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Rent-A-Center Adds 3 More Stores

Zacks Equity Research

Rent-A-Center Inc. (NasdaqGS:RCII - News), the largest rent-to-own operator in the U.S, has an extensive network of more than 3,000 stores, facilitating the company to effectively penetrate into its target markets and gain a competitive advantage over its competitors.

Following its rationale, Rent-A-Center, which competes with Aaron’s Inc. (NYSE:AAN - News) and Advance America, recently announced the opening of three new stores, one each in the state of Texas, North Dakota and Florida. The company through its latest stores expects to offer luxury furnishings, electrical devices, electronics and computers to the residents of this region.

The new showrooms will offer brands like HP, Ashley, Sony, Serta and Whirlpool.

The residents of the above mentioned places will have the benefit of purchasing goods with flexible payment options, facilitating them to pay weekly, biweekly or monthly. Moreover, the company offers a lifetime recall service, which facilitates its customers to re-rent the same or a comparable item and get payments.

Rent-A-Center’s new business model called RAC Acceptance is gaining traction as it enhances consumers shopping experience. When the retailer denies the customer credit financing for a particular product, Rent-A-Center under its RAC Acceptance program acquires that product from the retailer and offers it to the consumer under a rental-purchase transaction.

However, the company’s business is seasonal in nature and typically generates stronger sales during the first quarter. The business is characterized by federal income tax refunds, which are used by the company’s customers to exercise early purchase option on the existing rental agreements. As a result, the company is exposed to significant risks if the quarter fails to deliver the expected operating performance.

Further, the company’s customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels, and high household debt levels, which may negatively impact their discretionary spending, and in turn, the company’s growth and profitability.

Currently, we have a long-term Neutral recommendation on the stock. The company also has a Zacks #3 Rank, which translates into a short-term Hold recommendation.

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