PLANO, Texas - (BUSINESS WIRE) - JulY 27, 2015 - Rent-A-Center, Inc. (the "Company") (NASDAQ/NGS: RCII) today announced results for the quarter ended June 30, 2015.
"We continue to see progress toward transforming our Core business and profitably growing Acceptance Now," said Robert D. Davis, the Chief Executive Officer of Rent-A-Center, Inc. "Our Core U.S. business had a second consecutive quarter of positive same store sales, and lower costs helped us achieve improved profitability. Our Flexible Labor and Sourcing and Distribution initiatives have only just started to roll out which we believe will drive significant benefits in the back half of the year. The annualized run rate savings of these two initiatives alone is expected to be $45 to $60 million."
"Acceptance Now continues to deliver solid revenue growth at industry-leading margins. We provide the highest approval rates and invoice volume per location in the industry and drive meaningful growth for our retail partners. Through technology, we are expanding sales channels to include the Acceptance Now value proposition on retail partner websites, and improving the in-store customer experience through seamless capture of customer information," Mr. Davis concluded.
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Note: Same store sales are reported on a constant currency basis beginning in 2015.
Explanations of performance are excluding special items and compared to the prior year unless otherwise noted.
CORE U.S. second quarter revenues of $593.5 million decreased 0.1 percent year over year due to same store sales growth offset by the 150 store consolidation completed in May of 2014. Gross profit as a percent of total revenue was negatively impacted by lower gross profit margin on merchandise sales and a higher mix of merchandise sales primarily due to smartphones. Labor, as a percent of store revenue, was positively impacted by labor hour reductions that occurred in the third quarter of 2014, the lower store count year over year, and lower health care costs. Other store expenses, as a percent of store revenue, were positively impacted by a lower store count, higher marketing co-op contribution, and lower gas prices, partially offset by higher losses and higher product service cost from smartphones, which were both lower sequentially. Core U.S. operating profit, as a percent of total revenue, increased 80 basis points.
ACCEPTANCE NOW second quarter revenues of $200.5 million increased 32.6 percent year over year driven by same store sales growth, the introduction of 90 day option pricing, and an increased number of locations. Gross profit as a percent of total revenue was negatively impacted by lower gross profit margin on merchandise sales and a higher mix of merchandise sales primarily due to increased usage of the 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 also positively impacted by improved leverage in the business and lower skip/stolen losses. Acceptance Now operating profit margin decreased 220 basis points, and operating profit increased $4.4 million.
MEXICO second quarter revenues increased 8.9 percent on a constant currency basis and operating losses improved by $2.1 million.
FRANCHISING second quarter gross profit increased 8.6 percent and operating profit increased by $0.6 million.
General and administrative expenses increased by $1.6 million partially due to the increased technology cost associated with implementing our strategic initiatives and higher incentive cost.
Interest expense was $12.1 million, an increase of $0.3 million year over year, driven by increased debt and a higher rate on our senior credit facility.
To supplement the Company's financial results presented on a GAAP basis, Rent-A-Center uses the non-GAAP measures ("special items”) indicated in Tables 2 and 3 below, which exclude charges in 2015 related to the closure of 26 stores in Mexico, the loss on the sale of six Core U.S. stores, start-up expenses related to our sourcing and distribution initiative and discreet adjustments to tax reserves, and restructuring charges in 2014 for the consolidation of 150 stores. Gains or charges related to store closures, sales of stores and discreet adjustments to tax reserves will generally recur with the occurrence of these events in the future. The presentation of these financial measures is not in accordance with, or an alternative for, accounting principles generally accepted in the United States and should be read in conjunction with the Company's consolidated financial statements prepared in accordance with GAAP. Rent-A-Center management believes that excluding special items from the GAAP financial results provides investors a clearer perspective of the Company's ongoing operating performance and a more relevant comparison to prior period results.
Reconciliation of net income to net income excluding special items (in thousands, except per share data):
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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 or to provide clarification. 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.
Consistent with our original 2015 guidance, we expect EPS in Q3 to be down more than 10 percent year over year, and Q4 to be up more than 20 percent. This equates to Q3 EPS in the range of $0.40 to $0.46, and Q4 EPS of $0.63 to $0.72. These projections now equate to full year 2015 guidance of $2.05 to $2.20.
Rent-A-Center, Inc. will host a conference call to discuss the second quarter results, guidance and other operational matters on Tuesday morning, July 28, 2015, at 8:30 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.
A rent-to-own industry leader, Plano, TX-based, Rent-A-Center, Inc., is 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 2,945 stores in the United States, Mexico, Canada and Puerto Rico, and approximately 1,470 Acceptance Now 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 185 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; factors 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. and Mexico segments; failure to manage the Company's labor and benefit rates, advertising and marketing expenses, operating leases, charge-offs due to customer stolen merchandise, other store expenses or indirect spending; 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, including the flexible labor and sourcing and distribution initiatives; costs associated with the Company's multi-year program designed to transform and modernize the Company’s operations; the Company's ability to successfully implement its new store information management system; the Company’s ability to successfully market smartphones and related services to its customers; the Company's ability to develop and successfully implement virtual or e-commerce capabilities; the Company's ability to retain the revenue from customer accounts merged into another store location as a result of a store consolidation plan; the Company's ability to execute the effectiveness of a 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, 2014, and its quarterly report on Form 10-Q for the quarter ended March 31, 2015. 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 identified immaterial errors that affected receivables, prepaid expenses and other assets, rental merchandise and other balance sheet line items. The correction of these errors resulted in an increase in receivables of $0.5 million, an increase in prepaid expenses and other assets of $8.7 million, a decrease in on rent merchandise of $0.7 million, a decrease in held for rent merchandise of $11.0 million and a decrease in total assets of $2.5 million at June 30, 2014. The above corrections resulted in a decrease in total revenue of $4.8 million, an increase in gross profit of $0.5 million and an increase in net income of $0.1 million for the three months ended June 30, 2014.
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Rent-A-Center, Inc. and Subsidiaries
SEGMENT INFORMATION HIGHLIGHTS - UNAUDITED
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.