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Rent-A-Center, Inc. posted sturdy second-quarter 2020 results, wherein both the top and bottom lines beat the Zacks Consensus Estimate and grew year over year. Notably, this marked the company’s third-straight earnings beat. Moreover, management has raised free cash flow projection for 2020 and reaffirmed sales and earnings view, which was originally issued on Feb 24.
Quarterly results, which outpaced management’s expectations, were driven by the company’s efforts to immediately address challenges tied to the pandemic. Same-store sales were positive in every month of the reported quarter, with furniture and appliance sales reverting to pre-pandemic trends. Moreover, disciplined operating expense, gains from a pullback in traditional lending, and impressive e-commerce and digital payments have been aiding Rent-A-Center’s business.
Going forward, Rent-A-Center remains committed to strategically manage its business to maximize value for customers and retail partners. Continuous expansion of technology along with strength in its resilient model and focus on innovation poise the company well for the future.
Over the past three months, this rent-to-own operator has seen its shares surge 51.8%, outperforming the industry’s 23.6% rally.
Q2 in Detail
Rent-A-Center posted adjusted earnings of 80 cents a share that surpassed the Zacks Consensus Estimate of 60 cents. Also, the bottom line increased 33% from the year-ago quarter.
Total revenues of $683.7 million came above the Zacks Consensus Estimate of $607 million and grew 4.2% year over year. The implementation of the Preferred Lease virtual solution along with gains from Merchants Preferred buyout and higher same-store sales drove revenue growth. This was partly offset by refranchising of about 60 namesake locations in the prior 15 months. Excluding effects of the refranchising efforts, consolidated revenues grew 5.1%.
Meanwhile, adjusted EBITDA came in at $75.9 million, up 12.6% from the year-ago period. This was pressured by $5.6 million with respect to the pandemic-related skip/stolen losses, with additional reserves for expected future losses. We note that adjusted EBITDA margin expanded 80 basis points to 11.1%.
RentACenter, Inc. Price, Consensus and EPS Surprise
Revenues at the Rent-A-Center Business segment rose 1.8% to $459.2 million owing to same-store sales growth of 7.8%. This was partly offset with refranchising of stores. Excluding revenue impact from the refranchising efforts, the metric grew 4%. Further, same-store sales were backed by government stimulus associated with COVID-19, higher early payouts, robust demand, better collections, and increased digital-payment penetration.
Revenues at Preferred Lease segment grew 8.4% from the prior-year quarter to $191.2 million, mainly buoyed by the implementation of the Preferred Lease virtual solution and contributions from the buyout of Merchants Preferred. Moreover, invoice volumes rose 25.4% to $136.5 million in spite of many temporary retail-store closures due to the pandemic.
Mexico segment’s revenues totaled $10.6 million, down 4.6% on a constant-currency basis. Also, the segment’s same-store sales declined 2.6%.
Finally, Franchising revenues jumped 52.5% to $22.7 million. This can primarily be attributed to increased store count, with the refranchising of about 60 stores over the past 15 months and rise in inventory purchases by franchisees.
Store Update
At the end of the reported quarter, Rent-A-Center operated nearly 2,100 namesake stores in the United States, Mexico and Puerto Rico. It also had about 370 franchise-operated stores. As of Jun 30, 2020, the Mexico business operated 121 locations.
Other Financial Aspects
Rent-A-Center ended the reported quarter with cash and cash equivalents of $206.4 million, net senior debt of $190.7 million and stockholders' equity of about $486.6 million. Further, it had an outstanding indebtedness of $198.5 million at quarter end. Notably, the company's debt was lowered by $163.5 million from the end of the first quarter, including the repayment of $118 million of indebtedness drawn against its revolving-credit facility. Further, the company had $211 million remaining availability on revolving-credit facility.
Capital expenditures totaled $5.6 million in the quarter. This Zacks Rank #3 (Hold) company generated cash of roughly $254.7 million from operations and free cash flow, including acquisitions and divestitures of $240.3 million during the first half of 2020.
Moreover, management had previously declared a cash dividend of 29 cents a share for the third quarter, paid on Jul 28, 2020, to stockholders on record as of Jul 10.
2020 Outlook
Given the company’s performance in first-half 2020, management reaffirmed view for the year. However, the guidance excludes the effects of new franchising transactions. Revenues are projected in the band of $2.755-$2.875 billion, indicating growth from $2.670 billion recorded in 2019. Moreover, adjusted EBITDA is anticipated between $255 million and $285 million, compared with $254.2 million in 2019.
Further, adjusted earnings per share are envisioned to be $2.45 to $2.85. This guidance suggests year-over-year growth of 9-27% from $2.24 earned in 2019 and is above the Zacks Consensus Estimate of $2.27 for 2020. It now projects free cash flow in the range of $135-$165 million, up from the guided range of $105-$135 million provided on Feb 24.
Deckers (DECK - Free Report) , also a Zacks Rank #1 stock, has an expected long-term earnings growth rate of 16.9%.
Crocs (CROX - Free Report) has a long-term expected earnings growth rate of 15% and presently sports a Zacks Rank #1.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
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Rent-A-Center (RCII) Beats Q2 Earnings & Revenue Estimates
Rent-A-Center, Inc. posted sturdy second-quarter 2020 results, wherein both the top and bottom lines beat the Zacks Consensus Estimate and grew year over year. Notably, this marked the company’s third-straight earnings beat. Moreover, management has raised free cash flow projection for 2020 and reaffirmed sales and earnings view, which was originally issued on Feb 24.
Quarterly results, which outpaced management’s expectations, were driven by the company’s efforts to immediately address challenges tied to the pandemic. Same-store sales were positive in every month of the reported quarter, with furniture and appliance sales reverting to pre-pandemic trends. Moreover, disciplined operating expense, gains from a pullback in traditional lending, and impressive e-commerce and digital payments have been aiding Rent-A-Center’s business.
Going forward, Rent-A-Center remains committed to strategically manage its business to maximize value for customers and retail partners. Continuous expansion of technology along with strength in its resilient model and focus on innovation poise the company well for the future.
Over the past three months, this rent-to-own operator has seen its shares surge 51.8%, outperforming the industry’s 23.6% rally.
Q2 in Detail
Rent-A-Center posted adjusted earnings of 80 cents a share that surpassed the Zacks Consensus Estimate of 60 cents. Also, the bottom line increased 33% from the year-ago quarter.
Total revenues of $683.7 million came above the Zacks Consensus Estimate of $607 million and grew 4.2% year over year. The implementation of the Preferred Lease virtual solution along with gains from Merchants Preferred buyout and higher same-store sales drove revenue growth. This was partly offset by refranchising of about 60 namesake locations in the prior 15 months. Excluding effects of the refranchising efforts, consolidated revenues grew 5.1%.
Meanwhile, adjusted EBITDA came in at $75.9 million, up 12.6% from the year-ago period. This was pressured by $5.6 million with respect to the pandemic-related skip/stolen losses, with additional reserves for expected future losses. We note that adjusted EBITDA margin expanded 80 basis points to 11.1%.
RentACenter, Inc. Price, Consensus and EPS Surprise
RentACenter, Inc. price-consensus-eps-surprise-chart | RentACenter, Inc. Quote
Segment Performance
Revenues at the Rent-A-Center Business segment rose 1.8% to $459.2 million owing to same-store sales growth of 7.8%. This was partly offset with refranchising of stores. Excluding revenue impact from the refranchising efforts, the metric grew 4%. Further, same-store sales were backed by government stimulus associated with COVID-19, higher early payouts, robust demand, better collections, and increased digital-payment penetration.
Revenues at Preferred Lease segment grew 8.4% from the prior-year quarter to $191.2 million, mainly buoyed by the implementation of the Preferred Lease virtual solution and contributions from the buyout of Merchants Preferred. Moreover, invoice volumes rose 25.4% to $136.5 million in spite of many temporary retail-store closures due to the pandemic.
Mexico segment’s revenues totaled $10.6 million, down 4.6% on a constant-currency basis. Also, the segment’s same-store sales declined 2.6%.
Finally, Franchising revenues jumped 52.5% to $22.7 million. This can primarily be attributed to increased store count, with the refranchising of about 60 stores over the past 15 months and rise in inventory purchases by franchisees.
Store Update
At the end of the reported quarter, Rent-A-Center operated nearly 2,100 namesake stores in the United States, Mexico and Puerto Rico. It also had about 370 franchise-operated stores. As of Jun 30, 2020, the Mexico business operated 121 locations.
Other Financial Aspects
Rent-A-Center ended the reported quarter with cash and cash equivalents of $206.4 million, net senior debt of $190.7 million and stockholders' equity of about $486.6 million. Further, it had an outstanding indebtedness of $198.5 million at quarter end. Notably, the company's debt was lowered by $163.5 million from the end of the first quarter, including the repayment of $118 million of indebtedness drawn against its revolving-credit facility. Further, the company had $211 million remaining availability on revolving-credit facility.
Capital expenditures totaled $5.6 million in the quarter. This Zacks Rank #3 (Hold) company generated cash of roughly $254.7 million from operations and free cash flow, including acquisitions and divestitures of $240.3 million during the first half of 2020.
Moreover, management had previously declared a cash dividend of 29 cents a share for the third quarter, paid on Jul 28, 2020, to stockholders on record as of Jul 10.
2020 Outlook
Given the company’s performance in first-half 2020, management reaffirmed view for the year. However, the guidance excludes the effects of new franchising transactions. Revenues are projected in the band of $2.755-$2.875 billion, indicating growth from $2.670 billion recorded in 2019. Moreover, adjusted EBITDA is anticipated between $255 million and $285 million, compared with $254.2 million in 2019.
Further, adjusted earnings per share are envisioned to be $2.45 to $2.85. This guidance suggests year-over-year growth of 9-27% from $2.24 earned in 2019 and is above the Zacks Consensus Estimate of $2.27 for 2020. It now projects free cash flow in the range of $135-$165 million, up from the guided range of $105-$135 million provided on Feb 24.
Don’t Miss These Solid Bets
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Deckers (DECK - Free Report) , also a Zacks Rank #1 stock, has an expected long-term earnings growth rate of 16.9%.
Crocs (CROX - Free Report) has a long-term expected earnings growth rate of 15% and presently sports a Zacks Rank #1.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2021.
Click here for the 6 trades >>