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Rent-A-Center Inc. (RCII - Analyst Report), the largest rent-to-own operator in the U.S, stood by its earlier guidance for the RAC Acceptance segment and expects to add 200 domestic RAC Acceptance kiosks in 2012.
The company’s business model, RAC Acceptance, is gaining traction. When a consumer is denied credit financing for a particular product from the retailer, Rent-A-Center acquires that product from the retailer by virtue of the RAC Acceptance program, and thereby offers it to the consumer under a rental-purchase transaction.
Rent-A-Centre recently posted earnings of 87 cents a share for first-quarter 2012, surpassing the Zacks Consensus Estimate of 84 cents, and increasing 10.1% from 79 cents earned in the prior-year quarter, driven by growth in its top line. The company’s top-line growth was attributable to higher revenues from the RAC Acceptance and Core U.S. segments.
Revenues from the RAC Acceptance business more than doubled to $87.7 million from the prior-year quarter, whereas revenues from Core U.S. segment climbed 5.6% to $727.8 million.
The company continues to expect top-line growth between 7% and 10% in 2012, attributable to a low single-digit jump in the Core U.S. division and a more than $300 million contribution from the RAC Acceptance business. Management expects comparable-store sales between 2.5% and 4.5%.
Management maintained its fiscal 2012 earnings projection of $3.00 to $3.20 per share, including a 25 cents to 30 cents cost related to its international expansion initiatives.
The company also forecasted a 100 basis point contraction in gross profit margin for fiscal 2012. Further, it also hinted a 50 basis point reduction in operating profit margin for the year.
Currently, we have a long-term “Neutral” recommendation on the stock. Moreover, Rent-A-Center, which competes with Aaron’s Inc. (AAN - Snapshot Report), holds a Zacks #3 Rank that translates into a short-term “Hold” rating.
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