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Rent-A-Center (RCII) Stock Up on Q4 Earnings & Revenue Beat

Zacks Equity Research
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Shares of Rent-A-Center, Inc. RCII rallied roughly 5% during after-market trading on Feb 25 following better-than-expected results for fourth-quarter 2018. Notably, the top and the bottom line improved year over year. Moreover, it marked the third straight quarter of positive sales and earnings surprise.

This rent-to-own operator delivered adjusted earnings of 35 cents a share that beat the Zacks Consensus Estimate of 19 cents and also compared favorably with a loss of 41 cents in the year-ago quarter. Total revenues of $661.8 million were ahead of the consensus mark of $654.5 million.

The top line grew 3.6% on account of solid comparable-store sales (comps) growth, partly offset by the closure of certain Core U.S. locations. Meanwhile, adjusted EBITDA during the quarter came in at $49 million, far better than a loss of $8.5 million a year ago.

Clearly, the company’s initiatives are well on track. Management intends to focus on cost containment endeavors, improving traffic trends, targeted value proposition, refranchising program and augmenting cash flow. Further, the company is rationalizing store base and lowering debt load. The company informed that its cost-saving initiatives are likely to help lower costs by approximately $50 million in 2019.

Comparable-Store Sales Performance

Comps during the quarter grew 9.1%, reflecting an increase of 8.8%, 9.6% and 13.8% across the Core U.S., Acceptance Now and Mexico segments, respectively. This was the eighth straight quarter of comps improvement.

Notably, comps for the Core U.S., Mexico and Acceptance Now segments have improved 360, 100 and 290 basis points (bps), respectively, on a sequential basis.

Consolidated comps for this Zacks Rank #3 (Hold) company portray a sequential improvement of 340 bps. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Segment Performance

Revenues at the Core U.S. segment rose 4.9% to $466.6 million on improved comps, partly offset by continued store base rationalization.

Revenues at Acceptance Now fell 1.5% from the prior-year quarter to $173.1 million on account of closure of company’s locations in 2017. This was partly mitigated by healthy comps.

Mexico segment’s revenues came in at $12.5 million, up 7.2% from the year-ago period. On a constant currency basis, the metric improved 12.1%.

Finally, total Franchising revenues surged 41% to $9.5 million during the reported quarter. This can be attributed to change in the accounting standard for franchise advertising fees and higher merchandise sales due to increased store count.
 
Store Update

At the end of the quarter under review, there were 2,158 Core U.S. locations, 1,106 Acceptance Now Staffed stores, 96 Acceptance Now Direct stores, 122 stores in Mexico and 281 Franchise stores.

Other Financial Aspects

Rent-A-Center, which shares space with McGrath Rentcorp MGRC, AeroCentury Corp. ACY and Aaron's, Inc. AAN, ended the reported quarter with cash and cash equivalents of $155.4 million, net Senior notes of $540 million and stockholders' equity of $286.5 million. The company incurred capital expenditures of $5.5 million during the reported quarter.

During 2018, the company lowered its net debt by more than $220 million. Management anticipates net debt of $270-$235 million for 2019 with a leverage ratio of 1.25x to 0.90x. The company expects to generate free cash flow of $115-$145 million during 2019.

Outlook

Rent-A-Center now projects consolidated revenues between $2.585 billion and $2.630 billion for 2019 with expected Core U.S. revenues of $1.765-$1.790 billion and Acceptance NOW revenues of $725-$740 million. Management envisions consolidated comps growth in the low to mid-single digits.

The company foresees adjusted EBITDA in the band of $220-$250 million and adjusted earnings per share in the range of $1.75-$2.15 for 2019. The current Zacks Consensus Estimate earnings currently stands at $1.77.

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Aaron's, Inc. (AAN) : Free Stock Analysis Report
 
Rent-A-Center, Inc. (RCII) : Free Stock Analysis Report
 
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McGrath RentCorp (MGRC) : Free Stock Analysis Report
 
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