Will Rent-A-Center Find a Growth Path? - Analyst Blog


On Jul 7, 2014 we issued an updated research report on Rent-A-Center, Inc . ( RCII ).

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 rivals.

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. ( AER ), AeroCentury Corp. ( ACY ) and Aaron's, Inc. ( AAN ). 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 Report

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AERCAP HLDGS NV (AER): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: RCII , AAN , ACY , AER



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