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Rent-A-Center (RCII) Q2 Earnings Top, Strategic Plan on Track

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Rent-A-Center, Inc. (RCII - Free Report) reported second-quarter 2018 results, wherein both the top and bottom lines surpassed the Zacks Consensus Estimate, thus breaking the streak of negative earnings and sales surprises. Analysts pointed that sequential increase in customer in the Core segment, sturdy demand in Acceptance NOW on account of value proposition enhancements and cost containment efforts cumulatively played a major role in shaping the company’s better-than-expected results.

Let’s Delve Deep

The company delivered adjusted earnings of 47 cents a share that beat the Zacks Consensus Estimate of 23 cents and improved considerably from a loss of 1 cent reported in the year-ago period. Total revenue of $655.7 million also came ahead of the consensus mark of $642.3 million, after missing the same in the preceding three quarters.

However, total revenue tumbled 3.2% on account of closures of certain Core U.S. and Acceptance NOW locations. This was partially offset by solid comparable-store sales (comps) growth. Meanwhile, adjusted EBITDA came in at $61.1 million, up significantly from $28.9 million in the year-ago quarter. Moreover, adjusted EBITDA margin expanded 500 basis points to 9.3%.

Quite apparent, the company’s strategic initiatives are well on track. Management intends to focus more on cost containment endeavors, improving traffic trends, targeted value proposition, refranchising program and augmenting cash flow. Further, the company is rationalizing store base and lowering debt load. Markedly, the company’s cost-saving initiatives are much ahead of track, making it hopeful of generating annual run-rate savings of more than $100 million and savings of roughly $70 million in 2018.

Notably, shares of Rent-A-Center, which accepted the buyout offer of Vintage Capital, have surged 57% in the past three months and comfortably outperformed the industry’s advance of 2.5%.

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

 

 

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

Comparable-Store Sales Performance

Comps for the quarter grew 3.7%, reflecting growth of 3.5%, 3.7% and 7.1% across the Core U.S., Acceptance Now and Mexico segments, respectively.

Notably, comps for the Core U.S. and Mexico segments have improved 320 and 640 basis points sequentially, respectively, while for the Acceptance Now the same has increased 40 basis points on a sequential basis.

Consolidated comps for this Zacks Rank #1 (Strong Buy) company also portray a sequential improvement of 290 basis points. You can see the complete list of today’s Zacks #1 Rank stocks here.

Segment Performance

Revenues from the Core U.S. segment fell 0.3% to $455.7 million due to continued store base rationalization, offset by improved comps performance.

Revenues from the Acceptance Now segment slumped 12% from the prior-year quarter to $179 million on account of closures of the company’s Conn’s and HHGregg locations. These were partly mitigated by healthy comps performance.

Mexico segment’s revenues came in at $12.3 million, up marginally from $12 million reported in the year-ago period but improved 6.7% on a constant currency basis.

Finally, total Franchising revenues surged 64.8% to $8.7 million during the quarter attributable to recent change in the accounting standard for franchise advertising fees and higher merchandise sales due to increased store count.
 
Store Update

At the end of the quarter, there were 2,233 Core U.S. locations, 1,124 Acceptance Now Staffed stores, 119 Acceptance Now Direct stores, 123 stores in Mexico and 248 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 $116.8 million, net Senior debt of $38 million, net Senior notes of $539.4 million and stockholders' equity of $268.3 million. The company incurred capital expenditures of $7 million during the reported quarter.

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