PLANO, Texas - October 30, 2017 - (BUSINESS WIRE) - Rent-A-Center, Inc. (the "Company") (NASDAQ/NGS:RCII) today announced results for the quarter ended September 30, 2017.
“We continue to make progress in executing on important aspects of our strategic plan, while recognizing there is still work to be done to restore growth and improve profitability,” said Mark Speese, Chief Executive Officer of Rent-A-Center. “During the seasonally lower third quarter, we again delivered sequential improvements in same store sales in both the Core U.S. and Acceptance Now businesses. In addition, we continued to improve the fundamentals of our agreement portfolio in the Core U.S. business by refining and enhancing the operating model and are in the early phases of repositioning the Acceptance Now business for profitable growth.”
Mr. Speese continued, "During the third quarter, our results were impacted by unprecedented hurricane activity, which will disrupt business in the near term. Our immediate concern has been the safety of our coworkers and customers and we remain committed to caring for those in need.”
During the third quarter of 2017, Rent-A-Center continued to see improving fundamentals in the Core U.S. segment. Within the Core U.S. segment, the improved inventory assortment is becoming a larger portion of the portfolio, driving increases in the monthly rate of new agreements. The Company continues to empower store level coworkers to attract and retain talent by modifying pay ranges and encouraging the shift to full time hours.
In the Acceptance NOW segment, the Company implemented several decision engine enhancements aimed at improving ownership and decreasing losses. Additionally, the Company undertook a full assessment of partner relationships and several actions were taken to improve profitability and service levels.
Explanations of performance are excluding special items and compared to the prior year unless otherwise noted.
On a consolidated basis, total revenues were $644.0 million versus $693.9 million in the third quarter of last year. Consolidated same store sales improved 430 basis points versus the second quarter of 2017 due to the progress made on executing the Company’s initiatives. Net loss and diluted loss per share, on a GAAP basis, were $12.6 million and $0.24 compared to net earnings and earnings per share of $6.2 million and $0.12 in the third quarter of last year.
Excluding special items, the Company’s diluted loss per share was $0.15 and the Company generated $17.1 million in adjusted EBITDA in the third quarter. Adjusted EBITDA as a percent of revenue decreased 170 basis points versus the second quarter.
For the nine months ended September 30, 2017, the Company generated $135.4 million of cash from operations and ended the third quarter with $76.2 million of cash and cash equivalents.
The Company recorded a pre-tax expense of approximately $1.7 million related to the damage caused by Hurricanes Harvey and Irma. The costs relate primarily to inventory losses, store remediation efforts and employee assistance. The Company recorded a $0.2 million expense related to Hurricane Maria and expects to have a more complete assessment in the fourth quarter. The costs associated with Hurricane Maria are related to employee assistance in the Puerto Rico area in the third quarter.
CORE U.S. third quarter revenues of $442.8 million decreased 8.1 percent primarily due to lower same store sales, the rationalization of the Core U.S. store base in the prior year and the hurricane impact. Gross profit as a percent of total revenue versus prior year decreased 120 basis points due to targeted pricing actions implemented to right size the inventory mix and changes from the new value proposition. Gross profit as a percent of total revenue improved versus the second quarter by 40 basis points. Labor decreased $3.8 million versus prior year driven primarily by lower store count. Other store expenses decreased $27.4 million driven by lower skip/stolen losses, lower store count and lower advertising expenses.
ACCEPTANCE NOW third quarter revenues of $184.3 million decreased 5.2 percent primarily due to closures of the Company's Conn’s and HHGregg locations as well as the impact from the recent hurricanes, which was partially offset by a same store sales increase of 7.9 percent. Gross profit as a percent of total revenue versus prior year decreased 300 basis points primarily 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 20 basis points versus prior year due to efforts to improve store level profitability. Other store expenses, as a percent of store revenue, increased by 320 basis points primarily driven by higher skip/stolen losses which increased by 240 basis points and sales deleverage.
MEXICO third quarter revenues decreased 1.7 percent primarily due to lower same store sales offset by a stronger Mexican peso. Gross profit as a percent of total revenue versus prior year decreased 220 basis points driven by lower rental sales gross margin partially offset by higher merchandise sales gross margin due to pricing initiatives.
FRANCHISING third quarter revenues decreased 10.5 percent due to a lower amount of merchandise sold to the Company’s franchise partners and operating profit was $1.0 million.
CORPORATE operating expenses increased $2.5 million compared to the prior year primarily driven by project expenses related to strategic initiatives, higher depreciation expense due to recent technology investments and higher legal expenses.
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 third quarter of 2017 for the closure of Acceptance Now locations, reductions at our field support center, damage caused by Hurricanes Harvey, Irma and Maria, litigation settlements, and incremental legal and advisory fees. Gains or charges related to store closures 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 July 26, 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 (loss) earnings excluding special items:
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 monthly reporting 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 third quarter results, guidance and other operational matters on Tuesday morning, October 31, 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 2,500 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; uncertainties concerning the outcome, impact, effects and results of the Company’s exploration of its strategic and financial alternatives; 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 caused by the operation of the Company's 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 the Company’s dividend policy and any changes thereto, 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 Reports on Form 10-Q for the quarters ended March 31, 2017 and June 30, 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.
Rent-A-Center, Inc. and Subsidiaries
Please see the Company's earnings press release dated July 26, 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.
Rent-A-Center, Inc. and Subsidiaries
SEGMENT INFORMATION HIGHLIGHTS - UNAUDITED
Maureen Short
Investor Relations
Rent-A-Center, Inc.
972-801-1899
Interim Chief Financial Officer
maureen.short@rentacenter.com
Joele Frank
Media Relations
Wilkinson Brimmer Katcher
Kelly Sullivan / James Golden / Matt Gross / Aura Reinhard
212-355-4449
SOURCE Rent-A-Center, Inc.
Rent-A-Center, Inc., headquartered in Plano, Texas, is the largest rent-to-own operator in North America.