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Rent-A-Centre Expands in Missouri

Zacks Equity Research

Rent-A-Center Inc. (NasdaqGS:RCII - News), in an attempt to expand its operational roots in Missouri, opened an additional store in Warrenton. The new store will provide the residents of Warrenton an additional avenue to own luxury furnishings, electrical devices, electronics and computers.

The new 3,100-square-foot showroom will offer brands like HP, Ashley, Sony, Serta and Whirlpool. Rent-A-Center operates through 67 locations in the state of Missouri.

Rent-A-Center is one of the largest rent-to-own operators in the U.S. and leverages an extensive network of about 3,000 stores to effectively penetrate into its target markets, and gain a competitive advantage over its competitors Aaron’s Inc. (NYSE:AAN - News) and Advance America.

Last week, the company delivered lower-than-expected second-quarter 2011 results. The quarterly earnings of 68 cents a share missed the Zacks Consensus Estimate of 72 cents, and fell 5.6% from the prior-year quarter.

On a reported basis, including one-time items, earnings came in at 63 cents a share, down 12.5% from 72 cents earned in the year-ago quarter.

Rent-A-Center’s total revenue, which comprises store and franchise revenues, grew 4% to $698.3 million from the year-ago quarter attributable to higher revenue from the RAC Acceptance business, partially offset by the discontinued financial services business. However, total revenue fell short of the Zacks Consensus Estimate of $702 million. Comparable-store sales for the quarter inched down 0.3%.

Rent-A-Center offers consumer electronics, appliances and furniture products under rental-purchase schemes that allow the customers to own the merchandise on the completion of the rental period. Due to the continued tightening of the credit market, customers witness rent-to-own as a more flexible and viable option compared to credit.

Moreover, the company’s new business model named RAC Acceptance is gradually gaining traction. When a retailer denies a consumer 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, a sluggish recovery and a fragile job market may make customers reluctant to enter into the new rental purchase deals.

Currently, we have a Neutral rating on the stock. However, Rent-A-Center’s shares maintain a Zacks #4 Rank, which translates into a short-term Sell recommendation

RENT A CENTER INC (RCII): Read the Full Research Report

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