), one of the largest rent-to-own operators, delivered
first-quarter 2013 earnings of 80 cents a share that missed the
Zacks Consensus Estimate of 85 cents, and dropped 8% from 87
cents earned in the prior-year quarter. The lower-than-expected
results were due to delay in refund of federal income tax, higher
fuel prices and increase in payroll taxes. Consequently, the
company trimmed its 2013 outlook. However, of late the company is
witnessing improving demand.
Rent-A-Center's total revenue, which comprises store and
franchise revenue, fell 1.9% to $819.3 million from the year-ago
quarter and fell short of the Zacks Consensus Estimate of $850
million. Comparable-store sales for the quarter dropped 4.3%. The
decrease in the top line was attributable to a decline in the
Core U.S. segment, partly offset by higher revenue from the RAC
Acceptance and International segments.
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
Revenue from the RAC Acceptance business surged 45% to $127.2
million from the prior-year quarter, whereas revenue from the
Core U.S. segment declined 8% to $669.6 million. International
segment revenue came in at $12.3 million substantially rising
from $7.7 million in the year-ago quarter.
Total store revenue fell 1.7% to $809.1 million. The decline
in revenue was attributed to a marginal drop in rental and fees
revenue to $673.6 million, a 7.6% decrease in merchandise sales
to $113.6 million, a 2.1% fall in installment sales to $17.1
million, and a 3.5% decline in other revenue to $4.8 million.
Total franchise revenue (ColorTyme segment) plunged 14.8% to
$10.2 million during the quarter.
Rent-A-Center's gross profit tumbled 1.7% to $550.7 million,
however, gross margin expanded 10 basis points to 67.2%.
Operating profit plummeted 13.9% to $79.3 million, whereas
operating profit margin contracted 130 basis points to 9.7%.
Adjusted EBITDA decreased 11.4% to $98.6 million, while adjusted
EBITDA margin shriveled 130 basis points to 12%.
During the quarter, the company opened 7 new Core U.S.
locations, acquired 3 stores, consolidated 16 stores with
existing locations and closed 1, bringing the total store count
to 2,983. The company also opened 98 RAC Acceptance stores and
consolidated 11 stores with existing locations, resulting in
Twenty international locations were opened during the quarter
bringing the count to 128 stores. ColorTyme, which is a wholly
owned subsidiary of Rent-A-Center, added 3 new locations and
closed 3 locations, with the total store count remaining at
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 $82.3 million, senior debt of $341.3 million, and
shareholders' equity of $1,494.1 million. The company generated
cash flow from operations of about $113.5 million during the
quarter. Management now anticipates capital expenditures of
approximately $120 million for 2013.
The company bought back 465,035 shares for approximately $17.4
million during the quarter. Since the inception of the share
buyback program, the company has repurchased 31,585,314 shares
and employed approximately $794.8 million out of the $1 billion
Strolling Through Guidance
Following a disappointing first-quarter performance,
Rent-A-Center now projects 2013 top-line growth of 3.5% to 5.5%,
attributable to a contribution of $540 million from the RAC
Acceptance business. Management forecasts comparable-store sales
growth ranging from 1% to 2% for 2013.
Earlier, Rent-A-Center had expected total revenue growth of 5%
to 8%, and comps increase of 2% to 4% in 2013.
Management now envisions 2013 earnings in the band of $2.95 to
$3.10 per share, including a cost of 25 cents related to its
international expansion initiatives. The current Zacks Consensus
Estimate for 2013 is $3.28. Consequently, we could witness a
correction in the Zacks Consensus Estimates in the coming days.
Earlier, management had projected 2013 earnings between $3.25 and
$3.40 per share.
Management also forecasted a 50 basis points contraction in
gross profit and operating margins for 2013. EBITDA for the year
is projected at $400 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 #4 (Sell). Other
stocks worth considering in the finance-leasing industry are
KCAP Financial, Inc.
American Capital, Ltd.
), all hold a Zacks Rank #1 (Strong Buy).
AMER CAP LTD (ACAS): Free Stock Analysis
AEROCENTURY CP (ACY): Get Free Report
KCAP FINL INC (KCAP): Free Stock Analysis
RENT-A-CENTER (RCII): Free Stock Analysis
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