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Analyst Blog

Rent-A-Center Inc. (RCII - Analyst Report) in its effort to expand operational roots, is all set to serve the residents of Vacaville, California by opening new store and providing them additional avenue to own luxury furnishings, electrical devices, electronics and computers.

The new 5,100-square-foot showroom in Vacaville will offer brands like HP, Ashley, Sony, Serta and Whirlpool. Rent-A-Center operates through 143 locations in California.

The residents of these places will get the benefit of acquiring goods with flexible payment options allowing them to pay weekly, biweekly or monthly. Further, the company provides a lifetime recall service while facilitating its customers to re-rent the same or a comparable item and get payments.

Rent-A-Center is one of the largest rent-to-own operators in the U.S. and leverages an extensive network of more than 3,000 stores to effectively penetrate into its target markets, and gain a competitive advantage over its competitors Aaron’s Inc. (AAN - Snapshot Report) and Advance America.

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

Further, due to the continued tightening of the credit market, customers witness rent-to-own as a more flexible and viable option compared to credit.

However, Rent-A-Center’s business is seasonal in nature and typically generates stronger sales during the first quarter characterized by federal income tax refunds, used by the company’s customers to exercise early purchase option on the existing rental agreements. As a result, the company is exposed to significant risks if the quarter fail to deliver expected operating performance.

Moreover, the company’s customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels, and high household debt levels, which may negatively impact their discretionary spending, and in turn, the company’s growth and profitability.

Currently, we have a long-term Neutral rating on the stock. However, Rent-A-Center’s shares maintain a Zacks #3 Rank, which translates into a short-term Hold recommendation.