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Rent-A-Center's Acceptance Now, Core U.S. Units Gain Traction

Zacks Equity Research

Rent-A-Center, Inc. RCII is progressing well with its Acceptance Now and Core U.S. segments. The company’s Acceptance Now business model is gaining traction as it enhances consumers’ shopping experience. Notably, same-store sales at the Acceptance Now segment improved 6% during the second quarter of 2019. With the buyout of Merchants Preferred, a nationwide provider of virtual rent-to-own services, Rent-A-Center now expects Acceptance NOW revenues to be $725-$745 million, up from $700-$715 million projected earlier.

Also, management has undertaken initiatives to strengthen the performance of its Core U.S. segment. In an attempt to augment cash flow generation from Core U.S. business, the company is focusing on rates, terms and purchase options that are much more aligned with the customers’ needs. It is also optimizing product mix, increasing the average ticket price, upgrading workforce, concentrating on lowering delinquency rates and rationalizing existing stores as well as contemplating on new ones. We note that comparable-store sale at the Core U.S. segment rose 5.6% during the second quarter. The company now expects Core U.S. revenues of $1.800-$1.825 billion compared with the prior view of $1.790-$1.815 billion.

Further, the company anticipates consolidated revenues between $2.620 billion and $2.670 billion for 2019 compared with $2.585-$2.630 billion projected earlier. Management envisions consolidated same-store sales growth in the mid-single digits.

Apart from robust segments, the company is gaining from initiatives such as cost containment, improving traffic trends, targeted value proposition, refranchising program and enhancing cash flow. Further, it is rationalizing store base and lowering debt load.

Additionally, Rent-A-Center, which shares space with McGrath Rentcorp MGRC, AeroCentury Corp. ACY and Aaron's, Inc. AAN, focuses on enhancing omni-channel platform so that customers can experience a seamless approach across channels, markets, retailers, products and brands. In sync with this, it is increasing e-commerce offerings and mobile applications, and leveraging the cloud-based point-of-sale platform to manage orders more efficiently, lower losses and cut operating costs.

Speaking of cost savings, the company reduced costs by $70 million in 2018. For 2019, it expects cost saving of approximately $160 million on account of anticipated interest expense savings of $15 million to $20 million annually.

We expect solid yields from Acceptance Now and Core U.S. segments along with other efforts to drive growth.

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