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Rent-A-Center (RCII) Stock Up on Q4 Earnings & Revenue Beat

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Shares of Rent-A-Center, Inc. RCII rose 8.8% during the after-market trading session on Feb 24 on sturdy fourth-quarter 2019 performance and robust 2020 view. We note that the company reverted to its positive earnings surprise streak in the fourth quarter, after a miss in the previous quarter. Moreover, the top line surpassed the consensus mark for the second consecutive quarter. Also, both the top and bottom lines improved year over year.

Notably, the company reported the eighth straight quarter of positive same-store sales in its core business. Moreover, Rent-A-Center’s lease portfolio expanded through 2019 and its e-commerce performance remains impressive.

Q4 Results in Detail

Rent-A-Center posted adjusted earnings of 58 cents a share that outpaced the Zacks Consensus Estimate by a penny. Also, the bottom line increased 66.4% from 35 cents in the year-ago quarter. We note that lower operating expenses and reduced interest expenses favorably impacted the bottom line.

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

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

Rent-A-Center, Inc. price-consensus-eps-surprise-chart | Rent-A-Center, Inc. Quote

Total revenues of $667.9 million surpassed the Zacks Consensus Estimate of $660 million and grew a meager 0.9% year over year on higher same-store sales. This was partly mitigated by refranchising of nearly 100 outlets in the past year and closure of a few namesake stores. Excluding effects of the refranchising efforts, revenues grew 2.4%. Same-store sales during the quarter grew 1.6%, reflecting an increase across all the segments.

Meanwhile, adjusted EBITDA came in at $63.7 million, up 30.2% from the year-ago period. We note that adjusted EBITDA margin expanded 210 basis points to 9.5%.

Segment Performance

Rent-A-Center will now report results for its retail partner business under the Preferred Lease segment, which was earlier known as Acceptance Now. The new segment includes the virtual, staffed and hybrid offerings. Again, it will report results for its corporate-owned stores in the United States and e-commerce platform via under the Rent-A-Center Business segment, which was earlier known as Core U.S. These are in addition to the company's existing Mexico, Franchise and Corporate segments.

Revenues at the Rent-A-Center Business segment declined 6% to $438.8 million owing to refranchising efforts and continued store base rationalization. This was partly offset by same-store sales growth of 1.2%.

Revenues at Preferred Lease segment grew 10.8% from the prior-year quarter to $191.9 million driven by invoice volumes, robust comps and contributions from the buyout of Merchants Preferred, a nationwide virtual rent-to-own provider. While invoice volumes rose 35.1%, same-store sales increased 2.1% in the reported quarter.

Mexicosegment’s revenues totaled $13.7 million, up 9.6% from the year-ago quarter. On a constant-currency basis, the metric improved 6.6%. Its same-store sales improved 7.6%.

Finally, total Franchising revenues increased to $23.5 million from $9.5 million a year ago. This can primarily be attributed to the refranchising of about 100 stores over the past 12 months and rise in inventory purchases by franchisees.

Store Update

At the end of the reported quarter, Rent-A-Center operated nearly 2,100 stores in the United States, Mexico and Puerto Rico. It had roughly 1,000 Preferred Lease staffed locations across the United States and Puerto Rico as well as 370 franchised stores.

Other Financial Aspects

Rent-A-Center ended the reported quarter with cash and cash equivalents of $70.5 million, net senior debt of $230.9 million and stockholders' equity of about $459 million. Capital expenditures totaled $21.2 million in 2019. It generated free cash flow of $236.2 million (including acquisitions and divestitures) during the year.

2020 Outlook

Rent-A-Center is confident of revenues and earnings growth in 2020 on improved financial performance as the lease-to-own sector evolves. As a result, management has issued an upbeat guidance for 2020.

For 2020, it projects consolidated revenues between $2.755 billion and $2.875 billion, suggesting a rise from $2.670 recorded in 2019. Moreover, adjusted EBITDA is anticipated in the band of $255-$285 million compared with $254 million in 2019. Adjusted earnings per share are envisioned in the range of $2.45-$2.85, the mid-point of which — $2.65 — is above the Zacks Consensus Estimate of $2.64. The guidance also suggests year-over-year growth of 9-27% from $2.24 earned in 2019.

For the Preferred Lease segment, this Zacks Rank #3 (Hold) company expects revenues of $860-$910 million and adjusted EBITDA of $95-$105 million for 2020. For Rent-A-Center Business segment, revenues are estimated in the band of $1.755-$1.825 billion, with same-store sales growth expected in low-single digits and adjusted EBITDA of $265-$285 million.

For 2020, capital expenditures are guided in the range of $40-$45 million, while free cash flow is projected between $105 million and $135 million.

Key Stocks to Consider

Cimpress N.V. CMPR has an average positive earnings surprise of 41.4% for the trailing four quarters. Also, it sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

H&R Block HRB has expected long-term earnings growth rate of 11% and a Zacks Rank of 2 (Buy).

SP Plus (SP - Free Report) , also a Zacks Rank #2 stock, has an expected long-term earnings growth rate of 10%.

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