Rent-A-Center Opens in Watauga

Rent-A-Center Inc. (RCII - Analyst Report), the largest rent-to-own operator in the U.S, recently announced the opening of a new store in Watauga, Texas. The company through its latest store expects to offer luxury furnishings, electrical devices, electronics and computers to the residents of this region.

The new showroom in Watauga will offer brands like HP, Ashley, Sony, Serta and Whirlpool. Rent-A-Center now operates through 282 locations in Texas.

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

Rent-A-Center, which competes with Aaron’s Inc. (AAN) and Advance America, has an extensive network of more than 3,000 stores, facilitating the company to effectively penetrate into its target markets and gain a competitive advantage over its competitors.

Moreover, the company’s new business model called RAC Acceptance is gaining traction as it enhances consumers shopping experience. When the retailer denies the customer credit financing for a particular product, 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, the company’s business is seasonal in nature and typically generates stronger sales during the first quarter. The business is 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 the expected operating performance.

Further, 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 recommendation on the stock.   Besides, the company has a Zacks #3 Rank, which translates into a short-term Hold recommendation.

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