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Rent-A-Center Stable on Financial Resilience & E-Commerce

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Rent-A-Center, Inc. (RCII - Free Report) said that it has repaid all borrowings under its ABL Credit Facility as of Jun 5, 2020. The company has paid down a total debt of $163 million. In view of uncertainties stemming from the COVID-19 pandemic, management had earlier drawn roughly $118 million under the ABL Credit Facility to strengthen the company’s financial position.

Following this repayment against its ABL Credit Facility, Rent-A-Center expects to close second-quarter 2020 with roughly $195 million cash in hand and about $405 million of total liquidity. The company’s total debt at the end of the quarter is anticipated to reflect its existing term-loan of $199 million, with a net debt of around $5 million as of Jun 30.

In addition, the company has been making shareholder-friendly moves. The company’s board has announced a quarterly cash dividend of 29 cents a share for the third quarter of 2020. The dividend is scheduled to be paid on Jul 28, 2020 to its stockholders of record as on Jul 10. Impressively, management raised quarterly dividend from 25 cents to 29 cents and repurchased 1.46 million shares worth $26.5 million during the first quarter.

We note that Rent-A-Center looks well-placed on the dividend-payout front. Notably, the company’s current annualized dividend rate of $1.16 a share reflects a substantial increase from the year-ago period. It has a dividend payout of 50%, dividend yield of 4.3% and free cash flow yield of 14.5%. With an annual free cash flow return on investment of 20.8%, ahead of the industry’s 13.1%, the company’s dividend payment is likely to be sustainable.

Furthermore, management cited that the sales trends and recurring revenue portfolio performance have been stronger than its expectations at the start of COVID-19. Mitch Fadel, CEO, said, “Over the recent months, we have once again seen the strength of our recession resilient business model, tremendous growth in our ecommerce business and the emerging benefit of having essentially all of our Rent-A-Center and retail partner stores fully opened.”

Meanwhile, the company is investing in enhancing its omni-channel platform so that customers can experience a seamless approach across channels, markets, products and brands. This Zacks Rank #3 (Hold) company is increasing its e-commerce offerings and mobile applications, apart from implementing additional e-commerce functionality with curbside pickup to drive performance.

Impressively, this leading rent-to-own company’s shares have appreciated 86.9% in the past three months. Meanwhile, the industry has rallied 22.2%.

Key Stocks to Consider

BJ's Wholesale Club (BJ - Free Report) has an expected long-term earnings growth rate of 13.5% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Crocs (CROX - Free Report) has an expected long-term earnings growth rate of 15% with a Zacks Rank #2 (Buy).

Duluth Holdings (DLTH - Free Report) , also a Zacks Rank #2 stock, has delivered an average trailing four-quarter positive earnings surprise of 19.3%.

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