PLANO, Texas - October 26, 2016 - (BUSINESS WIRE) - Rent-A-Center, Inc. (the "Company") (NASDAQ/NGS: RCII) today announced results for the quarter ended September 30, 2016.
Notable Items for the Quarter
Explanations of performance are compared to the prior year unless otherwise noted
GAAP Basis
Excluding Special Items (see "Non-GAAP Reconciliation" and related tables below)
“As previously announced, our third quarter operating results were negatively impacted by unexpected capacity-related system outages following the full implementation of our new store information management system within our Core U.S. stores. Consequently, I am terribly disappointed in the results for the quarter, both top and bottom line. Toward the end of the third quarter we had seen significant improvement in system availability and a reduction in the frequency of system outages. However, over the past two weeks on a couple of instances we have experienced system slowness and outages similar to but less impactful than what we saw earlier in the third quarter. Despite these recent challenges, over the past 6 weeks, past due percentages have been lower than they were a year ago,” said Robert D. Davis, the Chief Executive Officer of Rent-A-Center, Inc.
Mr. Davis continued, “While certainly the third quarter results were very disappointing and the macro environment continues to provide challenges and headwinds, we successfully rolled out eCommerce in October, and we have made significant progress in readying our organization for piloting with several large national retailers in Acceptance Now. We are enthusiastic about these opportunities and I continue to believe our business model provides a superior customer experience to both the retailer and the end consumer,” 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 $194.4 million decreased 1.1 percent primarily due to the same store sales decrease of 0.9 percent. Gross profit as a percent of total revenue versus prior year improved 110 basis points driven by completing the lap of 90 day option pricing changes, and the Company's increased focus on driving profitable sales. Labor, as a percent of store revenue, improved versus prior year by 130 basis points. Other store expenses, as a percent of store revenue, were up 170 basis points.
CORE U.S. third quarter revenues of $481.8 million decreased 16.3 percent primarily due to lower same store sales and the continued rationalization of our store base. Gross profit as a percent of total revenue increased 10 basis points and was positively impacted by our supply chain initiative, revenue mix, and a reduction in smartphone loss reserves, partially offset by a clearance event focused on previously-rented product. Labor, as a percent of store revenue, was negatively impacted by sales deleverage, partially offset by improved labor productivity, and lower incentive compensation. Other store expenses, as a percent of store revenue, were negatively impacted by sales deleverage, higher skip/stolen losses, and higher advertising, partially offset by a lower store count.
MEXICO third quarter revenues decreased 14.3 percent driven by currency fluctuations and store closures. Same store sales were up 10.1 percent. Gross profit as a percent of total revenue versus prior year improved 600 basis points driven by revenue mix and higher merchandise sales gross margin due to pricing initiatives. Operating profit improved by $2.6 million and EBITDA was $1.0 million.
FRANCHISING third quarter revenues increased 3.0 percent and operating profit was $1.4 million.
General and administrative expenses decreased by $1.4 million primarily driven by lower incentive compensation.
The effective tax rate on a GAAP basis decreased primarily due to the resolution of certain tax positions pertaining to prior years and an increase in tax credits. The decrease in the effective tax rate excluding special items was primarily related to an increase in tax credits.
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 restructuring charges in 2016 for the closure of certain U.S. Core stores and Acceptance Now locations, and discrete income tax items. 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 earnings to net earnings excluding special items (in thousands, except per share data):
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1) Other charges for the three months ended September 30, 2016 and 2015 primarily includes restructuring charges, net of tax, related to the closure of U.S. Core and Acceptance Now locations, and loss incurred on the sale of U.S. Core and Canada stores in the prior year. Restructuring charges are primarily comprised of lease obligation costs, employee severance, asset disposals, and miscellaneous costs incurred as a result of the closure.
The Company now projects the following for the full year assuming a continued reduction in the impact of system related incidents.
Rent-A-Center, Inc. provides annual guidance as it relates to diluted earnings per share and will only provide updates if there is a material change versus the original guidance. The Company believes providing diluted earnings per share guidance provides investors the appropriate insight into the Company’s ongoing operating performance. 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 third quarter results, guidance and other operational matters on Thursday morning, October 27, 2016, 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 2,600 stores in the United States, Mexico, Canada and Puerto Rico, and approximately 1,870 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 230 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 and operational performance of the Company's business segments; failure to manage the Company's store labor (including overtime pay) and other store expenses; the Company’s ability to develop and successfully execute strategic initiatives; the Company's ability to successfully implement its new store information management system and a new finance/HR enterprise 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; failure to achieve the anticipated profitability enhancements from the changes to the 90 day option pricing program and the development of dedicated commercial sales capabilities; disruptions in the Company's supply chain; limitations of, or disruptions in, the Company's distribution network; rapid inflation or deflation in the prices of the Company's products; 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; 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 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, 2015, and its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2016, and June 30, 2016. 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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SOURCE Rent-A-Center, Inc.
Maureen Short
Rent-A-Center, Inc.
Senior Vice President - Finance
Investor Relations and Treasury
972-801-1899
maureen.short@rentacenter.com
Rent-A-Center, Inc., headquartered in Plano, Texas, is the largest rent-to-own operator in North America.