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Rent-A-Center (RCII) Q3 Earnings Beat, Revenues Grow Y/Y

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Rent-A-Center, Inc. (RCII - Free Report) posted sturdy third-quarter 2021 results wherein both the top and the bottom line surpassed the Zacks Consensus Estimate and improved on a year-over-year basis.

Results gained from higher same-store sales and a solid lease performance across the company’s Rent-A-Center Business segment. Robust gains from the Acima buyout also led to this upside.

Over the year-to-date period, shares of this currently Zacks Rank #3 (Hold) company have increased 44.4% against the industry’s 14.7% decline.

Q3 in Detail

Rent-A-Center posted adjusted earnings of $1.52 a share that beat the Zacks Consensus Estimate of $1.47. Also, the bottom line rose 46.2% from $1.04 earned in the year-ago quarter.

Rent-A-Center, Inc. Price, Consensus and EPS Surprise

RentACenter, Inc. Price, Consensus and EPS Surprise

Rent-A-Center, Inc. price-consensus-eps-surprise-chart | Rent-A-Center, Inc. Quote

Consolidated total revenues of $1,181 million surpassed the Zacks Consensus Estimate of $1,176 million and surged 65.9% year over year. Growth was mainly driven by gains from the buyout of Acima Holdings and same-store sales growth in the Rent-A-Center Business segment. On a pro-forma basis, revenues rose 13% on solid organic growth in the Acima and Rent-A-Center Business units.

We note that adjusted EBITDA came in at $170.2 million, up 4.1% from the year-ago period’s level on a pro-forma basis. However, adjusted EBITDA margin declined 130 basis points to 14.4%, mainly due to normalization in the customer payment activity as well as loss rates from the wind down of government stimulus, supply-chain headwinds and a mix shift to the high- growth Acima business.

Segment Performance

Revenues at the Rent-A-Center Business segment rose 5.6% to $501 million, mainly owing to same-store sales growth of 12.3%, led by a 9% increase in e-commerce sales and a solid lease portfolio performance. Growth was partly offset by the impacts of refranchising nearly 100 stores in California during the fourth quarter of 2020. As of Sep 30, 2021, the segment had 1,842 company-operated locations.

Revenues at the Acima segment (formerly known as the Preferred Lease segment) surged 209% from the prior-year quarter’s level to $623.5 million, mainly buoyed by the gains from the Acima buyout. On a pro-forma basis, revenues rose 17% while gross merchandise volume (GMV) improved 19%, driven by a higher number of merchants and active customers.

Mexico segment’s revenues totaled $15.9 million, up 18.5% on a constant-currency basis. Also, the segment’s same-store sales rose 15.3%. As of Sep 30, the unit had 122 company-operated locations.

Finally, Franchising revenues jumped 70.7% to $40.9 million. This can primarily be attributed to an increased store count resulting from the refranchising of California stores during 2020 and a rise in inventory purchases by franchisees. As of Sep 30, the company had 465 franchise-operated locations.

Other Financial Aspects

Rent-A-Center ended the reported quarter with cash and cash equivalents of $158.8 million, net senior debt of $846.1 million and a stockholders' equity of $854.1 million. It had an outstanding debt of $1.3 billion at the quarter end. The company ended the quarter with $622 million of liquidity including $464 million of undrawn revolving credit.

Capital expenditures totaled $20.5 million in the three months ended Sep 30. The company generated cash of $326.2 million from operations and a negative free cash flow including acquisitions and divestitures of $993.2 million during the nine months ended Sep 30.

During the reported quarter, management returned $38 million to the company’s shareholders including $18 million of dividends and $20 million of share repurchases. Year to date through October, it bought back shares worth $80 million. At the end of October, the company had roughly $170 million available under the existing share repurchase authorization.

2021 Outlook

Management revised its outlook for 2021, given the recent developments in customer payment activity, resulting from the expiration of government programs with respect to COVID-19 and supply-chain issues.

Consolidated revenues are now projected in the bracket of $4.550-$4.640 billion for 2021 compared with $4.550-$4.670 billion predicted earlier. Rent-A-Center delivered $2.814 billion in 2020. Adjusted EBITDA is now forecast between $645 million and $675 million compared with the previous projection of $660-$700 million.

Adjusted earnings per share are now envisioned in the band of $5.90-$6.15 compared with $5.90-$6.40 expected earlier. The latest guidance suggests growth from $3.53 earned last year. The Zacks Consensus Estimate for 2021 earnings is currently pegged at $6.26, which is likely to witness downward revisions in the coming days.

For 2021, free cash flow is predicted in the band of $280-$320 million compared with $300-$350 million estimated previously.

For the Rent-A-Center Business segment, management continues to anticipate revenues of $2.020-$2.060 billion. Adjusted EBITDA is still projected between $480 million and $500 million.

For the Acima segment, revenues are expected in the band of $2.320-$2.380 billion compared with the earlier guided range of $2.340-$2.420 billion. The segment’s adjusted EBITDA is projected in the range of $300-$320 million compared with the prior forecast of $330-$350 million.

Solid Bets in the Consumer Discretionary Space

PVH Corp. (PVH - Free Report) has a long-term earnings growth rate of 59.1% and a Zacks Rank #1 (Strong Buy), currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Crocs (CROX - Free Report) , currently a Zacks #1 Ranked player, has a trailing four-quarter earnings surprise of 41.6%, on average.

Carter’s (CRI - Free Report) , currently carrying a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 31.3%.

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