Rent-A-Center (RCII) Incurs Q1 Loss, Banks on Strategic Plan

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Rent-A-Center, Inc. RCII continued with its dismal performance in 2018 as well. Both the top and bottom lines fell short of analysts' expectations during the first quarter. This rent-to-own company reported loss per share for the fourth straight quarter. Certainly, the company is going through a rough phase and has announced strategic measures to bring itself back on growth trajectory.

Let's Delve Deeper

The company reported adjusted loss of 8 cents a share that fared unfavorably with the Zacks Consensus Estimate of earnings of 8 cents. The company had also delivered earnings of 4 cents a share in the year-ago period. Total revenue of $698 million also fell short of the consensus mark of $701 million, consequently marking the third consecutive quarter of revenue miss.

Total revenue tumbled 5.9% on account of closures of certain Core U.S. and Acceptance NOW locations. This was partially offset by comparable-store sales (comps) growth of 0.8%. Meanwhile, adjusted EBITDA plummeted 24.8% to $25.1 million, and EBITDA margin contracted 90 basis points.

We note that investors remain concerned about the company's waning top and bottom-line. The reflection of the same is visible from the stock's dismal run in the bourses. In a year, shares of this Plano, TX-based company have declined 14.7%, underperforming the industry 's advance of 31.7%.

Nevertheless, management now intends to focus more on cost containment endeavors, improving traffic trends, targeted value proposition, refranchising program and augmenting cash flow. Further, the company is rationalizing store base and lowering debt load.

The company has located annualized cost savings opportunities of $75-$95 million - up from $65-$85 million guided earlier - of which roughly two-third is anticipated to be realized this year. It also identified working capital benefits of $40-$45 million - up from $20-$25 million projected earlier - which is expected to be realized fully this year.

The company's cost savings efforts, working capital initiatives and improving portfolio performance prompted management to raise full year free cash flow guidance to at least $170 million from the previous guidance of at least $130 million.

Meanwhile, the company received bids from different parties for a possible sale. We expect Rent-A-Center to come out with a decision in the second quarter of 2018.

Rent-A-Center, Inc. Price, Consensus and EPS Surprise

Rent-A-Center, Inc. Price, Consensus and EPS Surprise | Rent-A-Center, Inc. Quote

Comparable-Store Sales Performance

Comps for the quarter inched up 0.8%, reflecting growth of 0.3%, 3.3% and 0.7% across the Core U.S., Acceptance Now and Mexico segments, respectively.

However, it is to be noted that comps for the Core U.S. and Mexico segments have improved 390 and 300 basis points, respectively, while for the Acceptance Now the same has decreased 340 basis points on a sequential basis. Consolidated comps for this Zacks Rank #3 (Hold) company also portray a sequential improvement of 280 basis points. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Segment Performance

Revenues from the Core U.S. segment fell 1.8% to $482 million due to continued store base rationalization, offset by improved comps performance.

Revenues from the Acceptance Now segment slumped 16% from the prior-year quarter to $197 million on account of closures of Conn's and HHGregg locations. These were partly mitigated by healthy comps performance.

Mexico segment's revenues came in at $12 million, up 8.4% but flat on a constant currency basis. Finally, total Franchising revenues surged 28.4% to $7 million during the quarter.

Store Update

At the end of the quarter, there were 2,287 Core U.S. locations, 1,114 Acceptance Now Staffed stores, 129 Acceptance Now Direct stores, 123 stores in Mexico and 252 Franchise stores.

Other Financial Aspects

Rent-A-Center, which shares space with McGrath Rentcorp MGRC , AeroCentury Corp. ACY and Aaron's, Inc. AAN , ended the quarter with cash and cash equivalents of $81.4 million, net Senior debt of $57.4 million, net Senior notes of $539.1 million and stockholders' equity of $255 million.

The company incurred capital expenditures of $8.6 million and generated free cash flow of $84.9 million during the quarter.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Symbols: RCII , AAN , ACY , MGRC

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