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Rent-A-Center (RCII) Posts Q2 Loss, Sales Fall, Stock Hurt

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Rent-A-Center, Inc. (RCII - Free Report) posted second-quarter 2017 adjusted loss of 1 cent a share that missed the Zacks Consensus Estimate of earnings of 7 cents and also fell substantially from 41 cents earned in the year-ago period. Total revenue of $677.6 million declined 9.6% year over year but surpassed the respective estimate of $664.7 million, after missing the same in the trailing seven quarters.

Total revenue tumbled due to decline witnessed across the Core U.S., Mexico and Franchising segments, partially mitigated by growth registered at Acceptance Now segment.

Despite better-than-expected top-line performance, shares of this rent-to-own operator declined roughly 4% during after-market trading session yesterday, as investors remained concerned about its waning top line and bottom line.

We noted that shares of this Zacks Rank #4 (Sell) company have underperformed the industry so far in the year. Year to date, the stock has increased 13.6%, while the industry has advanced 30.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Rent-A-Center’s adjusted EBITDA plummeted 56.9% to $28.9 million, while EBITDA margin shriveled 470 basis points to 4.3%.

Comparable-Store Sales Performance

Comparable-store sales (comps) for the quarter dropped 7.4%, reflecting declines of 10.2% and 6.9% in the Core U.S. and Mexico segments, respectively, partly neutralized by 6.7% increase noted at the Acceptance Now segment.

However, it is to be noted that comps for the Core U.S. segment have improved 230 basis points, while for the Acceptance Now that same has increased 380 basis points on a sequential basis.

Rejected Buyout Offer

Rent-A-Center, which has been under pressure to look for strategic alternatives, recently turned down the buyout offer by private equity firm, Vintage Capital. The company stated that Vintage offer "significantly undervalues the company". Further, the company added that the strategic initiatives which it has implemented will deliver better value to shareholders than the Vintage’s offer.

Rent-A-Center is concentrating on a new labor model, supply chain initiative and productivity enhancements. Management hinted that these endeavors are directed toward improving the performance of Core U.S. segment, optimizing the AcceptanceNOW business, and enhancing distribution channels as well as integrating retail and online offerings.

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


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

Segment Performance

Revenues from the Acceptance Now segment increased 1.9% from the prior-year quarter figure to $203.3 million on account of higher comps, partly offset by revenue declines due to store closures.

Revenues from the Core U.S. segment slumped 13.9% to $457 million, owing to continued store base rationalization and dismal comps performance.

The Mexico segment’s revenues came in at $12 million, down 9.7% year over year attributable to lower comps. Finally, total Franchising revenues plunged 14.6% to $5.3 million during the quarter due to fall in the amount of merchandise sold to the franchise partners.

Store Update

At the end of the quarter, there were 2,437 Core U.S. locations, 1,189 Acceptance Now Staffed stores, 106 Acceptance Now Direct stores, 131 stores in Mexico and 228 Franchise stores.

Other Financial Aspects

Rent-A-Center, which shares space with McGrath Rentcorp (MGRC - Free Report) , AeroCentury Corp. (ACY - Free Report) and Aaron's, Inc. (AAN - Free Report) , ended the quarter with cash and cash equivalents of $73.8 million and net Senior debt of $97.6 million. The company lowered outstanding debt balance by $15.6 million in the quarter under review. During the first half of 2017, the company generated $111.9 million of cash from operations. The company incurred capital expenditures of $18.1 million during the quarter.

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