PLANO, Texas - February 02, 2015 - (BUSINESS WIRE) - Rent-A-Center, Inc. (the "Company") (NASDAQ/NGS: RCII) today announced results for the quarter and year ended December 31, 2014.
Highlights on the quarter include the following:
"During the fourth quarter, Core U.S. same store sales were essentially flat and Acceptance Now continued to deliver strong same store sales growth. This resulted in total company same store sales of approximately 5 percent for the quarter. In addition, Core U.S. operating profit increased year over year for the first time in many quarters. However, our EPS did not meet our expectations because our margins were not as strong as projected and skip/stolen losses were too high. In short, we did not achieve the desired balance between sales growth and margin improvement that we ideally are seeking through our strategies," said Robert D. Davis, the Chief Executive Officer of Rent-A-Center, Inc.
“As a result, our resolve is strengthened in the pursuit of that balance and the urgency remains high in delivering on the initiatives and results that we have promised. To that end, our focus is on improving operational execution by implementing a new labor model for our Core U.S. stores, developing a new supply chain and implementing a customer-focused value-based pricing strategy. And, in our Acceptance Now business, we are already seeing some progress on getting skip/stolen losses back in line, and we remain excited about the growth prospects for the business, including the much-anticipated rollout of virtual Acceptance Now locations,” Mr. Davis concluded.
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Explanations of performance are excluding special items and compared to the prior year unless otherwise noted.
CORE U.S. fourth quarter revenues of $600.5 million decreased 2.4 percent year over year primarily due to the 150 store consolidation completed in the second quarter of 2014. As compared to the prior year, gross profit as a percentage of total revenue was negatively impacted by the introduction of smartphones. Labor, as a percent of store revenue, was positively impacted by the lower store count and health care costs were higher in the prior year due to an increase in large claims during the quarter. Other store expenses, as a percent of store revenue, were favorably impacted by lower gas prices, partially offset by higher skip/stolen losses primarily from smartphones. Core U.S. operating profit, as a percent of total revenue, increased 220 basis points compared to a year ago.
ACCEPTANCE NOW fourth quarter revenues of $169.8 million increased 30.8 percent year over year driven by the increased number of locations and same store sales. As compared to the prior year, gross profit as a percent of total revenue was negatively impacted by more Acceptance Now locations offering 90 day option pricing. Labor, as a percent of store revenue, was positively impacted by improved leverage in the business. Other store expenses, as a percent of store revenue, were negatively impacted by higher skip/stolen losses. Acceptance Now operating profit, as a percent of total revenue, decreased 80 basis points.
MEXICO fourth quarter revenues increased 38.5 percent and operating losses improved by $0.8 million.
FRANCHISING fourth quarter revenues increased 1.6 percent and operating profit increased by $0.9 million.
Depreciation and amortization expense decreased $1.7 million for the quarter due to lower capital expenditures from fewer new store openings year over year.
General and administrative expenses decreased by $4.0 million primarily due to lower incentive compensation expense in the fourth quarter.
Interest expense was $12.7 million, an increase of $1.8 million year over year, driven by increased debt and a higher rate on our senior credit facility.
On a GAAP basis, the effective income tax rate decreased to 27.6 percent in the fourth quarter from 44.8 percent in the prior year. In Q4 2014, the tax rate was positively impacted by credits stemming from the extension of certain tax provisions that were approved by Congress in late December. In Q4 2013, the tax rate was negatively impacted by the reduction of non-deductible goodwill when we sold stores to franchisees as part of our ColorTyme re-branding initiative.
Rent-A-Center management believes that excluding special items from the financial results provides investors a clearer perspective of the Company's ongoing operating performance and a more relevant comparison to prior period results. Special items in the fourth quarter of 2014 consist primarily of a reduction in revenue due to consumer refunds as a result of an operating system programming error, additional costs related to the Core U.S. store closures done in the second quarter of 2014, and store closures in Mexico planned to occur in the first quarter of 2015.
Reconciliation of net income to net income excluding special items (in thousands, except per share data):
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2015 Outlook
Longer Term Guidance
The Company believes providing earnings per diluted share guidance provides investors the appropriate insight into the Company’s ongoing operating performance.
Rent-A-Center, Inc. provides annual guidance as it relates to same store sales, earnings per diluted share, and other key line items and will only provide updates if there is a material change versus the original guidance. Management will not discuss intra-period sales or other key operating results not yet reported as the limited data may not accurately reflect the final results of the period or quarter referenced.
Rent-A-Center, Inc. will host a conference call to discuss the fourth quarter results, guidance and other operational matters on Tuesday morning, February 3, 2015, 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 3,000 stores in the United States, Mexico, Canada and Puerto Rico, and approximately 1,400 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 190 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 reports on Form 10-Q for the quarters ended March 31, 2014, June 30, 2014, and September 30, 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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Note: During the fourth quarter of 2014, the Company revised its 2013 balance sheet and its statements of earnings for the three- and twelve-month periods ended December 31, 2013, to correct immaterial errors from prior years that resulted in an understatement of accrued liabilities, an overstatement of held for rent merchandise and an understatement of receivables. The correction resulted in an increase in accrued liabilities of $10.8 million, a decrease in on rent merchandise of $1.1 million and an increase in receivables of $0.5 million at December 31, 2013. The above corrections resulted in increases to net income of $0.2 million and $0.5 million for the three- and twelve-month periods ended December 31, 2013, respectively. The statements of earnings for the three-month periods ended March 31, 2014, June 30, 2014, and September 30, 2014, will be revised in future filings to increase (decrease) net earnings by $(1.6) million, $0.1 million and $0.6 million, respectively.
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On January 1, 2014, the Company realigned its reporting structure to include its 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.
During the fourth quarter of 2014, management reevaluated its operating segments and segment reporting, and determined that the chief operating decision makers relied more heavily on operating profit before corporate allocations when evaluating segment performance than operating profit after corporate allocations. In the following tables, segment operating profit is presented before corporate allocations. Corporate costs, which are primarily costs incurred at our U.S. corporate headquarters, are reported separately to reconcile to operating profit reported in the consolidated statements of operations. The costs incurred at our Mexico field support center are reported in the Mexico segment because our Executive Vice President of Mexico Operations is responsible for Mexico's operations and its field support center. The Franchising segment's corporate costs are reported in the Franchising segment because the President of RAC Franchising International is responsible for that segment's operations and corporate functions. Certain corporate assets used to support our Core U.S., Acceptance Now and Mexico segments, including the land and building in which the corporate headquarters are located and related property assets, cash and prepaid expenses were also allocated historically to these operating segments based on segment revenue. In the following tables, corporate assets are reported separately to reconcile to the consolidated balance sheets. Management believes that these changes provide investors with a more precise view of field operations and corporate costs that accurately aligns with management's view of the business.
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SOURCE Rent-A-Center, Inc.
Maureen Short
Rent-A-Center, Inc.
972-801-1899
Senior Vice President - Finance
Investor Relations and Treasury
maureen.short@rentacenter.com
Rent-A-Center, Inc., headquartered in Plano, Texas, is the largest rent-to-own operator in North America.