Rent-A-Center, Inc. (RCII - Free Report) disappointed investors with dismal preliminary Core U.S. comps for the month of August. Following the report, the company’s shares tanked 8.3% yesterday.
Core U.S. comps declined 5.3% in August following a decline of 5.7% in July. However, Acceptance NOW comps jumped 8.6% after increasing 7.1% in the previous month. Delinquencies rate for Core U.S. came in at 7.2%, down 30 basis points (bps) sequentially, while the same decreased 130 bps to 10.3% for Acceptance NOW.
Moreover, the company stated that core U.S. same store sales have improved 740 bps owing to effective implementation of account management process, which had positive impact on the revenues collection. The company has been grappling with soft comparable-store sales performance for quite some time now. In the first and second quarters of fiscal 2017, comparable-store sales have declined 7.8% and 7.4%, respectively.
Strategic Initiatives – the Savior
Though, the Zacks Rank #3 (Hold) company’s top and bottom lines have been witnessing a decline over the six quarters, the company’s strategic initiatives are acting as a catalyst for the stock. If we go by the company’s performance in the past six months, the stock has gained 28.1%, outperforming the industry’s advance of 22.7%.
Management is concentrating on a new labor model, supply chain initiative and productivity enhancements. 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. The company is also optimizing product mix, increasing the average ticket price, upgrading workforce, concentrating on lowering delinquency rates and rationalizing existing stores as well as contemplating on new ones.
The company believes that if strategic growth endeavors are executed well, it will help attain revenue growth of low-single digits in 2018 and mid-single digits in 2019, highlighted earlier. Rent-A-Center expects to achieve EBITDA margin of 7.5-8.5% in 2018 and 9.5-10.5% in 2019. The company projects free cash flow generation of $70-$90 million and $110-$130 million in 2018 and 2019, respectively. The company envisions earnings in the band of $1.20-$1.40 per share for 2018 and between $2.00 and $2.25 for 2019.
3 Retail Stocks Hogging the Limelight
Better-ranked stocks, which warrant a look in the retail sector includes, Costco Wholesale Corporation (COST - Free Report) , Tilly's, Inc. (TLYS - Free Report) and Burlington Stores, Inc. (BURL - Free Report) . All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Costco Wholesale has an impressive long-term earnings growth rate of 9.5%.
Tilly's delivered an average positive earnings surprise of 83.7% in the trailing four quarters.
Burlington Stores delivered an average positive earnings surprise of 17.7% in the trailing three quarters and has a long-term earnings growth rate of 16.2%.
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