Rent-A-Center (RCII) Up 3.7% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Rent-A-Center (RCII). Shares have added about 3.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Rent-A-Center due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Rent-A-Center's Q1 Earnings Beat, 2021 View Raised

Rent-A-Center posted sturdy first-quarter 2021 results wherein the top and the bottom line surpassed the Zacks Consensus Estimate and improved on a year-over-year basis. As a result, management raised guidance for 2021.

Management is quite impressed with the quarterly performance, with higher same store sales and invoice volume as well as solid lease performance across the company’s Acima and Rent-A-Center segments. Notably, the Acima virtual LTO business registered a 17.5% adjusted EBITDA margin in the first quarter. Meanwhile, the company has also been making digital investments and is confident of its omni-channel strategy. Apparently, e-commerce revenues increased above 50% from the year-ago quarter.

Q1 in Detail

Rent-A-Center posted adjusted earnings of $1.32 a share that beat the Zacks Consensus Estimate of $1.11. Also, the bottom line rose almost 97% from 67 cents earned in the year-ago quarter.

Consolidated total revenues of $1,036.8 million surpassed the Zacks Consensus Estimate of $961 million and grew 47.7% year over year. Growth was mainly driven by same-store sales growth in the Rent-A-Center Business segment and gains from the buyout of Acima Holdings.

Meanwhile, adjusted EBITDA came in at $134.6 million, up 105.5% from the year-ago period. We note that adjusted EBITDA margin expanded 370 basis points to 13%.

Segment Performance

Revenues at the Rent-A-Center Business segment rose 15.4% to $524.9 million owing to same-store sales revenue growth of 23.4% stemming from more than a 50% increase in e-commerce sales and escalated early payout activity. We note that the company had refranchised nearly 100 stores in California in the preceding quarter. However, this is not reflected in the segment’s revenues. As of Mar 31, 2020, the segment had 1,844 company-operated locations.

Revenues at Acima segment (formerly known as Preferred Lease segment) surged 111.7% from the prior-year quarter to $457.4 million, mainly buoyed by the Acima Transaction. Further, Acima invoice volumes grew nearly 140% on new virtual retail partner additions as well as organic growth across virtual and staffed locations. On a pro forma basis, first-quarter revenues grew 30.2% while invoice volume soared 28% year over year.

Mexico segment’s revenues totaled $14.5 million, up 10.1% on a constant-currency basis. Also, the segment’s same-store sales rose 9.6%. As of Mar 31, the unit had 121 company-operated locations.

Finally, Franchising revenues jumped 131% to $40 million. This can primarily be attributed to increased store count from refranchising of about 100 the California stores in 2020 and rise in inventory purchases by franchisees. As of Mar 31, the company had 461 franchise-operated locations.

Other Financial Aspects

Rent-A-Center ended the reported quarter with cash and cash equivalents of $123 million, net senior debt of $897.9 million and stockholders' equity of about $742.2 million. Further, it had outstanding indebtedness of $1.38 billion at quarter-end. The company ended the quarter with $528 million of liquidity, including $405 million available on its previous revolving credit facility.

Capital expenditures totaled $11.4 million in the first three months of 2021. The company generated cash of roughly $135.8 million from operations and negative free cash flow, including acquisitions and divestitures of $1,143.5 million during the aforementioned period.

Furthermore, the company’s board announced a cash dividend of 31 cents per share for the second quarter of 2021, paid on Apr 22, 2021, to stockholders of record as on Apr 6. This dividend represents a 6.9% hike from the prior year.

2021 Outlook

Consolidated revenues are now projected in the bracket of $4.450-$4.600 billion for 2021 versus $4.305-$4.455 billion predicted earlier. Rent-A-Center delivered $2.814 billion revenues in 2020. Further, adjusted EBITDA is now forecast between $600 million and $650 million compared with the previous projection of $570-$620 million. Meanwhile, adjusted earnings per share are now envisioned in the band of $5.30 to $5.85, up from $5.00-$5.55 expected earlier. The guidance suggests year-over-year growth of 41-66% from $3.53 earned last year. For 2021, free cash flow is predicted in the band of $250-$300 million versus $145-$195 million estimated previously. For the Rent-A-Center Business segment, management anticipates revenues of $1.940 to $1.990 billion compared with the earlier anticipation of $1.830-$1.880 billion. For the Acima segment, revenues are likely to fall in the band of $2.320 to $2.420 billion versus $2.290-$2.390 billion guided earlier.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 11.22% due to these changes.

VGM Scores

Currently, Rent-A-Center has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Rent-A-Center has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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