PLANO, Texas - July 26, 2017 - (BUSINESS WIRE) - Rent-A-Center, Inc. (the "Company") (NASDAQ/NGS: RCII) today announced results for the quarter ended June 30, 2017.
“We continued to make progress executing our strategic plan during the second quarter, delivering sequential improvements in same store sales in both the Core U.S. and Acceptance Now businesses. While we are on a positive trajectory, given the portfolio nature of the business it will take time for the results to fully materialize,” said Mark Speese, Chief Executive Officer of Rent-A-Center. “A number of new initiatives were implemented during the quarter which are expected to continue our positive momentum by further improving execution and enhancing the customer experience. Looking forward, we are confident in our ability to fully realize the value creation opportunities of our strategic plan and we will continue to take actions that we believe are in the best interests of our stockholders.”
During the second quarter of 2017, Rent-A-Center saw improved results following the execution of several targeted initiatives. The new value proposition, which was implemented in the first quarter, continued to be optimized with refinements across both Company operated domestic segments. In the Core U.S. segment, an employee co-worker profit sharing program was implemented to reinforce the focus on quality and execution. The Company also improved its inventory mix through a customer-centric assortment strategy focused on aspirational products. Additionally, in order to improve the customer experience, the Company launched a mystery shopper program.
Explanations of performance are excluding special items and compared to the prior year unless otherwise noted.
On a consolidated basis, total revenues were $677.6 million versus $749.6 million in the second quarter of last year. Consolidated same store sales improved 40 basis points versus the first quarter of 2017 due to the progress made on executing the Company’s initiatives. Diluted loss per share, on a GAAP basis, was $0.17 compared to diluted earnings per share of $0.19 in the second quarter of last year.
Excluding special items, the Company’s diluted loss per share was $0.01 and the Company generated $28.9 million in adjusted EBITDA in the second quarter. Adjusted EBITDA as a percent of revenue decreased 20 basis points versus the first quarter.
For the six months ended June 30, 2017, the Company generated $111.9 million of cash from operations and ended the second quarter with $73.8 million of cash and cash equivalents. On July 20, 2017, the Company paid a quarterly dividend for the second quarter of 2017 in the amount of $0.08 per share and also reduced its outstanding debt balance by $15.6 million in the second quarter. The Company also executed an amendment to its credit facility, providing the Company with the liquidity and flexibility to implement its strategic plan.
CORE U.S. second quarter revenues of $457.0 million decreased 13.9 percent primarily due to lower same store sales and the rationalization of the Core U.S. store base in the prior year. Gross profit as a percent of total revenue decreased 260 basis points due to targeted pricing actions implemented to right size the inventory mix and changes from the new value proposition. Labor decreased $19.4 million driven by lower store count and insurance expenses. However, labor as a percent of store revenue increased primarily due to sales deleverage. Other store expenses decreased $17.6 million driven by lower store count and lower skip/stolen losses. Other Expenses, as a percent of store revenue, increased primarily due to sales deleverage.
ACCEPTANCE NOW second quarter revenues of $203.3 million increased 1.9 percent primarily due to the same store sales increase of 6.7 percent offset by revenue declines due to store closures. Gross profit as a percent of total revenue versus prior year decreased 170 basis points due to lower gross profit on merchandise sales resulting from a focused effort to encourage ownership and reduce returned product. Labor, as a percent of store revenue, improved 90 basis points versus prior year. Other store expenses, as a percent of store revenue, increased by 60 basis points primarily driven by sales deleverage, offset by lower skip/stolen losses which decreased by 70 basis points.
MEXICO second quarter revenues decreased 9.7 percent primarily due to lower same store sales. Gross profit as a percent of total revenue versus prior year improved 30 basis points driven by higher merchandise sales gross margin due to pricing initiatives. Operating profit was $0.13 million.
FRANCHISING second quarter revenues decreased 14.6 percent due to a lower amount of merchandise sold to the Company’s franchise partners and operating profit was $1.1 million.
CORPORATE operating expenses increased compared to prior year primarily driven by incentive compensation accrued at a higher rate versus prior year and higher depreciation brought about by the implementation of the new point of sale system in 2016.
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Non-GAAP Reconciliation
To supplement the Company's financial results presented on a GAAP basis, Rent-A-Center uses the non-GAAP measures ("special items”) indicated in Table 3 below, which primarily excludes charges in the second quarter of 2017 for the closure of Acceptance Now locations, incremental legal and advisory fees, debt refinancing charges, 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.
Please see the Company's earnings press release dated May 1, 2017 for additional information related to non-GAAP diluted loss per share excluding special items used to calculate the sequential improvements contained in this press release.
Reconciliation of net (loss) earnings to net earnings excluding special items:
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The Company is not providing annual guidance as it relates to revenue or diluted earnings per share for 2017. In an effort to enhance transparency regarding the Company’s results and turnaround efforts, the Company has shifted to a monthly report of key operating metrics (Table 2). The Company believes these changes will provide the investment community meaningful insight into the progress the Company is making on its turnaround.
Rent-A-Center, Inc. will host a conference call to discuss the second quarter results, guidance and other operational matters on Thursday morning, July 27, 2017, 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. Residents of the United States and Canada can listen to the call by dialing (800) 399-0012. International participants can access the call by dialing (404) 665-9632.
A rent-to-own industry leader, Plano, Texas-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 2,600 stores in the United States, Mexico, Canada and Puerto Rico, and approximately 1,300 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 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," "believe," or “confident,” 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; the Company's chief executive officer and chief financial officer transitions, including the Company's ability to effectively operate and execute its strategies during the interim period and difficulties or delays in identifying and/or attracting a permanent chief financial officer with the required level of experience and expertise; failure to manage the Company's store labor and other store expenses; the Company’s ability to develop and successfully execute strategic initiatives; disruptions, including capacity-related outages, caused by the implementation and operation of the Company's new store information management system, and its transition to more-readily scalable, “cloud-based” solutions; the Company's ability to develop and successfully implement digital or E-commerce capabilities, including mobile applications; 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, 2016, and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2017. 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 hereof or to reflect the occurrence of unanticipated events.
Please see the Company's earnings press release dated May 1, 2017 for the non-GAAP reconciliation of consolidated adjusted EBITDA in the prior quarterly period which was used to calculate the sequential improvements contained in this press release.
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Maureen Short
Investor Relations
Rent-A-Center, Inc.
972-801-1899
Interim Chief Financial Officer
maureen.short@rentacenter.com
Joele Frank
Kelly Sullivan / James Golden / Matt Gross / Aura Reinhard
Media Relations
Wilkinson Brimmer Katcher
212-355-4449
Rent-A-Center, Inc., headquartered in Plano, Texas, is the largest rent-to-own operator in North America.