Rent-A-Center Inc. (RCII)

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Rent-A-Center, Inc. (RCII)

F2Q08 Earnings Call

July 29, 2008 10:45 am ET


Mark E. Speese - Chairman of the Board & Chief Executive Officer

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

Robert D. Davis - Chief Financial Officer, Executive Vice President, Finance & Treasurer

David E. Carpenter – Vice President, Investor Relations


Dennis Telzrow - Stephens, Inc.

Arvind Bhatia - Sterne, Agee & Leach Group, Inc.

John Baugh - Stifel Nicolaus & Company, Inc.

Carla Casella – JP Morgan

Joel Havard – Hilliard Lyons

Laura Champine – Morgan Keegan

Emily Shanks – Lehman Brothers

Andrew Berg – Post Advisory Group

[John Curtee – Principal Global Investors]



Good morning and thank you for holding. Welcome to Rent-A-Center’s second quarter 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) As a reminder this conference is being recorded, Tuesday, July 29th, 2008.

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.

David E. Carpenter

Good morning everyone and thank you for joining us. You should have received a copy of the earnings release distributed after the market close yesterday. It 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 www.Investors.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 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 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 out 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 year ended March 31st, 2008. Rent-A-Center undertakes no obligation to publicly update or revise any forward-looking statements.

I would now like to turn the conference call over to Mitch.

Mitchell E. Fadel

Good morning everyone and thanks for joining us on our second quarter earnings call. It was a very good quarter for us despite the difficult economic environment. We were within our guidance on store rental and fee revenue and our earnings per share and we exceeded our guidance on same store sales. We also exceeded our guidance on total revenue primarily due to the revenue generated from our DPI business unit that we acquired as part of the RentWay acquisition in late 2006 and Robert will discuss this portion of our business further in his comments.

From an operations standpoint as I said the .9% same store sales number was above our guidance as we benefited from a slight up tick in merchandise sales from the tax stimulus checks. As you will recall that we talked about a few times we had a well thought out marketing plan around those tax checks. In terms of converting those we used the money to pay out an agreement as well as to get new or inactive customers into our stores. We believe that did help the quarter and while the mail out of those checks is substantially over traffic is still holding up pretty well as we move through July.

Going forward we believe we have the right advertising and marketing plans in place to drive the business this summer and on into the fall as we continue to look at new approaches to drive more of our core business and also to get more of that consumer who is being caught up in the credit crunch. Now that we’ve managed through the majority of our excess inventory from the RentWay acquisition and our store closing plan we believe these traffic driving programs can also be somewhat less promotional than they were over the last year which will drive our margins up as we move through the rest of 08 and into 09.

On the collections side we continue to perform pretty well as our quarterly weekly past due average was about 6.3% 60 basis points lower than last year and our best second quarter average in six years. We’re seeing the benefits of that in our skips and stolen losses as a percent of revenue as we ran 2.3% in the quarter down from 2.6% in the first quarter and down from 2.7% in the same quarter last year. Our inventory held for rent was within our normal range coming in at 23.2% similar to where we were last year at the end of the second quarter.

I’ll remind you our goal here is to be in the 20% to 24% range and that number is somewhat seasonal and it is also highly affected by the timing of our bulk inventory purchases. In other words if a large amount of inventory shows up at the end of a quarter for an upcoming promotion that can drive this number up as well but again this number at the end of the second quarter at 23.2% is right about where we would expect it for this time of year. As far as the store consolidation plan we announced at the end of last year that has been substantially completed and we have reached our goal of $2 million to $2.5 million per month of pre-tax operating income starting with this past quarter.

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