Shares of Rent-A-Center, Inc. have decreased 36.5% in after-hours trading on Feb 23 following fourth-quarter 2021 results. Both the top and the bottom line missed the Zacks Consensus Estimate but improved on a year-over-year basis. Also, weak earnings guidance for 2022 hurt the stock.

The combined effect of lower government pandemic relief, inflation and supply-chain hurdles dented RCII’s target customers’ ability to afford durable goods. This affected the fourth-quarter results. Management expects such issues to persist in the foreseeable future, which is likely to result in year-over-year declines in revenues and earnings for 2022 on a pro forma basis.

Over the past six months, shares of Rent-A-Center have declined 6.9% compared with the industry’s 9.1% decrease.

Q4 in Detail

Rent-A-Center posted adjusted earnings of $1.08 a share, lagging the Zacks Consensus Estimate of $1.58. Nonetheless, the bottom line rose 4.9% from $1.03 earned in the year-ago quarter.

Consolidated total revenues of $1,171.4 million came below the Zacks Consensus Estimate of $1,201 million. However, the metric surged 63.5% year over year, mainly driven by gains from the buyout of Acima Holdings and solid growth in the Rent-A-Center Business segment. On a pro-forma basis, revenues improved 10.5% on solid organic growth in the Acima and Rent-A-Center Business units.

Adjusted EBITDA came in at $124.4 million, down 22.4% from the year-ago period’s level on a pro-forma basis. Adjusted EBITDA margin contracted 450 basis points to 10.6% due to impacts of higher delinquency and loss rates, supply-chain constraints and inflation rates.

Segmental Performance

Revenues at the Rent-A-Center Business segment rose 9% to $506.2 million owing to same-store sales growth of 10.4%, led by a 17.9% increase in e-commerce sales and a solid lease portfolio performance. However, the increase was partly offset by the impact of refranchising roughly 100 stores in California in the prior-year quarter. As of Dec 31, 2021, the segment had 1,846 company-operated locations.

Revenues at the Acima segment (formerly known as the Preferred Lease segment) surged 204.3% from the prior-year quarter’s level to $611.9 million, mainly buoyed by gains from the Acima buyout. On a pro-forma basis, revenues rose 12.3% and a gross merchandise volume (GMV) improved 5%, driven by growth in merchant partners and lease applications.

Mexico segment’s revenues totaled $15.7 million, up 9.9% on a constant-currency basis. Also, the segment’s same-store sales rose 8.6%. As of Dec 31, the unit had 123 company-operated locations.

Finally, Franchising revenues inched up 2.1% to $37.6 million. This can primarily be attributed to an increased store count from refranchising about 100 California stores in 2020, offset by lower inventory purchases per store. As of Dec 31, Rent-A-Center had 466 franchise-operated locations.

Other Financial Aspects

Rent-A-Center ended the reported quarter with cash and cash equivalents of $108.3 million, net senior debt of $842 million and a stockholders' equity of $825.2 million. RCII had an outstanding debt of $1.6 billion at the quarter end. This currently Zacks Rank #3 (Hold) player ended the quarter with $280.9 million of liquidity, including $172.6 million of undrawn revolving credit availability.

During 2021, Rent-A-Center generated cash of $392.3 million from operations and a negative free cash flow including acquisitions and divestitures of $943.7 million. Capital expenditures totaled $62.5 million in the aforementioned period.

In the fourth quarter of 2021, management returned $388.4 million of cash to its shareholders via $18.3 million of dividends and $370.1 million of share repurchases. In 2021, RCII returned $461.6 million of cash to its shareholders.

Outlook

Consolidated revenues are projected in the bracket of $4.450-$4.600 billion for 2022, indicating a rise from $4.583 billion generated in 2021. Adjusted EBITDA is forecast between $515 million and $565 million, indicating a decline from $611 million recorded a year ago. Adjusted earnings per share are envisioned in the band of $4.50-$5.00, indicating a decline from $5.57 earned last year.

For the first quarter of 2022, management anticipates revenues of $1.125-$1.155 billion. Adjusted EBITDA is projected between $85 million and $100 million while adjusted earnings per share are envisioned in the band of 65-80 cents.

The Zacks Consensus Estimate is pegged higher at $1.53 for the first quarter and $7.01 for 2022.

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