RCII

Rent-A-Center Inc. (RCII)

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Industry: Technology
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Rent-A-Center, Inc. (RCII)

Q2 2010 Earnings Call

July 27, 2010 10:45 am ET

Executives

David Carpenter - VP, IR

Mark Speese - Chairman & CEO

Mitch Fadel - President & COO

Robert Davis - EVP-Finance & CFO

Analysts

David Burtzlaff

Budd Bugatch

Arvind Bhatia

Laura Champine

John Baugh

Mike Grondahl

John Rowan

Presentation

Operator

Good morning and thank you for holding. Welcome to Rent-A-Center's second quarter 2010 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) As a reminder, this conference is being recorded on Tuesday, July 27, 2010.

Your speakers today are Mark Speese, Chairman and Chief Executive Officer of Rent-A-Center; Mitch Fadel, President and Chief Operating Officer; Robert Davis, Chief Financial Officer; and 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, Jackie. 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 second 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 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 highlight.

Finally, I must remind you that some of the statements made in this call, such as forecasts, growth in 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 quarterly report on form 10-Q for the quarter ended March 31, 2010. Rent-A-Center undertakes no obligation to publicly update or revise any forward-looking statements.

And now I would like to turn the conference call over to Mark. Mark?

Mark Speese

Thank you, David. Good morning everyone, and thank you for joining us on our second quarter earnings call. As you read in the press release, the company announced strong earnings for the second quarter, ending June 30, as well as the introduction of our first ever cash dividend and an increase in our share repurchase authorization to $600 million.

Let me share a little about each of these and then I will ask Mitch and Robert to provide some additional details.

With regard to our business in general, despite the slow economic recovery, the overall tone remains fairly positive. Now what I mean by that is that our traffic, as measured by the number of deliveries made per week, continues to run at or above last year's numbers, where we saw strong double-digit increases.

The demand for our products and services remains strong, and in fact we believe that more consumers are coming to appreciate the ease and flexibility of our transaction. Now while our rental and fee revenue was slightly less than expected, that was caused by both some price declines, driven by continued deflation in some products, resulting in lower weekly rental payments, and some promotional activity on our part, as well as a slight increase in our weekly delinquency numbers, resulting in lower revenue collected than expected.

A slight increase in delinquency did not affect the loss read in the second quarter, but rather has led to more returns of products, more pickups that would otherwise have been expected. Certainly, consumers remain under pressure and discretionary spending is limited, yet we continue to see good demand for our products on the front-end.

Of course, at the same time, we continue to make excellent strives in our expensive agents. Our gross profit margins have improved, be it in depreciation or our margins on sales products and our operating expenses have been reduced due to many of the controlled initiatives that have been implemented over the last year that we've spoken.

All of that gives us comfort in reaching the low end of our annual guidance, now at $2.65 and $2.80 per share, up from the $2.60 and $2.80. So all in all, a good operating quarter for us and again mention, Robert will provide a little bit more color on that in a moment.

Now let me talk for a moment about our efforts to increase shareholder value. As always our first objective is to invest in the business for the future. In that vain you have heard us speak of a couple of initiatives that we are working on. One called ramp acceptance, which is our new model of a kiosk inside refill furniture stores, whereby the prospected customers denied credit financing from that retailer or the provider, we ramp acceptance, acquired products from the retailer and offer to the consumer under a rental purchase transaction. We now have over 100 of these kiosks inside various retailers, with dozens more in the works.

Of course, the other big initiative we have spoken about is our entry into Mexico. We continue to aggressively prepare for an entry, expecting our first-handful of scores to be opened during the fourth quarter of this year. That said, and knowing that our third quarter earnings update which we'll provide in late October will also include the first outlook for 2011, we will, at that time, be providing a detailed overview of these and other business initiatives, including our strategic rationale, our expectations, the timing and the impact. We are very excited about these, and look forward to discussing them in detail with you at that time.

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