Rent-A-Center Inc. (RCII)

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Rent-A-Center Inc. (RCII)

Q4 2008 Earnings Call

February 03, 2008; 10:45 am ET


Mark Speese - Chairman & Chief Executive Officer

Mitch Fadel - President & Chief Operating Officer

Robert Davis - Chief Financial Officer

David Carpenter - Vice President, Investor Relations


Arvind Bhatia - Sterne Agee

Laura Champine - Cowan and Company

John Baugh - Stifel Nicolaus

Jason Traheo - Barclays Capital

David Burtzlaff - Stephens Inc.

Mike Smith - Kansas City Capital

John Curti - Principal Global Investors

David Schmookler - Kingsland

Joel Havard - Hilliard Lyons

Gina Matsuyama - Post Advisory Group



Good morning and thank you for holding. Welcome to Rent-A-Center’s fourth quarter and year 2008 earnings release conference call. At this time all participants are in a listen-only mode. Following today’s presentation we will conduct a question-and-answer session. (Operator Instructions)

Your speakers today are Mr. Mark Speese, Chairman and Chief Executive Officer of Rent-A-Center; Mr. Mitch Fadel, President and Chief Operating Officer; Mr. Robert Davis, Chief Financial Officer and Mr. David Carpenter, Vice President of Investor Relations.

I would now like to turn the conference over to Mr. Carpenter, please go ahead sir.

David Carpenter

Thank you, Elisa. Good morning everyone and thank you for joining us. You should have received a copy of the earnings release distributed after the market closed yesterday that outlined our operational and financial results that we made in the fourth quarter as well as the year end 2008.

If for some reason you did not receive a copy of the release, you can download it from our website at www.investor.rentacenter.com. In addition, certain financial and statistical information that will be discussed during the conference call will also be provided on the same website.

Also in accordance with SEC rules concerning non-GAAP financial measures, the reconciliation of EBITDA is provided in our earnings press release under the statement of earnings highlights. Finally, I must remind you that some of the statements made in this call, such as forecast growth in revenues, earnings, operating margins, cash flow profitability and other business or trend information are forward-looking statements.

These matters are of course subject to many factors that could cause actual results to differ materially from our expectations reflected in the forward-looking statements. These factors are described in the earnings release issued yesterday, as well as our most recent quarterly report on Form 10-Q for the quarter ended September 30, 2008. Rent-A-Center undertakes no obligation to publicly update or revise any forward-looking statements.

I’d now like to turn the conference call over to Mitch. Mitch.

Mitch Fadel

Thanks, Dave and good morning everyone and thanks for joining us on our fourth quarter earnings call. We were pleased with the fourth quarter as our financial results were within our guidance and while ahead of consensus estimates. Traffic was good, even a little bit better than we had forecasted. We didn’t wrap more lowered priced items things we call Super Value and this lowered our average per unit or APU resulting in same-store sales being flat.

Overall, this worked pretty well and we are going to keep the Super Value’s concept. While at the same time, we’ve been adjusting somewhere other pricing, which will positively impact APU over the first half of 2009. We believe we can do that without affecting demand as week rates the price on some of these other items by approximately 4% by adding just $1 a week and we believe this Super Value have helped us retain and attract more of the lower income consumer that we’re previously losing.

Overall, we continue to see a higher income consumer relative to average income levels in a few years ago, most likely driven by the credit tightening in traditional retail. So, to summarize demand is strong, APU is a little weak and we believe we can get that back up over the next six months without effecting our Super Value or demand which again that the key metric strong demand so, a good quarter and one of the reasons that we’re raising guidance for 2009.

Our collection efforts remained solid as 2008, the average weekly delinquency number was the lowest that it’s been in the six years. That translated the losses due to customers’ skips and phones for the year down 30 basis points from 2007. Again, a key point of our business model especially in a tough economic environment like this is because equity doesn’t transfer until ownership was taken at the end of the agreement or the primary purchase option if the customer is struggling.

Unlike traditional retail, we can pick up the item and of course we have an outlet for it. As well as the original customer can come in and virtually pick up whether left off when they get the feedback on the ground. In other words the transaction works even in tough economic environments like the one we are in.

Inventory management remained solid, as our inventory held for rent came down from the third quarter as expected and we remained comfortable with our inventory levels. We continue to work on our new inventory purchasing initiative that I mentioned in last quarter that will rollout in phases throughout 2009. We remained excited about the potential that there is with this more centralized approach, as we believe enhanced inventory management will help us to take advantage of a higher percentage of their rental opportunity.

Besides working at increasing demand, we are always working on expense reduction initiatives. I will give you one current example; we are working on lease expense. In this tough real estate market, we believe that we are ready to renegotiate some leases especially those expiring within the 12 to 24 month. We believe in doing so, we may be able to limit any future rent increases and in some cases get rent reductions.

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