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Why Is Rent-A-Center (RCII) Down 2.3% Since the Last Earnings Report?

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It has been about a month since the last earnings report for Rent-A-Center Inc. (RCII - Free Report) . Shares have lost about 2.3% in that time frame, outperforming the market.

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

Rent-A-Center Posts Q2 Loss, Sales Fall

Rent-A-Center, Inc. posted second-quarter 2017 adjusted loss of $0.01 per share that missed the Zacks Consensus Estimate of earnings of $0.07 and also fell substantially from $0.41 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. Investors remained concerned about its waning top line and bottom line.

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 the 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.

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 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.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been two revisions lower for the current quarter. In the past month, the consensus estimate has shifted lower by 132% due to these changes.

Rent-A-Center Inc. Price and Consensus

 

Rent-A-Center Inc. Price and Consensus | Rent-A-Center Inc. Quote

VGM Scores

At this time, Rent-A-Center's stock has a nice Growth Score of B, though it is lagging a lot on the momentum front with a F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile 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.

Our style scores indicate that the stock is more suitable for value investors than growth investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift.  Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.




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