Rent-A-Center Misses on First Quarter Sales and Earnings, Lowers 2013 Guidance

Andrew Klips |

Shares of Rent-A-Center Inc. (RCII) are looking to open lower on Tuesday after a downbeat first-quarter earnings report late Monday that showed declining revenues at the rent-to-own appliance and furniture retailer and a miss on earnings expectations. Further, the Plano, Texas-based company slashed its guidance for the full year 2013, sending shares sliding about 7 percent in extended trading on Monday.

Rent-A-Center reported first-quarter revenue of $819.3 million, down $16.0 million from $835.3 million in the year prior quarter. Net earnings declined to $46.5 million, or 80 cents per share, from $51.9 million, or 87 cents per share in Q1 2012.

Wall Street was anticipating EPS of 87 cents on revenue of $844 million.

The company attributed the 1.9 percent drop in sales to mostly to 8 percent lower revenue from its core U.S. segment that was partially offset by a 45 percent increase in its RAC acceptance segment and growth in its international segment. The RAC acceptance segment allows customers to get merchandise from Rent-A-Center retail furniture partners without a credit check. Sales in this business arm grew to more than $127 million and now account for 20 percent of the company’s total operating profit. In 2013, Rent-A-Center, the largest rent-to-own operator in North America, said it plans to open about 425 RAC acceptance kiosks.



Outside of the U.S., the company has been pushing expansion. Sales from Mexico, where they added 20 locations in the first quarter, rose 150 percent. Total international revenue increased 60 percent in the first quarter to $12.34 million.

Same-store-sales, a key metric of future growth, declined by 4.3 percent, mostly because of the U.S. segment.

“Our Core U.S. business faced macro headwinds in the quarter. In addition to our portfolio of agreements in our Core U.S. business being down year-over-year going into the first quarter, we believe our Core U.S. business was negatively impacted by the delayed issuance of federal income tax refunds, rising fuel prices and higher payroll taxes,” said Mark Speese, chairman and chief executive at Rent-A-Center.

Speese added that although recent trends show an improvement in demand, the company is still cutting its outlook for the rest of the year.

For 2013, Rent-A-Center now sees earnings per share in the range of $2.95 to $3.10 and a 3.5 percent to 5.5 percent growth in revenue. This would equate to $3.20 billion to $3.26 billion in annual sales this year. In January, the company guided full-year EPS between $3.25 and $3.40 and revenue increases between 5 percent and 8 percent.

Rent-A-Center has benefited in recent years from banks tightening credit requirements, sending consumers to their doors. However, higher weekly tax withholdings as part of the fiscal cliff and a spike in gas prices during the first quarter have had an impact on middle and lower income families, their target demographic.

Shares of RCII were ahead about 5 percent so far in 2013 as of Monday’s close. However, in after-hours trading, shares ducked back to $33.55, taking the company slightly into negative territory for the year.

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Companies

Symbol Name Price Change % Volume
RCII Rent-A-Center Inc. 11.55 -0.28 -2.37 1,672,389 Trade
KEYW The KEYW Holding Corporation 5.55 0.28 5.31 371,558 Trade

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