Rent-A-Center, Inc. (RCII)
Q1 2010 Earnings Call Transcript
April 27, 2010 10:45 am ET
David Carpenter – VP of IR
Mitch Fadel – President and COO
Robert Davis – EVP of Finance and CFO
Mark Speese – CEO and Chairman
Arvind Bhatia – Sterne, Agee & Leach
David Burtzlaff – Stephens Inc.
Budd Bugatch – Raymond James
John Baugh – Stifel, Nicolaus
Laura Champine – Cowen & Company
John Rowan – Sidoti & Company
Joel Harvard [ph] – Hilliard Lyons
Bill Baldwin – Baldwin Anthony Securities
Previous Statements by RCII
» Rent-A-Center Inc. Q4 2008 Earnings Call Transcript
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.
Thank you, Chris. 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 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 Web site.
Also in accordance with SEC rules regarding 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 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 annual report on Form 10-K for the year ended December 31, 2009. 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?
Thanks, David, and good morning everyone, and thanks for joining us on our first quarter earnings call. We are very pleased with our results in the quarter as we exceeded our guidance in store and total revenue and soundly beat our earnings estimates with a record $0.77 of EPS. Both our revenues and gross profit margins were strong and our expense management continues to contribute to solid results.
Same-store sales were down just 0.5% and at the high end of our guidance. Consumer traffic remains good as our comp was the best in the last five quarters and we are expecting positive same-store sales of approximately 1% in the second quarter.
Additionally, we are starting to see a positive trend in a number of units customers are running on each agreement. So we are very encouraged by our consumer traffic and the stabilization and improvement in our units per agreement metric, and again, this combination is leading to a much better same-store sales results.
We continue to believe the ongoing tightening of consumer credit is helping our traffic as more and more consumers see rent-to-own as a more flexible and viable alternative to credit. We continue to work with our suppliers on strategic purchases that create strong values for the consumer, while continuing to target our advertising and our marketing accordingly. Additionally, we remain focused on our customers’ in-store experience and on our own sales training and selling skills.
Now with regard to collections, our overall numbers remain in line with historical results, and in fact, our first quarter loss number related to our customers skips and stolens came in at 2.1%, our lowest first quarter customer loss number in the last four years.
Our inventory is in good shape as our centralized inventory management system rollout has been completed nationwide. The system is functioning well; it does a better job anticipating business based on historical and forward-looking algorithms. That along with our large blanket order for April that came in just in the last few days of March, has our quarter ending held for rent number at 23.7%, on the high end of our historical range of 20% to 24%, but well equipped to have the merchandise necessary to continue our positive growth trend.
Our financial services business continued with its positive trend as that aspect of the business contributed positively to earnings in the quarter. Our overall loan losses in financial services in the quarter were at 17.6%, our best number in seven quarters. Additionally, in the first quarter, as part of our ongoing business review, we analyzed the operating results of each of those kiosks and as a result we closed 36 of them.
We are adding quite a few this year as well, again only in states with a favorable legislative environment for this additional product offering. And we still have a goal of adding a net of 50 kiosks this year, and to end the year with approximately 400 financial services locations.