment, partly offset by an
increase of 26.1% and 20.3% in the Acceptance Now and Mexico
segments, respectively. Rent-A-Center's domestic rent-to-own
business continues to remain challenging, given the budget
However, the company's business model, called Acceptance Now,
continues to gain traction. Revenue from the Acceptance Now
business surged 37.0% to $174.2 million from the prior-year
quarter, whereas revenue from the Core U.S. segment declined 5.6%
to $634.7 million. Mexico segment's revenue came in at $15.9
million, up 67.2% from the year-ago quarter.
Total store revenue rose nearly 2.0% to $824.8 million due to a
3.1% increase in rental and fees revenue to $694.2 million and a
7.2% jump in installment sales to $18.3 million, partially offset
by a 4.9% drop in merchandise sales to $108.0 million and a 10.5%
decline in other revenue to $4.3 million.
Total franchise revenue (i.e. ColorTyme segment rechristened as
Rent-A-Center Franchising International, Inc.) plunged 12.9% to
$8.9 million during the quarter.
Rent-A-Center's gross profit increased 2.2% to $562.9 million,
whereas gross margin expanded 30 basis points to 67.5%. Operating
profit declined 24.1% to $59.7 million, whereas operating profit
margin contracted 240 basis points to 7.2%. Adjusted earnings
before interest, taxes, depreciation, and amortization (EBITDA)
decreased 18.8% to $79.6 million, while adjusted EBITDA margin
shriveled 240 basis points to 9.6%.
During the quarter, the company opened 6 new stores in Core U.S.
locations and consolidated 19 stores with existing locations,
bringing the total store count to 2,997. The company also opened
60 Acceptance Now stores, consolidated 29 stores with existing
locations and closed 1 store, resulting in 1,355 stores.
22 stores were opened in Mexico bringing the count to 173 stores.
Rent-A-Center Franchising, which is a wholly owned subsidiary of
Rent-A-Center, added 1 new location and closed 2 locations, with
the total store count coming at 178.
For 2014, management plans to open approximately 30 rent-to-own
locations in Mexico. Moreover, the company aims at about 100
domestic Acceptance Now kiosk additions.
Other Financial Aspects
Rent-A-Center, which competes with
), ended the quarter with cash and cash equivalents of $81.0
million, senior debt of $325.0 million, and shareholder equity of
$1,362.2 million. Management anticipates capital expenditures of
approximately $100 million for 2014.
Guidance for 2014
Rent-A-Center now projects 2014 top-line growth of 3% to 6%,
attributable to a contribution of $695 million from the
Acceptance Now business. Management forecasts a 3% to 5.5% jump
in comparable-store sales. EBITDA for the year is projected
between $325 million and $345 million.
Management envisions 2014 earnings in the band of $2.30 to $2.50
per share, including a cost of 25 cents related to its Mexican
expansion initiatives. The current Zacks Consensus Estimate for
2014 is $2.30.
To rationalize the Core U.S. segment, the company has launched
several initiatives and will consolidate around 150 locations by
the second-quarter of 2014 to improve operational and financial
Rent-A-Center offers consumer electronics, appliances and
furniture products under rental purchase schemes that allow
customers to own the 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
compared to credit. However, the sluggish recovery and a fragile
job market may make customers reluctant to enter new
Currently, Rent-A-Center holds a Zacks Rank #4 (Sell). A
better-ranked stock in the same sector is
AerCap Holdings N.V.
), which has a Zacks Rank #2 (Buy).