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Rent-A-Center (RCII) Q4 Earnings Top Estimates, Sales Decline

Rent-A-Center, Inc. RCII posted results for its fourth-quarter 2022, wherein the top line missed the Zacks Consensus Estimate, but the bottom line surpassed the same. The company’s revenues and earnings declined year over year.

The company also announced fiscal 2023 guidance, which was lower than analysts’ expectations.

Rent-A-Center also announced that it will be changing its corporate name to Upbound Group, Inc. The company will trade under the symbol UPBD. This name change will be incorporated on Feb 27.

Q4 in Detail

Rent-A-Center posted adjusted earnings of 86 cents a share, surpassing the Zacks Consensus Estimate of 75 cents. However, the bottom line decreased significantly from $1.08 earned in the year-ago quarter.

Total revenues of $990 million came below the Zacks Consensus Estimate of $996.8 million. The metric fell 15.4% year over year, mainly due to lower rental revenues in both the Acima and Rent-A-Center Business segments from lower lease portfolio values from the prior year period.

Adjusted EBITDA came in at $110.1 million, down 15.2% from the year-ago period’s level, mainly due to lower revenues and increased loss rates from the respective prior-year readings.

Adjusted EBITDA margin of 11.1% remained unchanged from the year-ago period. The company’s operating profit margin decreased to 3.1% from 4.3% year over year.

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

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

Rent-A-Center, Inc. price-consensus-eps-surprise-chart | Rent-A-Center, Inc. Quote

Segmental Performance

Revenues at the Rent-A-Center Business Segment dipped 7.7% to $467.4 million due to the lower lease portfolio value yielding less rental and fee revenues. Same-store sales declined 8.1%. On a two-year stacked basis, same-store sales increased 2.3%. E-commerce accounted for 25% of the quarterly revenues compared with 24% in the prior-year period. At the end of the reported quarter, the segment’s lease portfolio value slipped 4.7% year over year. Segments adjusted EBITDA margin came in at 14.6% decreasing 470 basis points from prior year. The operating profit margin also decreased to 13.5% from 18.2% on a year-over-year basis. As of Dec 31, 2022, the Rent-A-Center Business segment had 1,851 company-operated locations.

Revenues at the Acima segment (formerly known as the Preferred Lease segment) declined 22.2% from the prior-year quarter’s level to $476.3 million, mainly due to a lower portfolio value yielding less rental and fees revenues. Also, gross merchandise volume declined 23.4% due to lower customer traffic at merchant partners generating fewer lease applications per store from the year-ago period’s level. Segments adjusted EBITDA margin increased to 15% from 9.6% in the year-ago period. Operating profit margin increased to 12% from 5.2% in the year-ago period.

Franchising revenues tumbled 19.5% to $30.3 million primarily due to lower inventory purchases per store. As of Dec 31, Rent-A-Center had 447 franchise-operated locations.

Mexico segment’s revenues totalled $16.4 million, up 0.2% on a constant-currency basis. As of Dec 31, the unit had 126 company-operated locations.

Other Financial Aspects

Rent-A-Center ended the reported quarter with cash and cash equivalents of $144.1 million, net senior debt of $930.9 million and a stockholders' equity of $525.1 million. RCII had an outstanding debt of $1.4 billion at the quarter end. RCII ended the quarter with $540 million of liquidity, including $396 million of undrawn revolving credit availability. The company had a cash flow from operation of $468 million and free cash flow totalled to $407 million.

In 2022, management returned $154.2 million of cash to its shareholders via dividends and share repurchases.

Outlook

Management issued guidance for 2023. For the year, management anticipates consolidated revenues of $3.8-$4 billion compared with $4.2 billion reported in 2022. Adjusted EBITDA is projected between $380 million and $415 million, down from $453.5 million reported last year.

Rent-A-Center envisions adjusted earnings in the range of $2.50 to $3.00 per share, sharply down from $3.70 reported in 2022. The company expects free cash flow in the band of $180 million to $215 million for 2023.

Shares of this Zacks Rank #4 (Sell) company have decreased 6.9% in the past six months compared with the industry’s fall of 10%.

Stocks to Consider

Here we highlighted three better-ranked stocks, namely Costco COST Deckers DECK and Kroger KR.

Costco sells high volumes of foods and general merchandise. The stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

The Zacks Consensus Estimate for Costco’s current financial-year revenues and earnings per share (EPS) suggests growth of 7.3% and 8.6%, respectively, from the corresponding year-ago reported figures. COST has a trailing four-quarter earnings surprise of 3.7%, on average.

Deckers is a leading designer, producer and brand manager of innovative, niche footwear and accessories developed for outdoor sports and other lifestyle-related activities. DECK has a Zacks Rank #2 at present.

The Zacks Consensus Estimate for Deckers’ current financial-year sales and EPS suggests growth of 12% and 13.5%, respectively, from the year-ago corresponding figures. DECK has a trailing four-quarter earnings surprise of 31%, on average.

Kroger, which operates in the thin-margin grocery industry, carries a Zacks Rank of #2 at present. KR’s current financial-year revenues and EPS suggests growth of 7.5% and 12.2%, respectively.

The Zacks Consensus Estimate for Kroger’s current financial-year sales and EPS suggests growth of 7.5% and 12.2%, respectively, from the year-ago corresponding figures. KR gave an earnings surprise of 7.3% in the last reported quarter. KR has a trailing four-quarter earnings surprise of 13.4%, on average.

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Rent-A-Center, Inc. (RCII) : Free Stock Analysis Report

Deckers Outdoor Corporation (DECK) : Free Stock Analysis Report

The Kroger Co. (KR) : Free Stock Analysis Report

Costco Wholesale Corporation (COST) : Free Stock Analysis Report

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