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Rent-A-Center (RCII) Beats on Q1 Earnings, Raises '19 View

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Rent-A-Center, Inc. (RCII - Free Report) delivered better-than-expected results for the first quarter of 2019. Notably, this marked the fourth successive quarter of positive sales and earnings surprises. While the bottom line registered significant improvement year over year, the top line fell marginally from the year-ago period.

This rent-to-own operator posted adjusted earnings of 59 cents a share that beat the Zacks Consensus Estimate of 30 cents and also compared favorably with a loss of 8 cents in the year-ago quarter. We note that lower operating expenses and reduced interest expense favorably impacted the company’s bottom line.

Total revenues of $696.7 million came ahead of the consensus mark of $683 million. However, it fell marginally 0.2% on account of refranchising more than 100 locations since the first quarter of 2018 and closures of certain Core U.S. stores. This was mitigated by sturdy same store sales performance.

Meanwhile, adjusted EBITDA during the quarter came in at $66.5 million, up from $25.1 million generated in the year-ago period. We note that adjusted EBITDA margin expanded 590 basis points to 9.5%.

Clearly, the company’s initiatives are well on track. Management intends to focus 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. We note management raised EBITDA, earnings per share and free cash flow guidance for 2019.

Notably, shares of this Zacks Rank #1 (Strong Buy) company has surged 44% compared with the industry’s growth of 6% in the past three months. You can see the complete list of today’s Zacks #1 Rank stocks here.

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

Same store sales during the quarter grew 6.8%, reflecting an increase of 5.8%, 10.1% and 13.1% across the Core U.S., Acceptance Now and Mexico segments, respectively. This was the ninth straight quarter of comps improvement.

Same store sales for the Core U.S. and Mexico segments contracted 300 and 70 basis points, respectively, on a sequential basis. Meanwhile, same store sales for the Acceptance Now segment increased 50 basis points on a sequential basis. Consolidated comps for the company exhibited a sequential decline of 230 basis points.

Segment Performance

Revenues at the Core U.S. segment declined 1.7% to $474.1 million owing to the refranchising efforts and continued store base rationalization. This was partly offset by same store sales growth.

Revenues at Acceptance Now fell 0.2% from the prior-year quarter to $196.5 million on account of closure of company’s locations. This was partly mitigated by healthy comps.

Mexico segment’s revenues came in at $13.3 million, up 10.9% from the year-ago period. On a constant currency basis, the metric improved 12.4%.

Finally, total Franchising revenues surged to $12.8 million during the reported quarter from $7 million in the year-ago period. This can primarily be attributed to refranchising of more than 100 locations.

 Store Update

At the end of the quarter under review, there were 2,093 Core U.S. locations, 1,038 Acceptance Now Staffed stores, 94 Acceptance Now Direct stores, 122 stores in Mexico and 318 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 reported quarter with cash and cash equivalents of $237.7 million, net Senior notes of $540.4 million and stockholders' equity of $294.3 million. The company incurred capital expenditures of $2.5 million and generated free cash flow of $81.7 million (including acquisitions and divestitures) during the reported quarter.

Management now anticipates net debt of $155-$190 million for 2019 with net debt to EBITDA ratio of 0.50-0.85x. The company anticipates generating free cash flow of $195-$225 million during 2019.

Outlook

Rent-A-Center continues to project consolidated revenues between $2.585 billion and $2.630 billion for 2019. Management envisions consolidated same store sales growth in the low to mid-single digits.

The company now expects Core U.S. revenues of $1.790-$1.815 billion and Acceptance NOW revenues of $700-$715 million. The company had earlier guided Core U.S. revenues of $1.765-$1.790 billion and Acceptance NOW revenues of $725-$740 million.

The company foresees adjusted EBITDA in the band of $230-$260 million and adjusted earnings per share in the range of $1.85-$2.25 for 2019. The current Zacks Consensus Estimate currently stands at $1.91. Management had previously projected adjusted EBITDA of $220-$250 million and adjusted earnings per share in the range of $1.75-$2.15.

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