Rent-A-Center Inc. (RCII)

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Rent-A-Center (RCII)

Q1 2013 Earnings Call

April 23, 2013 10:45 am ET


David E. Carpenter - Vice President of Investor Relations

Mark E. Speese - Chairman and Chief Executive Officer

Mitchell E. Fadel - President, Chief Operating Officer and Director

Robert D. Davis - Chief Financial Officer, Principal Accounting Officer, Executive Vice President of Finance and Treasurer


Thomas J. McConville - Raymond James & Associates, Inc., Research Division

Jason Campbell - KeyBanc Capital Markets Inc., Research Division

Arvind Bhatia - Sterne Agee & Leach Inc., Research Division

Jason Smith

John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division

John J. Rowan - Sidoti & Company, LLC

DeForest R. Hinman - Walthausen & Co., LLC

James Ellman



Good morning, and thank you for holding. Welcome to Rent-A-Center's First Quarter 2013 Earnings Release Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Tuesday, April 23, 2013. 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 E. Carpenter

Thank you, Kurt. 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 outlines our operational and financial results that were made in the first quarter. If for some reason you did not receive a copy of the release, you can download it from our website at 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. Please note the following additional important information. The statistical information will also include the 2013 first quarter segment data for rental merchandise and assets. We apologize that this information was inadvertently omitted from our first quarter earnings press release issued yesterday. Again, the 2013 first quarter segment data for rental merchandise and asset is available on the financial information page at investor.rentacenter.com.

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 and revenues, earnings, operating margins, cash flow and profitability in 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 press release issued yesterday, as well as our Annual Report on Form 10-K for the year ended December 31, 2012. 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 Mark. Mark?

Mark E. Speese

Thank you, David and good morning, everyone. Let me begin by saying how pleased I am with the results in our growth initiatives, specifically RAC Acceptance and Mexico. That said, we had a challenging and difficult first quarter in our core business. Results that we believe were negatively impacted by the macro environment, from the delayed issuance of federal income tax refunds, rising fuel prices and the higher payroll taxes. While we had anticipated and guided to down revenues for the quarter in our core business, it was greater than expected with our Core U.S. revenue down $58 million year-over-year. And while revenue growth in RAC Acceptance and International helped to partially offset the quarter decline, our overall results were disappointing with total revenue down 1.9%, and net earnings down 10.6%. Mitch will provide more quarterly details on each of the business segments in a few moments, but suffice it to say, it was challenging.

In regard to the growth initiatives, I do remain very excited. In the RAC Acceptance business, revenues were up 45% in the quarter to over $127 million, and now represent nearly 16% of our total revenue and 20% of our total operating profit. Our operating profits continue to grow as the stores mature. For the quarter, operating profits were up $13 million year-over-year, totaling $16 million in the quarter. Very impressive and on plan.

Regarding International and specifically, Mexico, their results were also good and in line with our expectations, with revenue growing over 150% in the quarter and totaling $9.5 million. We also opened 20 new stores in the quarter and now operate 110 in total. We remain very excited about the long-term opportunities Mexico provides for us. Robert is going to provide more specifics on the revised 2013 guidance as I noted in the earnings release last night, given the difficult first quarter, resulting in lower than expected ending portfolio in the core business, we are lowering our revenue and EPS expectations for the year. We are now expecting total revenue growth positive 3.5% to 5.5%, and EPS now in the range of $2.95 to $3.10. Of course, that does include the approximate $0.25 drag in earnings due to the International initiatives.

We have faced headwinds before and while clearly disappointing, we believe that the company remains well-positioned and well-capitalized to execute its long-term strategy. The trends that we have seen in the Core U.S. business over the last several weeks are encouraging, up period-over-period, and support our belief that the first quarter was an anomaly, similar to what was seen in the broader retail market and that the need for our products and services remain strong. We're focused on regaining our portfolio throughout the year and have a number of initiatives in place to do so.

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