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Analyst Blog

Rent-A-Center Inc. (RCII - Analyst Report), the largest rent-to-own operator in the U.S, leverages an extensive network of stores to effectively penetrate into its target markets, which in turn, facilitates the company to genetare healthy sales and gain a competitive advantage over its competitors.

Following its rationale, Rent-A-Center, which competes with Aaron’s Inc. (AAN - Snapshot Report) and Advance America, recently announced the opening of its new store in Rocky Mount, Virginia. The company through its latest stores expects to offer luxury furnishings, electrical devices, electronics and computers to the residents of this region.

The new showrooms will offer brands like HP, Ashley, Sony, Serta and Whirlpool. With this new store, Rent-A-Center now operates through 67 locations in Virginia.

The residents of the region will have the benefit of purchasing goods with flexible payment options, facilitating them to pay weekly, biweekly or monthly. Moreover, the company offers a lifetime recall service, which facilitates its customers to re-rent the same or a comparable item and get payments.

Earlier, Rent-A-Center delivered better-than-expected fourth-quarter 2011 results. However, increasing operating costs and shrinking margins remain a matter of concern going forward.

Rent-A-Center’s gross profit grew 4.5% to $517.3 million, whilegross margin shrunk 300 basis points to 70.1%. Adjusted operating profit inched up 1.8% to $83.2 million, whereas operating profit margin contracted 80 basis points to 11.3%. Adjusted EBITDA climbed 3.8% to $101.9 million, while adjusted EBITDA margin shriveled 70 basis points to 13.8%.

Cost of rentals and fees rose 15.9% to $152.8 million, whereas cost of merchandise sold soared 44.9% to $50.6 million. Salaries and other expenses climbed 3.9% to $396.6 million, whereas general and administrative expenses increased 14.3% to $36.1 million.

Currently, we have a long-term Neutral recommendation on the stock. However, the company has a Zacks #4 Rank, which translates into a short-term Sell rating.