), one of the largest rent-to-own operators, delivered
fourth-quarter 2012 earnings of 81 cents a share that missed the
Zacks Consensus Estimate by a couple of cents, and dropped 4.7%
from 85 cents earned in the prior-year quarter.
Rent-A-Center's total revenue, which comprises store and
franchise revenues, rose 2.8% to $758.4 million from the year-ago
quarter but fell short of the Zacks Consensus Estimate of $781
million. Comparable-store sales for the quarter fell 0.2%. The
increase in the top line was attributable to higher revenues from
the RAC Acceptance and International segments, partly offset by a
decline in the Core U.S. segment.
The company's business model, called RAC Acceptance, is
gaining traction. When a consumer is denied credit financing for
a particular product from the retailer, Rent-A-Center acquires
that product from the retailer by virtue of the RAC Acceptance
program, and thereby offers it to the consumer under a
Revenues from the RAC Acceptance business surged 51% to $94.7
million from the prior-year quarter, whereas revenues from Core
U.S. segment declined 2.9% to $638.7 million. International
segment revenues came in at $12.7 million substantially rising
from $5.6 million in the year-ago quarter.
Total store revenues rose 2.7% to $746 million. The growth was
driven by 2.9% rise in rental and fees revenue to $665.1 million,
a 1.7% increase in merchandise sales to $57.7 million and a 0.6%
jump in installment sales to $19.1 million, partially offset by a
4.3% decline in other revenues to $4.1 million. Total franchise
revenues (ColorTyme segment) climbed 9.7% to $12.3 million during
We observe that higher cost of revenues (up 5%) kept the gross
margin under pressure. Although Rent-A-Center's gross profit grew
1.9% to $527.2 million, gross margin shrunk 60 basis points to
A 4.3% rise in salaries and other expenses impacted operating
profit. Operating profit fell 4.7% to $79.3 million, whereas
operating profit margin contracted 80 basis points to 10.5%.
Adjusted EBITDA decreased 3.3% to $98.5 million, while adjusted
EBITDA margin shriveled 80 basis points to 13%.
During the quarter, the company opened 12 new Core U.S.
locations and consolidated 9 stores with existing locations
bringing the total store count to 2,986. The company also opened
103 RAC Acceptance stores and consolidated 19 stores with
existing locations, resulting in 966 stores.
Nine international locations were opened and 15 stores were
shuttered during the quarter bringing the count to 108 stores.
ColorTyme, which is a wholly owned subsidiary of Rent-A-Center,
added 7 new locations and consolidated 3 stores with existing
locations, taking the total store count to 224.
For 2013, management plans to open approximately 60
rent-to-own locations in Mexico. Moreover, the company aims at
about 425 domestic RAC Acceptance kiosk additions.
Other Financial Aspects
Rent-A-Center ended the quarter with cash and cash equivalents
of $61.1 million, senior debt of $387.5 million, and
shareholders' equity of $1,469.9 million. During 2012, the
company generated cash flow from operations of about $217.9
million. Management now anticipates capital expenditures of
approximately $120 million for 2013.
The company bought back 930,541 shares for approximately $31.7
million during the quarter and 1,797,526 shares for approximately
$61.9 million during 2012. Since the inception of the share
buyback program, the company has repurchased 31,120,279 shares
and employed approximately $777.3 million out of the $1 billion
Plano, Texas-based company, Rent-A-Center on Dec 17, 2012,
raised its quarterly dividend by 31% to 21 cents (or 84 cents
annually) from 16 cents a share (or 64 cents annually). The
increased dividend was paid on Jan 24, 2013 to stakeholders of
record as on Jan 3, 2013. This was the 11th successive cash
Strolling Through Guidance
Rent-A-Center projects 2013 top-line growth of 5% to 8%,
attributable to $540 million contribution from the RAC Acceptance
business, however, the Core U.S. segment is expected to remain
flat. The company anticipates a 4% decline in the Core U.S.
segment during the first quarter of 2013. Management expects
comparable-store sales to drop 2% in the first quarter but
forecasts 2% to 4% growth for 2013.
Management envisions 2013 earnings in the band of $3.25 to
$3.40 per share, including a cost of 25 cents related to its
international expansion initiatives. The current Zacks Consensus
Estimate for 2013 is $3.49. Consequently, we could witness a
correction in the Zacks Consensus Estimates in the coming
Management also forecasted a 50 basis points contraction in
gross profit margin for 2013. It also hinted that operating
profit margin for the year will remain even. EBITDA for the year
is projected between $415 million and $435 million.
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 #3 (Hold). Other
stocks worth considering in the finance-leasing industry are
Electro Rent Corporation
), both of which hold a Zacks Rank #1 (Strong Buy) and are
expected to continue with their upbeat performances. Another
stock that should be merited is
), which holds a Zacks Rank #2 (Buy) and is expected to continue
with its positive earnings surprise trend.
AARONS INC (AAN): Free Stock Analysis Report
(ACY): ETF Research Reports
(ELRC): ETF Research Reports
RENT-A-CENTER (RCII): Free Stock Analysis
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