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Rent-A-Center Expands in Texas

RCII AAN

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Rent-A-Center Inc. (RCII - Analyst Report) is all set to serve the residents of Bastrop, Texas by opening new stores and providing them additional avenue to own luxury furnishings, electrical devices, electronics and computers.

The new 6,000-square-foot showroom in Bastrop will offer brands like HP, Ashley, Sony, Serta and Whirlpool. Rent-A-Center operates through 281 locations in Texas.

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

With an extensive network of more than 3,000 stores, Rent-A-Center is the largest rent-to-own operator in the U.S. The company’s sheer geographic reach enables the company to effectively penetrate into its target markets and gain a competitive advantage over its competitors.

The company’s new business model called RAC Acceptance is gaining traction as it enhances consumers shopping experience. When the consumer is denied credit financing for a particular product from the retailer, Rent-A-Center under its RAC Acceptance program acquires that product from the retailer and offers it to the consumer under a rental-purchase transaction.

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, which are 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 fails 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. Moreover, Rent-A-Center, which competes with Aaron’s Inc. (AAN - Snapshot Report) and Advance America, holds a Zacks #3 Rank, which translates into a short-term Hold recommendation.

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