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Rent-A-Center (RCII) Down 0.7% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Rent-A-Center (RCII - Free Report) . Shares have lost about 0.7% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Rent-A-Center due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

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

Rent-A-Center 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.

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.

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.

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%.

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.

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

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.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -10.23% due to these changes.

VGM Scores

At this time, Rent-A-Center has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Rent-A-Center has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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