Rent-A-Center, Inc. Reports Third Quarter 2014 Results

Total Revenues Increased 2.0%
Consolidated Same Store Sales Increased 1.9%
Diluted Earnings per Share of $0.48

PLANO, Texas - (BUSINESS WIRE) - Oct. 20, 2014 - Rent-A-Center, Inc. (the "Company") (NASDAQ/NGS: RCII), the nation's largest rent-to-own operator, today announced results for the quarter ended September 30, 2014.

Third Quarter 2014 Results

Total revenues were $769.5 million, an increase of $14.7 million from total revenues of $754.8 million for the same period in the prior year. This 2.0% increase in total revenues was primarily due to increases of approximately $36.6 million in the Acceptance Now segment and approximately $6.9 million in the Mexico segment, partially offset by a decrease of approximately $29.5 million in the Core U.S. segment.

Same store sales increased 1.9% as compared to the same period in the prior year, primarily attributable to increases of 25.7% and 25.9% in the Acceptance Now and Mexico segments, respectively, partially offset by a 3.6% decrease in the Core U.S. segment.

Net earnings and net earnings per diluted share were $25.3 million and $0.48, respectively, as compared to $27.2 million and $0.50, respectively, for the same period in the prior year. After adjusting for significant items (see Non-GAAP Reconciliation below), net earnings and net earnings per diluted share were $26.0 million and $0.49, respectively.

"As we expected, same store sales improved again versus the previous quarter in our Core U.S. business, aided by the roll-out of smartphones in July. In addition, Acceptance Now continued to deliver consistently strong same store sales growth. As a result of the performance of these two businesses, our earnings for the third quarter 2014 met our expectations," said Robert D. Davis, the Chief Executive Officer of Rent-A-Center, Inc.

"At the same time, these results confirm our urgency to execute on the transformation we outlined in February, with a focus on operational and infrastructure initiatives such as introducing a new labor model for our Core U.S. stores, developing a new supply chain, formulating a customer-focused value-based pricing strategy and implementing new technology into our Acceptance Now locations," Mr. Davis concluded.

Nine Months Ended September 30, 2014 Results

Total revenues were $2,376.5 million, an increase of $41.9 million from total revenues of $2,334.6 million in the same period in the prior year. This 1.8% increase in total revenues was primarily due to increases of approximately $121.9 million in the Acceptance Now segment and approximately $19.7 million in the Mexico segment, partially offset by a decrease of approximately $97.6 million in the Core U.S. segment.

Same store sales increased 0.5% as compared to the same period in the prior year, primarily attributable to increases of 25.6% and 21.2% in the Acceptance Now and Mexico segments, respectively, partially offset by a 4.9% decrease in the Core U.S. segment.

Net earnings and net earnings per diluted share were $71.7 million and $1.35, respectively, as compared to $115.2 million and $2.06, respectively, for the same period in the prior year.

For the nine months ended September 30, 2014, the Company generated cash flow from operations of approximately $63.3 million, while ending the quarter with approximately $62.0 million of cash on hand. The Company will pay its 18th consecutive quarterly cash dividend on October 23, 2014.

Non-GAAP Reconciliation

Management believes that excluding special items from the financial results provides investors a clearer perspective of the Company's ongoing operating performance and a more relevant comparison to prior period results. During the third quarter of 2014, the Company recorded a pre-tax credit of approximately $7.1 million due to the settlement of a lawsuit against the manufacturers of LCD screen displays, pre-tax restructuring charges of approximately $2.8 million related to a corporate reorganization, pre-tax restructuring charges of approximately $0.4 million related to the previously announced consolidation of 150 stores, and a pre-tax impairment charge of $4.6 million related to internally-developed computer software. During the nine months ended September 30, 2014, the Company also recorded $1.9 million of financing charges due to refinancing in the first quarter and pre-tax restructuring charges of approximately $4.4 million related to the previously announced consolidation of 150 stores in the second quarter.

While management believes this non-GAAP financial measure is useful in evaluating the Company, this information should be considered as supplemental in nature and not as a substitute for or superior to the related financial information prepared in accordance with GAAP. Further, the non-GAAP financial measure may differ from similar measures presented by other companies.

 

Reconciliation of net income to net income excluding special items (in thousands, except per share data):

    Three Months Ended September 30, 2014   Three Months Ended September 30, 2013
    Amount   Per Share   Amount   Per Share
Net income   $ 25,306     $ 0.48     $ 27,165   $ 0.50
Special items, net of taxes:                
Vendor settlement credit     (4,682 )     (0.09 )        
Other (gains) and charges     5,414       0.10          
Net income excluding special items   $ 26,038     $ 0.49     $ 27,165   $ 0.50
                 
         
    Nine Months Ended September 30, 2014   Nine Months Ended September 30, 2013
    Amount   Per Share   Amount   Per Share
Net income   $ 71,696     $ 1.35     $ 115,174   $ 2.06
Special items, net of taxes:                
Vendor settlement credit     (4,682 )     (0.09 )        
Other (gains) and charges     8,023       0.15          
Finance charges from refinancing     1,288       0.03          
Net income excluding special items   $ 76,325     $ 1.44     $ 115,174   $ 2.06

2014 Guidance

The Company's expectations for the balance of the year are consistent with the guidance provided in the second quarter 2014 press release.

Rent-A-Center, Inc. will host a conference call to discuss the third quarter results, guidance and other operational matters on Tuesday morning, October 21, 2014, at 10:45 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.

Rent-A-Center, Inc., headquartered in Plano, Texas, is the largest rent-to-own operator in North America, 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 3,020 stores in the United States, Mexico, Canada and Puerto Rico, and approximately 1,360 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 190 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; economic pressures, such as high fuel costs, 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. segment; 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; costs associated with the Company's multi-year program designed to transform and modernize the Company’s operations; the Company’s ability to successfully market smartphones and related services to its customers; the Company's ability to develop and successfully implement digital electronic commerce capabilities; the Company's ability to retain the revenue from customer accounts merged into another store location as a result of the store consolidation plan; the Company's ability to execute and the effectiveness of the 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, 2013, and its quarterly reports on Form 10-Q for the quarters ended March 31, 2014, and June 30, 2014. 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. 


 
 
Rent-A-Center, Inc. and Subsidiaries
 
STATEMENT OF EARNINGS HIGHLIGHTS
(Unaudited)
     
(In thousands, except per share data)   Three Months Ended September 30,
    2014        2014       

2013 (2)

    Before     After     After
    Significant Items     Significant Items     Significant Items
    (Non-GAAP     (GAAP     (GAAP
    Earnings)     Earnings)     Earnings)
Total Revenues   $ 769,525     $ 769,525       $ 754,780  
Operating Profit     45,494       44,823         55,773  
Net Earnings     26,038

(1)

    25,306         27,165  
Diluted Earnings per Common Share   $ 0.49

(1)

  $ 0.48       $ 0.50  
Adjusted EBITDA   $ 65,412     $ 65,412       $ 75,833  
                   
Reconciliation to Adjusted EBITDA:                  
       
Earnings Before Income Taxes   $ 33,713

(1)

  $ 33,042       $ 45,040  
Add back (subtract):                  
Vendor settlement credit           (7,072 )        
Restructuring charge           3,185          
Impairment charge           4,558          
Interest Expense, net     11,781       11,781         10,733  
Depreciation of Property Assets     18,536       18,536         19,421  
Amortization and Write-down of Intangibles     1,382       1,382         639  
                   
Adjusted EBITDA   $ 65,412     $ 65,412       $ 75,833  
                           

(1) 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 quarter ended September 30, 2014, by approximately $0.7 million and $0.01, respectively.

(2) As discussed in our Annual Report on Form 10-K for the year ended December 31, 2013, we identified errors in accounting for our estimates for rental merchandise reserves and for the allowance for doubtful accounts, resulting in an immaterial overstatement of on rent merchandise and understatements of held for rent merchandise and receivables which affected periods through December 31, 2013. We increased (decreased) previously reported salaries and other expenses, operating profit, income tax expense and net earnings by $0.8 million, $(0.8) million, $(0.3) million and $(0.5) million in our historical financial statement highlights and financial statements for the three-month period endedSeptember 30, 2013, reported herein.

(In thousands, except per share data)   Nine Months Ended September 30,
    2014        2014     

2013 (4)

    Before     After   After
    Significant Items     Significant Items   Significant Items
    (Non-GAAP     (GAAP   (GAAP
    Earnings)     Earnings)   Earnings)
Total Revenues   $ 2,376,488     $ 2,376,488     $ 2,334,572  
Operating Profit    

149,793

      144,745       211,787  
Net Earnings     76,325

(3)

    71,696       115,174  
Diluted Earnings per Common Share   $ 1.44

(3)

  $ 1.35     $ 2.06  
Adjusted EBITDA   $ 210,225     $ 210,225     $ 271,135  
               
Reconciliation to Adjusted EBITDA:              
   
Earnings Before Income Taxes   $ 115,296

(3)

  $ 108,302     $ 183,673  
Add back (subtract):              
Vendor settlement credit           (7,072 )      
Restructuring charge           7,562        
Impairment charge           4,558        
Finance charges from refinancing           1,946        
Interest Expense, net     34,497       34,497       28,114  
Depreciation of Property Assets     56,258       56,258       56,654  
Amortization and Write-down of Intangibles     4,174       4,174       2,694  
               
Adjusted EBITDA   $ 210,225     $ 210,225     $ 271,135  

(3) Excludes the effects of a $7.1 million pre-tax vendor settlement credit, a $7.6 million pre-tax restructuring charge, a $4.6 million pre-tax impairment charge and a $1.9 million pre-tax refinancing charge. These charges reduced net earnings and net earnings per diluted share for the nine months ended September 30, 2014, by approximately $4.6 million and$0.09, respectively.

(4) As discussed in our Annual Report on Form 10-K for the year ended December 31, 2013, we identified errors in accounting for our estimates for rental merchandise reserves and for the allowance for doubtful accounts, resulting in an immaterial overstatement of on rent merchandise and understatements of held for rent merchandise and receivables which affected periods through December 31, 2013. We increased (decreased) previously reported salaries and other expenses, operating profit, income tax expense and net earnings by $1.5 million, $(1.5) million, $(0.6) million and $(0.9) million in our historical financial statement highlights and financial statements for the nine-month period endedSeptember 30, 2013, reported herein. We also increased (decreased) previously reported accounts receivable, on rent rental merchandise inventory, held for rent rental merchandise, total assets, total liabilities and stockholders' equity by $4.5 million, $(16.4) million, $1.2 million, $(10.7) million, $(4.0) million and $(6.7) million, respectively, atSeptember 30, 2013.

     
(In thousands of dollars)   September 30,
      2014        

2013 (4)

 

Cash and Cash Equivalents   $ 61,958   $ 52,857  
Receivables, net     68,229     52,979  
Prepaid Expenses and Other Assets     85,565     73,910  
Rental Merchandise, net        
On Rent     867,184     838,132  
Held for Rent     266,574     218,633  
Total Assets   $ 3,059,191   $ 2,926,559  
         
Senior Debt   $ 425,135   $ 284,575  
Senior Notes     550,000     550,000  
Total Liabilities     1,674,167     1,585,556  
Stockholders' Equity   $ 1,385,024   $ 1,341,003  
         

 

         
Rent-A-Center, Inc. and Subsidiaries
 
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
         
(In thousands, except per share data)   Three Months Ended September 30,   Nine Months Ended September 30,
      2014      

2013 (2)

 

    2014      

2013 (4)

 

Revenues        
Store                
Rentals and fees   $ 678,190     $ 671,334     $ 2,056,492     $ 2,013,885  
Merchandise sales     58,477       53,808       226,148       227,171  
Installment sales     18,089       17,474       54,499       52,138  
Other     6,384       4,483       14,376       14,244  
Franchise                
Merchandise sales     6,524       6,396       19,811       23,072  
Royalty income and fees     1,861       1,285       5,162       4,062  
      769,525       754,780       2,376,488       2,334,572  
Cost of revenues                
Store                
Cost of rentals and fees     177,208       170,979       532,590       507,826  
Cost of merchandise sold     47,569       42,344       174,299       175,903  
Cost of installment sales     6,134       5,983       18,874       18,141  
Vendor settlement credit     (7,072 )           (7,072 )      
Franchise cost of merchandise sold     6,247       6,142       18,984       22,072  
      230,086       225,448       737,675       723,942  
Gross profit     539,439       529,332       1,638,813       1,610,630  
Operating expenses                
Salaries and other expenses     443,874       435,866       1,345,303       1,281,922  
General and administrative expenses     41,617       37,054       132,471       114,227  
Amortization and write-down of intangibles     1,382       639       4,174       2,694  
Other (gains) and charges     7,743             12,120        
      494,616       473,559       1,494,068       1,398,843  
                 
Operating profit     44,823       55,773       144,745       211,787  
Finance charges from refinancing                 1,946        
Interest expense     11,981       10,916       35,178       28,773  
Interest income     (200 )     (183 )     (681 )     (659 )
Earnings before income taxes     33,042       45,040       108,302       183,673  
Income tax expense     7,736       17,875       36,606       68,499  
NET EARNINGS   $ 25,306     $ 27,165     $ 71,696     $ 115,174  
                 
Basic weighted average shares     52,864       53,438       52,828       55,423  
                 
Basic earnings per common share   $ 0.48     $ 0.51     $ 1.36     $ 2.08  
                 
Diluted weighted average shares     53,114       53,812       53,069       55,800  
                 
Diluted earnings per common share   $ 0.48     $ 0.50     $ 1.35     $ 2.06  
                                 

Rent-A-Center, Inc. and Subsidiaries

SEGMENT INFORMATION HIGHLIGHTS
(Unaudited)

On January 1, 2014, the Company realigned its reporting structure to include its Canadian stores in the Core U.S. segment, which were previously reported in the International segment. The accompanying prior-year amounts and store counts have been revised to reflect this change, and we now refer to the segment formerly reported as "International" as "Mexico" since only that country's results are reported therein.

     
(In thousands of dollars)   Three Months Ended September 30, 2014
    Core U.S.   Acceptance Now   Mexico   Franchising   Total
Revenue   $ 581,600      $ 160,388      $ 19,152        $ 8,385      $ 769,525
Gross profit     430,816     92,911     13,574       2,138     539,439
Operating profit (loss)     27,297     21,242     (4,884 )     1,168     44,823
Depreciation of property assets     15,208     1,506     1,773       49     18,536
Amortization and write-down of intangibles     1,240     142               1,382
Capital expenditures     16,177     3,336     770           20,283
     
(In thousands of dollars)   Three Months Ended September 30, 2013
    Core U.S.   Acceptance Now   Mexico   Franchising   Total (2)
Revenue   $ 611,091   $ 123,798   $ 12,210     $ 7,681   $ 754,780
Gross profit     444,898     74,083     8,812       1,539     529,332
Operating profit (loss)     44,073     18,789     (7,488 )     399     55,773
Depreciation of property assets     16,610     1,323     1,468       20     19,421
Amortization and write-down of intangibles     497     142               639
Capital expenditures     22,399     2,819     3,722           28,940
     
(In thousands of dollars)   Nine Months Ended September 30, 2014
    Core U.S.   Acceptance Now   Mexico   Franchising   Total
Revenue   $ 1,808,403   $ 490,392   $ 52,720     $ 24,973   $ 2,376,488
Gross profit     1,319,325     275,694     37,805       5,989     1,638,813
Operating profit (loss)     99,315     61,218     (17,979 )     2,191     144,745
Depreciation of property assets     49,129     4,356     5,204       135     58,824
Amortization and write-down of intangibles     3,748     426               4,174
Capital expenditures     47,898     9,193     4,642           61,733
Rental merchandise, net                    
On rent     532,743     313,533     20,908           867,184
Held for rent     253,017     5,779     7,778           266,574
Total assets     2,576,022     410,296     70,350       2,523     3,059,191
     
(In thousands of dollars)   Nine Months Ended September 30, 2013
    Core U.S.   Acceptance Now   Mexico   Franchising   Total (4)
Revenue   $ 1,905,968   $ 368,454   $ 33,016     $ 27,134   $ 2,334,572
Gross profit     1,371,890     209,960     23,718       5,062     1,610,630
Operating profit (loss)     176,807     51,833     (18,497 )     1,644     211,787
Depreciation of property assets     48,987     3,574     4,033       60     56,654
Amortization and write-down of intangibles     2,267     427               2,694
Capital expenditures     57,642     7,021     9,098           73,761
Rental merchandise, net                    
On rent     568,413     255,997     13,722           838,132
Held for rent     207,628     3,681     7,324           218,633
Total assets     2,518,194     345,539     61,617       1,209     2,926,559

 

         
SAME STORE SALES
(Unaudited)
         
    2014     2013  
Period   Core U.S.   Acceptance Now   Mexico   Total   Core U.S.   Acceptance Now   Mexico   Total
Three months ended March 31,   (6.1 )%   26.1 %   20.3 %   (0.8 )%   (8.7 )%   33.8 %   80.0 %   (4.3 )%
Three months ended June 30,   (4.7 )%   25.1 %   17.0 %   0.6 %   (5.8 )%   32.0 %   61.3 %   (1.6 )%
Three months ended September 30,   (3.6 )%   25.7 %   25.9 %   1.9 %   (5.0 )%   29.3 %   36.2 %   (0.8 )%
Nine months ended September 30,   (4.9 )%   25.6 %   21.2 %   0.5 %   (6.6 )%   31.6 %   55.2 %   (2.3 )%

 

     
Rent-A-Center, Inc. and Subsidiaries
 
LOCATION ACTIVITY
(Unaudited)
     
    Location Activity - Three Months Ended September 30, 2014
    Core U.S.   Acceptance Now   Mexico   Franchising   Total
Locations at beginning of period   2,847   1,359   176   180   4,562
New location openings   2   55     14   71
Acquired locations remaining open   1         1
Closed locations                    
Merged with existing locations     55       55
Sold or closed with no surviving location   9       6   15
Locations at end of period   2,841   1,359   176   188   4,564
Acquired locations closed and accounts merged with existing locations   1         1
     
    Location Activity - Three Months Ended September 30, 2013
    Core U.S.   Acceptance Now   Mexico   Franchising   Total
Locations at beginning of period   2,990   1,153   130   221   4,494
New location openings   6   112   22   4   144
Acquired locations remaining open   6         6
Closed locations                    
Merged with existing locations   10   10   2     22
Sold or closed with no surviving location     1     12   13
Locations at end of period   2,992   1,254   150   213   4,609
Acquired locations closed and accounts merged with existing locations   5         5
     
    Location Activity - Nine Months Ended September 30, 2014
    Core U.S.   Acceptance Now   Mexico   Franchising   Total
Locations at beginning of period   3,010   1,325   151   179   4,665
New location openings   10   140   30   23   203
Acquired locations remaining open   2         2
Closed locations                    
Merged with existing locations   163   105   5     273
Sold or closed with no surviving location   18   1     14   33
Locations at end of period   2,841   1,359   176   188   4,564
Acquired locations closed and accounts merged with existing locations   7         7
     
    Location Activity - Nine Months Ended September 30, 2013
    Core U.S.   Acceptance Now   Mexico   Franchising   Total
Locations at beginning of period   3,008   966   90   224   4,288
New location openings   15   320   62   9   406
Acquired locations remaining open   12         12
Closed locations                    
Merged with existing locations   40   31   2     73
Sold or closed with no surviving location   3   1     20   24
Locations at end of period   2,992   1,254   150   213   4,609
Acquired locations closed and accounts merged with existing locations   18         18

SOURCE Rent-A-Center, Inc.

Contacts:

David E. Carpenter
Rent-A-Center, Inc.
972-801-1214
Vice President - Investor Relations
david.carpenter@rentacenter.com

Maureen B. Short
Rent-A-Center, Inc.
972-801-1899
Senior Vice President
Finance, Investor Relations and Treasury
maureen.short@rentacenter.com

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