PLANO, Texas - July 21, 2014 - (BUSINESS WIRE) - Rent-A-Center, Inc. (the "Company") (NASDAQ/NGS: RCII), the nation's largest rent-to-own operator, today announced results for the quarter ended June 30, 2014.
Total revenues were $773.2 million, an increase of $12.7 million from total revenues of $760.5 million for the same period in the prior year. This 1.7% increase in total revenues was primarily due to increases of approximately $38.3 million in the Acceptance Now segment and approximately $6.4 million in the Mexico segment, partially offset by a decrease of approximately $30.4 million in the Core U.S. segment.
Same store sales increased 0.6% as compared to the same period in the prior year, primarily attributable to increases of 25.1% and 17.0% in the Acceptance Now and Mexico segments, respectively, partially offset by a 4.7% decrease in the Core U.S. segment.
Net earnings and net earnings per diluted share were $17.5 million and $0.33, respectively, as compared to $41.9 million and $0.76, respectively, for the same period in the prior year. Net earnings and net earnings per diluted share for the quarter ended June 30, 2014 were reduced by a $4.4 million pre-tax restructuring charge, and approximately $0.05 per diluted share, respectively, related to the consolidation of 150 stores into existing Core U.S. stores as discussed below.
Adjusted net earnings per diluted share were $0.38, when excluding the pre-tax restructuring charge, as compared to net earnings per diluted share of $0.76 for the same period in the prior year. These results include dilution related to the Mexico segment of approximately $0.08 per diluted share in the current quarter and $0.07 per diluted share for the same period in the prior year.
“As announced on July 10, we faced a difficult retail environment in the second quarter, not unlike many retailers that serve a similar demographic. As a result, revenue and earnings for the second quarter 2014 did not meet expectations,” said Robert D. Davis, the Chief Executive Officer of Rent-A-Center, Inc.
“We acknowledge the challenging retail environment is not a justification for our financial results, but rather an opportunity to better serve our customers and improve our operating performance. We believe we are up to this challenge. To that end, we have rolled out an exciting new product - smartphones and no-contract airtime plans - this month in substantially all of our Core U.S. stores. In addition, we are in the midst of executing on our transformative strategic initiatives outlined at our investor day and look forward to updating you on our progress during tomorrow’s conference call,” Mr. Davis concluded.
Total revenues were $1,607.0 million, an increase of $27.2 million from total revenues of $1,579.8 million in the same period in the prior year. This 1.7% increase in total revenues was primarily due to increases of approximately $85.3 million in the Acceptance Now segment and approximately $12.8 million in the Mexico segment, partially offset by a decrease of approximately $68.1 million in the Core U.S. segment.
Same store sales decreased 0.2% as compared to the same period in the prior year, primarily attributable to a 5.5% decrease in the Core U.S. segment, partially offset by increases of 25.6% and 18.5% in the Acceptance Now and Mexico segments, respectively.
Net earnings and net earnings per diluted share were $46.4 million and $0.87, respectively, as compared to $88.0 million and $1.55, respectively, in the same period in the prior year.
Net earnings and net earnings per diluted share for the six months ended June 30, 2014, were impacted by the following significant items, as discussed below:
Collectively, these items reduced net earnings per diluted share by approximately $0.08.
Adjusted net earnings per diluted share were $0.95, when excluding the items above, as compared to net earnings per diluted share of $1.55 for the same period in the prior year. These results include dilution related to the Mexico segment of approximately $0.15 per diluted share in the current six-month period and $0.12 per diluted share for the same period in the prior year.
For the six months ended June 30, 2014, the Company generated cash flow from operations of approximately $69.0 million, while ending the quarter with approximately $68.1 million of cash on hand. The Company will pay its 17th consecutive quarterly cash dividend on July 24, 2014.
“We believe the macro-environment will continue to be challenging in the back half of the year and as a result expect soft customer demand in our Core U.S. segment to persist,” said Mr. Davis. “We are excited about the smartphone rollout in the third quarter; however, we believe the impact to our third quarter results will be minimal and expect our diluted earnings per share to be similar to the third quarter of 2013. We believe the smartphone sales trend will accelerate, providing a significant impact in the fourth quarter and giving us confidence in our ability to achieve our updated annual diluted earnings per share guidance,” Mr. Davis concluded.
Restructuring Charge. During the second quarter of 2014, the Company closed 150 Core U.S. stores and merged those accounts into existing Core U.S. stores as part of a multi-year program to improve profitability in the Core U.S. segment. The decision to close these stores was based on management's analysis and evaluation of the markets in which the Company operates, including market share, operating results, competitive positioning and growth potential for the affected stores. The store closures resulted in a pre-tax restructuring charge of $4.4 million during the second quarter of 2014. This charge included approximately $3.2 million of accelerated depreciation expense for fixed assets, leasehold improvements and write-off of merchandise inventory, $0.9 million in early lease termination costs and $0.3 million of other operating costs to decommission the stores. This restructuring charge reduced net earnings per diluted share by approximately $0.05 in both the three-month and six-month periods ended June 30, 2014.
We have not recorded a liability for future lease obligations on these properties as the fair value of the liability at the cease-use date was reduced to zero by estimated sublease rentals that could be obtained for the properties. Accordingly, future lease obligations of approximately $4.4 million that remain as of June 30, 2014, will either be expensed monthly as paid or recognized in full upon negotiation of early termination. Approximately $1.8 million of these remaining lease obligations are scheduled to be paid in the second half of 2014, and substantially all the remainder are scheduled to be paid out through 2016.
Senior Credit Facility Financing Charge. During the first quarter of 2014, the Company recorded a pre-tax charge of approximately $1.9 million to write off unamortized financing costs from the previous credit agreement closed in July 2011. This financing charge reduced net earnings per diluted share by approximately $0.03 for the six-month period ended June 30, 2014.
Rent-A-Center, Inc. will host a conference call to discuss the second quarter results, guidance and other operational matters on Tuesday morning, July 22, 2014, at 10:45 a.m. ET. For a live webcast of the call, visit http://investor.rentacenter.com. Certain financial and other statistical information that will be discussed during the conference call will also be provided on the same website.
Rent-A-Center, Inc., headquartered in Plano, Texas, is the largest rent-to-own operator in North America, focused on improving the quality of life for its customers by providing them the opportunity to obtain ownership of high-quality, durable products such as consumer electronics, appliances, computers, furniture and accessories, under flexible rental purchase agreements with no long-term obligation. The Company owns and operates approximately 3,025 stores in the United States, Mexico, Canada and Puerto Rico, and approximately 1,360 Acceptance Now kiosk locations in the United States and Puerto Rico. Rent-A-Center Franchising International, Inc., a wholly owned subsidiary of the Company, is a national franchiser of approximately 180 rent-to-own stores operating under the trade names of "Rent-A-Center", "ColorTyme", and "RimTyme". For additional information about the Company, please visit our website at www.rentacenter.com.
This press release and the guidance above contain forward-looking statements that involve risks and uncertainties. Such forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "could," "estimate," "should," "anticipate," or "believe," or the negative thereof or variations thereon or similar terminology. The Company believes that the expectations reflected in such forward-looking statements are accurate. However, there can be no assurance that such expectations will occur. The Company's actual future performance could differ materially from such statements. Factors that could cause or contribute to such differences include, but are not limited to: the general strength of the economy and other economic conditions affecting consumer preferences and spending; economic pressures, such as high fuel costs, affecting the disposable income available to the Company's current and potential customers; changes in the unemployment rate; difficulties encountered in improving the financial performance of the Core U.S. segment; the Company’s ability to develop and successfully execute the competencies and capabilities which are the focus of the Company’s multi-year program designed to transform and modernize the Company’s operations; costs associated with the Company's multi-year program designed to transform and modernize the Company’s operations; the Company’s ability to successfully market smartphones and related services to its customers; the Company's ability to develop and successfully implement digital electronic commerce capabilities; the Company's ability to retain the revenue from customer accounts merged into another store location as a result of the store consolidation plan; the Company's ability to execute and the effectiveness of the store consolidation; rapid inflation or deflation in prices of the Company's products; the Company's available cash flow; the Company's ability to identify and successfully market products and services that appeal to its customer demographic; consumer preferences and perceptions of the Company's brand; uncertainties regarding the ability to open new locations; the Company's ability to acquire additional stores or customer accounts on favorable terms; the Company's ability to control costs and increase profitability; the Company's ability to enhance the performance of acquired stores; the Company's ability to retain the revenue associated with acquired customer accounts; the Company's ability to enter into new and collect on its rental or lease purchase agreements; the passage of legislation adversely affecting the rent-to-own industry; the Company's compliance with applicable statutes or regulations governing its transactions; changes in interest rates; adverse changes in the economic conditions of the industries, countries or markets that the Company serves; information technology and data security costs; the Company's ability to protect the integrity and security of individually identifiable data of its customers and employees; the impact of any breaches in data security or other disturbances to the Company's information technology and other networks; changes in the Company's stock price, the number of shares of common stock that it may or may not repurchase, and future dividends, if any; changes in estimates relating to self-insurance liabilities and income tax and litigation reserves; changes in the Company's effective tax rate; fluctuations in foreign currency exchange rates; the Company's ability to maintain an effective system of internal controls; the resolution of the Company's litigation; and the other risks detailed from time to time in the Company's SEC reports, including but not limited to, its annual report on Form 10-K for the year ended December 31, 2013, and its quarterly report on Form 10-Q for the quarter ended March 31, 2014. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Except as required by law, the Company is not obligated to publicly release any revisions to these forward-looking statements to reflect the events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events.
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Rent-A-Center, Inc. and Subsidiaries
SEGMENT INFORMATION HIGHLIGHTS
(Unaudited)
On January 1, 2014, the Company realigned its reporting structure to include its 18 Canadian stores in the Core U.S. segment, which were previously reported in the International segment. The accompanying prior-year amounts and store counts have been revised to reflect this change, and we now refer to the segment formerly reported as "International" as "Mexico" since only that country's results are reported therein.
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David E. Carpenter
Rent-A-Center, Inc.
972-801-1214
Vice President of Investor Relations
david.carpenter@rentacenter.com
Rent-A-Center, Inc., headquartered in Plano, Texas, is the largest rent-to-own operator in North America.