“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”- Warren Buffett.
At the moment, the quote fits perfectly for Rent-A-Center, Inc. (RCII - Free Report) as the company’s future looks bleak with the management providing a subdued outlook for 2016. Consequently, the company’s shares have declined 21.8% so far this year, underperforming the Zacks categorized Consumer Discretionary sector which has witnessed a gain of 7.9%. Let’s delve deeper and try to find out what's taking this Zacks Rank #5 (Strong Sell) company down the hill.
Rent-A-Center has been witnessing a downtrend in estimates, in spite of an earnings beat in third-quarter 2016. We noted that total revenue fell short of the estimate for the fifth consecutive quarter. Further, both the top and bottom line declined year over year.
The company posted adjusted quarterly earnings of 11 cents a share that beat the Zacks Consensus Estimate by a couple of cents but decreased from 47 cents reported in the year-ago period. Total revenue tumbled 12.3% to $693.9 million, due to a decline witnessed across the Core U.S., Acceptance Now and Mexico segments, partially compensated by enhanced revenue from the Franchising segment.
The technical snags and outages after the execution of new store information management system within the Core U.S. stores adversely impacted the operating results. The decrease in the top line can be attributed to a decline witnessed across the Core U.S., Acceptance Now and Mexico segments.
Following the gloomy performance, management lowered its previously issued outlook for 2016. Rent-A-Center now projects Core revenues in the band of $2,065–$2,100 million and Acceptance Now revenues in the range of $805−$835 million. The company expects adjusted earnings between $1.05 and $1.15 per share for the full year, sharply down from the earlier estimate of $1.65–$1.85 per share.
Analysts polled by Zacks are skeptical about the stock. In the past 60 days, the Zacks Consensus Estimate of $1.11 for 2016 and $1.21 for 2017 has declined 18 cents and 26 cents, respectively. Moreover, the Zacks Consensus Estimate for the fourth quarter has dropped 21 cents to 11 cents over the same time frame.
Stocks that Warrant a Look
It would be prudent for investors to look beyond Rent-A-Center, at least for the time being. Investors may consider better-ranked stocks such as Burlington Stores, Inc. (BURL - Free Report) flaunting a Zacks Rank #1 (Strong Buy), while PriceSmart, Inc. and Ross Stores, Inc. (ROST - Free Report) both carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Burlington Stores delivered an average positive earnings surprise of 25.6% in the trailing four quarters and has a long-term earnings growth rate of 19.9%.
PriceSmart has a long-term earnings growth rate of 15%.
Ross Stores delivered an average positive earnings surprise of 5% in the trailing four quarters and has a long-term earnings growth rate of 11.4%.
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