Jul 7, 2014
we issued an updated research report on
Rent-A-Center, Inc. is the largest rent-to-own operator in the U.S.
offering durable goods such as consumer electronics, appliances,
computers, furniture and accessories. Of late, the company has been
disappointing on the earnings front, resulting in an 11.1% decline
in stock price year to date.
In the trailing four quarters, the company has missed the Zacks
Consensus Estimate by an average of 17.3%.
Though, in the first quarter of 2014 the company delivered a
positive earnings surprise of 3.6% its earnings slid 27.8%
year-over-year. On the other hand, total revenue grew 1.8% but fell
short of the Zacks Consensus Estimate. Higher revenues from the
Acceptance Now and Mexico segments were partly offset by a decline
in the Core U.S. segment.
The company has been struggling with declining sales at its Core
U.S segment for some time now. In the first quarter, revenue from
the segment declined 5.6% to $634.7 million. Moreover, margins
continue to be under pressure due to higher rentals and fees costs
as well as salaries and other expenses. Rent-A-Center's operating
profit declined 24.1% to $59.7 million, whereas operating profit
margin contracted 240 basis points to 7.2%.
Going forward, the soft economic recovery is likely to add to its
woes as customers may become reluctant to enter new rental-purchase
deals. In addition, seasonality of business and intense competition
remain causes of concern.
However, Rent-A-Center has strategic initiatives in place to
turnaround it performance. The company is taking prudent steps to
optimize rental merchandise levels in accordance with sales trends.
Rent-A-Center implemented a centralized inventory management
system, including automated merchandise replenishment.
Also, the company's new business model called Acceptance Now is
gaining traction as it enhances consumers' shopping experience.
When the consumer is denied credit financing for a particular
product from the retailer, Rent-A-Center under its Acceptance Now
program acquires that product from the retailer and offers it to
the consumer under a rental-purchase transaction. Revenue from the
Acceptance Now business surged 37% during the first quarter.
The company's large geographic reach facilitates effective
penetration in target markets and achieving a cutting edge over its
Currently, Rent-A-Center has a Zacks Rank #3 (Hold).
Key Picks from the Sector
Other better-ranked retail stocks worth consideration include
AerCap Holdings N.V.
). AerCap Holdings and AeroCentury sport a Zacks Rank #1 (Strong
Buy) whereas Aaron's has a Zacks Rank #2 (Buy).
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RENT-A-CENTER (RCII): Free Stock Analysis
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