PLANO, Texas - October 26, 2015 - (BUSINESS WIRE) - Rent-A-Center, Inc. (the "Company") (NASDAQ/NGS: RCII) today announced results for the quarter ended September 30, 2015.
Highlights on the quarter include the following:
"The third quarter again reinforces our focus on improving returns on our existing assets, in order to fund higher return growth initiatives," said Robert D. Davis, the Chief Executive Officer of Rent-A-Center, Inc. "The Acceptance Now location count increased 15 percent this quarter driven primarily by adding direct locations. While we believe the staffed model will continue to be the gold standard for the industry, given its superior ability to drive volume and profit dollars, our direct channel enables the expansion of our offering to lower volume locations and broadens our scope of potential retailers. We recognize that technology and innovation are critical to compete and we are investing accordingly to continuously enhance our value proposition," Mr. Davis continued.
"Improved profitability trends in the Core U.S. business including a $40 million reduction of store expenses through the third quarter reflect clear progress on implementing the strategic initiatives. The upfront work associated with our flexible labor and sourcing and distribution initiatives is substantially complete and they remain on track for the expected benefits. In order to further optimize our store base, approximately 100 under-performing stores were closed or sold during the quarter. By improving the return profile of existing assets through our strategic initiatives and by optimizing the store base, we are able to reinvest in new technology to support our rapidly growing Acceptance Now business," Mr. Davis concluded.
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Explanations of performance are excluding special items and compared to the prior year unless otherwise noted.
ACCEPTANCE NOW third quarter revenues of $196.7 million increased 26.6 percent year over year driven by same store sales growth, the introduction of 90 day option pricing, and a 24 percent year over year increase in the number of locations. Gross profit as a percent of total revenue stabilized sequentially, despite being negatively impacted by lower gross profit margin on merchandise sales and a higher mix of merchandise sales primarily due to the popularity of the 90 day option pricing. Labor and other store expenses, as a percent of store revenue, were positively impacted by improved leverage in the business.
CORE U.S. third quarter revenues of $575.4 million decreased 1.4 percent year over year primarily due to the continued rationalization of our Core U.S. store base. 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 both primarily due to smartphones. Labor, as a percent of store revenue, was positively impacted by lower store count, labor hour reductions that occurred in the third quarter of 2014, lower workers compensation costs, and the flexible labor overtime initiative. Other store expenses, as a percent of store revenue, were positively impacted by a lower store count, lower gas prices, lower training costs for smartphones, and lower insurance, partially offset by higher product service cost from smartphones. Core U.S. operating profit, as a percent of total revenue, increased 90 basis points.
MEXICO third quarter revenues decreased 24.1 percent driven by currency fluctuations and store closures; however, operating losses improved by $2.1 million.
FRANCHISING third quarter gross profit increased 29.3 percent and operating profit increased by $0.6 million.
During the third quarter, we determined that it was necessary to adjust our smartphone inventory primarily through the write-down of older generation phones, and via the acceleration of secondary market dispositions of excess phone inventory. Upon standing up the category a year ago, we purchased inventory to support new and older technology, and older generation phones fell short of our expectations while newer generation phones exceeded our expectations, resulting in excess phones. In connection with this decision, the company has recorded a $34.7 million pre-tax inventory write-down in cost of sales for the third quarter to account for these actions. Management is currently refining its approach to this profitable product category based upon our initial year of experience in this area.
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 for the write-down of smartphones, the loss on the sale of 22 Core U.S. stores to a Franchisee, restructuring charges related to the closure of 65 Core U.S. stores, start-up expenses related to our sourcing and distribution initiative, the loss on the sale of 14 Canadian stores and discrete adjustments to tax reserves. Gains or charges related to sales of stores, store closures, and discrete 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.
We now expect Q4 EPS to be $0.52 to $0.62 and these projections now equate to full year 2015 guidance of $2.00 to $2.10.
Rent-A-Center, Inc. will host a conference call to discuss the third quarter results, guidance and other operational matters on Tuesday morning, October 27, 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, and smartphones, under flexible rental purchase agreements with no long-term obligation. The Company owns and operates approximately 2,700 stores in the United States, Mexico, Canada and Puerto Rico, and approximately 1,690 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 200 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 our business segments; failure to manage the Company's store labor and other store expenses; 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; 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 execute and the effectiveness of a store consolidation, including the Company's ability to retain the revenue from customer accounts merged into another store location as a result 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 retain the revenue associated with acquired customer accounts and enhance the performance of acquired stores; 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 and the Company's ability to protect the integrity and security of individually identifiable data of its customers and employees; 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, its quarterly report on Form 10-Q for the quarter ended March 31, 2015, and its quarterly report on Form 10-Q for the quarter ended June 30, 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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(1) Excludes the effects of a $34.7 million pre-tax write-down of smartphones, $4.9 million pre-tax loss on the sale of 22 Core U.S. stores to a franchisee, a $4.3 million pre-tax charge related to the closure of 65 Core U.S. stores, a $1.2 million pre-tax charge for start-up and warehouse closure expenses related to our sourcing and distribution initiative, and a $0.3 million pre-tax loss on the sale of 14 stores in Canada. These charges reduced net loss and net loss per diluted share for the three months ended September 30, 2015, by approximately $27.7 million and $0.53, respectively. Net loss also excludes the effect of $1.2 million of discrete income tax adjustments to reserves that reduced earnings per diluted share by $0.02.
(2) Excludes the effects of a $7.1 million pre-tax vendor settlement credit, a $4.6 million pre-tax impairment charge and a $3.2 million pre-tax restructuring charge. These charges reduced net earnings and net earnings per diluted share for the three months ended September 30, 2014, by approximately $0.8 million and $0.01, respectively.
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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, a decrease in prepaid expenses and other assets of $2.3 million, a decrease in on rent merchandise of $2.2 million, an increase in held for rent merchandise of $26.9 million and an increase in total assets of $23.0 million at September 30, 2014. The above corrections resulted in a decrease in total revenue of $5.2 million, an increase in gross profit of $0.3 million and an increase in net income of $0.6 million for the three months ended September 30, 2014.
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(3) Includes a $34.7 million write-down of smartphones.
(4) Includes a $4.9 million loss on the sale of 22 Core U.S. stores to a franchisee, a $4.3 million charge related to the closure of 65 Core U.S. stores, a $1.2 million charge for start-up and warehouse closure expenses related to our sourcing and distribution initiative, and a $0.3 million loss on the sale of 14 stores in Canada.
(5) Includes $1.2 million of discrete adjustments to income tax reserves.
(6) Includes a $7.1 million vendor settlement credit.
(7) Includes a $4.6 million impairment charge, a $2.8 million corporate restructuring charge and a $0.4 million restructuring charge related to the consolidation of 150 stores in Q2 2014.
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 the Country Manager 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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(3) Includes a $4.9 million loss on the sale of 22 Core U.S. stores to a franchisee, a $4.3 million charge related to the closure of 65 Core U.S. stores, a $1.2 million charge for start-up and warehouse closure expenses related to our sourcing and distribution initiative, and a $0.3 million loss on the sale of 14 stores in Canada.
(4) Includes a $0.4 million restructuring charge related to the consolidation of 150 stores.
(5) Includes a $4.6 million impairment charge and a $2.8 million corporate restructuring charge.
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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.