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Rent-A-Center's Expansion Strategy

Zacks Equity Research

To further strengthen its foothold in Canada, Rent-A-Center Inc. (RCII) announced its plans to franchise Canadian Stores through ColorTyme, a wholly owned subsidiary of Rent-A-Center.

The company stated that initially it will be franchising 18 Rent-A-Centre stores in Canada. The locations include Manitoba, Alberta, Ontario and Toronto metropolitan area.

The move is in line with the company’s strategic approach of leveraging an extensive network of stores to effectively penetrate into its target markets, which in turn facilitates it to generate healthy sales and gain competitive advantage over its rivals, Aaron’s Inc. (AAN) and Advance America.

During the recently concluded quarter, the largest rent-to-own operator in the U.S, opened 12 new Core U.S. locations and consolidated 9 stores with existing locations bringing the total store count to 2,986. The company also opened 103 RAC Acceptance stores and consolidated 19 stores with existing locations, resulting in 966 stores.

Nine international locations were opened and 15 stores were shuttered during the quarter, bringing the count to 108 stores. ColorTyme added 7 new locations and consolidated 3 stores with existing locations, taking the total store count to 225.

For 2013, management plans to open approximately 60 rent-to-own locations in Mexico. Furthermore, the company aims at about 425 domestic RAC Acceptance kiosk additions.

Apart from store expansions, the company is taking prudent steps to optimize rental merchandise levels in accordance with sales trends. Rent-A-Center implemented a centralized inventory management system, including automated merchandise replenishment. Moreover, a new centralized purchasing system allows better management of rental merchandise.

Despite these measures, currently, shares of Rent-A-Center hold a Zacks Rank #4 (Sell), following the company’s soft fourth-quarter 2012 earnings.

However, until any further upward revision in Rent-A-Center’s rating, other stocks in the finance-leasing universe worth considering are AeroCentury Corp. (ACY) and Electro Rent Corporation (ELRC), which hold a Zacks Rank #1 (Strong Buy) and a Zacks Rank #2 (Buy), respectively.

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