Rent-A-Center Inc. (RCII)

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Rent-A-Center (RCII)

Q4 2007 Earnings Call

February 5, 2008 10:45 am ET


David E. Carpenter - Vice President of Investor Relations

Mitchell E. Fadel - President and Chief Operating Officer

Robert D. Davis - Senior Vice President of Finance, Chief Financial Officer and Treasurer

Mark E. Speese - Chief Executive Officer and Chairman


Arvind Bhatia - Sterne, Agee & Leach

Dennis Telzrow - Stephens, Inc

Carla Casella – JP Morgan

John Baugh - Stifel Nicolaus

Emily Chang - Lehman Brothers

Joel Havard - Hilliard Lyons

Henry Coffey - Ferris, Baker Watts

Jordan Hymowitz - Philadelphia Financial

Andrew Berg - Post Advisory Group

Bill Baldwin - Baldwin Anthony Securities

Kevin Wenck - Polynous Capital Management



Welcome to the Rent-A-Center fourth quarter year end 2007 earnings release conference call. (Operator Instructions) Your speakers for 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.

David E. Carpenter

Thank you, Tanisha. 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 fourth quarter, as well as for the full year for ‘07. 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. 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, 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, 2006 and quarterly reports on Form 10-Q for the quarters ended March 31, 2007, June 30, 2007 and September 30, 2007 as filed with the SEC. 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.

Mitchell E. Fadel

Thanks Dave. Good morning, everyone and thanks for joining us on our fourth quarter earnings call. As you can see in the press release, total revenue and adjusted diluted earnings per share for the quarter were both within our guidance. Our same-store sales were 1% for the quarter and we ended the year with a positive 2.1% comp.

Overall the fourth quarter was good for us in a time where many retailers were struggling. Traffic was about what we expected and in January, although not great traffic again, was about what we expected as we continue with our Worry-Free Guarantee advertising campaign.

Collections continue to improve, in fact, we ran 0.5% better than last fall. Our skips and stolens came down 40 basis points from the summer as a result of getting that delinquency down. Our inventory held for rent metric came down almost 3% from last quarter and was 110 basis points lower on a year-over-year basis, another operating metric that’s getting back where we want it.

The store consolidation plan that we announced in early December is going well and should be substantially completed by the end of the first quarter. We are on track for the additional $2 to $2.5 million of monthly operating profit beginning in the second quarter; the net benefit is now in our annual guidance as given in our press release.

So, in summary the quarter ended up a good one and although the macroeconomic environment is still challenging, and somewhat uncertain we are focused on things we can control.

Mainly I am talking about execution: execution of our consolidation plan; controlling our delinquencies which are now back where they need to be; controlling of our inventory levels which is clearly in the right direction, etcetera. And for that I’d like to thank our 20,000 co-workers for their execution of our plan and their continued commitment to Rent-A-Center’s success.

And with that I’ll turn it over to our CFO, Robert Davis.

Robert D. Davis

Thank you, Mitch. I am just going to spend a few moments here updating you on a few of our financial highlights during the quarter and for the year, and then I’ll turn the call over to Mark.

I would like to mention that much of the information I provide whether it is historical results or forecasted results will be presented on a recurring and comparable basis. As outlined in the press release, total revenues increased during the fourth quarter by 9.3%, supported by the same-store sale comp of 1% that Mitch mentioned.

Net earnings and diluted earnings per share were $28.1 million and $0.42 respectively, and fell within our guidance range for the quarter of $0.38 to $0.44. As reflected in the press release, our reported GAAP earnings were impacted by the previously announced restructuring plan, as well as the Shafer/Johnson settlement.

Once the restructuring is fully implemented, we expect to realize an additional $2 to $2.5 million in incremental operating income on a monthly basis. And as Mitch mentioned, the benefit is now reflected in our annual 2008 guidance.

For the full year of 2007, our revenues increased 19.4% to just over $2.9 billion, with same-store sales of 2.1%, while diluted earnings per share equated to $2.01 on a pro forma basis.

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