On Jul 24, 2014, we issued an updated research report on
domestic rent-to-own operator
), following its lackluster second-quarter 2014 performance.
The company's earnings of 38 cents per share came in line with the
Zacks Consensus Estimate but plummeted 50% from the year-ago
quarter, due to higher operating costs and softness across the Core
Rent-A-Center held a tough retail environment responsible for the
sluggish demand. To overcome this, the company rolled out smart
phones and no-contract airtime plans at its Core U.S. outlets.
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.
Rent-A-Center's business is seasonal in nature and typically
generates stronger sales during the first quarter, characterized by
federal income tax refunds, which are used by the company's
customers to exercise early purchase option on existing rental
agreements. As a result, the company is exposed to significant
risks should the quarter fail to deliver expected operating
Rent-A-Center also faces stiff competition from national chains and
regional rent-to-own businesses, which may further dent its sales
Moreover, customers remain susceptible to macroeconomic factors
like interest rate hikes, increase in fuel and energy costs, credit
availability, unemployment levels and high household debt levels,
which may negatively impact their discretionary spending, and in
turn the company's growth and profitability.
The soft economic recovery may make customers reluctant to enter
new rental purchase deals. This bearish mood is a drag upon the
Zacks Consensus Estimate.
Rent-A-Center currently has a Zacks Rank #5 (Strong Sell).
Key Picks from the Sector
Some better-ranked retail stocks worth investing include AerCap
Holdings N.V. (
), American Capital Agency Corp. (
) with a Zacks Rank #1 (Strong Buy), and AeroCentury Corp. (
), with a Zacks Rank #2 (Buy).
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