Shares of Rent-A-Center Inc. (RCII - Analyst Report) hit a new 52-week high of $38.50 on Tuesday, Jun 11, driven by the company’s recent announcements of debt issuance and enhanced share repurchase authorization. The stock eventually closed at $38.33, representing a year-to-date return of approximately 9.2%. Average volume of shares traded over the last 3 months stands at approximately 561K.
A consistent track record of returning cash to its shareholders in the form of share repurchase and dividend payment as well as a healthy balance sheet have enabled the shares of Rent-A-Center to touch the new high.
Following the disappointing first-quarter results in April, the company made the right move to win investor confidence by expanding its current share repurchases authorization to $1.25 billion from $1 billion. Since the inception of the share buyback program, the company has repurchased 31,585,314 shares for approximately $794.8 million. Moreover, it bought back 465,035 shares for approximately $17.4 million during the last reported quarter.
In another move, in May, the company priced a new $250 million senior unsecured notes offering, with an interest rate of 4.75% per annum and maturity due in 2021. The company expects to use a portion of the funds from the offering to repay its loans under its revolving credit facility worth $46 million. The remainder of the proceeds will be directed toward enhancing shareholder value by buying back shares and for general development of its business.
Apart from the above mentioned activities, the company regularly indulges in rewarding shareholders with quarterly dividend payments. Since the inception of its dividend program, the company has raised its dividend rate from the initial 6 cents per share to the current 21 cents per share, the last upside being announced in Dec 2012. This brings the company’s annual dividend rate to 84 cents per share, with the payout ratio currently standing at 23.0%.
Alongside its well recognized shareholder-friendly moves, we favor the company’s extensive network of more than 4,000 stores, which makes it the largest rent-to-own operator in the U.S. The sheer geographic reach enables the company to effectively penetrate its target markets and gain a competitive advantage over its competitors, such as Aaron's Inc. (AAN - Snapshot Report), and Advance America.
Moreover, we believe that the company is gaining traction with its new business model called RAC Acceptance as it enhances consumers’ shopping experience. Revenue from the RAC Acceptance business surged 45% during the first quarter of 2013. We also appreciate the company’s efforts to optimize rental merchandise levels in accordance with sales trends, through the implementation of a centralized inventory management system including automated merchandise replenishment.
Simultaneously, companies such as Staples Inc. (SPLS - Analyst Report) and V.F. Corporation (VFC - Analyst Report) achieved new 52-week highs of $15.79 and $189.64, respectively, on Tuesday, Jun 11.