Rent-A-Center, Inc. Reports Strong Fourth Quarter 2019 Results
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Rent-A-Center, Inc. Reports Strong Fourth Quarter 2019 Results

  • Same Store Sales of 1.6%, Two Year Same Store Sales of 10.7%
  • Double Digit Revenue Growth via Retail Partner Model
  • Diluted EPS $0.72; Non-GAAP Diluted EPS $0.58, up 66%

PLANO, Texas - (BUSINESS WIRE) - February 24, 2020 - Rent-A-Center, Inc. (the "Company" or "Rent-A-Center") (NASDAQ/NGS: RCII) today announced results for the quarter ended December 31, 2019.

“We're very pleased with fourth quarter results and excited about prospects to grow revenues and earnings in 2020," said Mitch Fadel, Chief Executive Officer of Rent-A-Center. "We've accomplished a great deal to improve financial performance and position the Company for further growth as the lease-to-own sector evolves. We intend to build on our momentum in 2020 with a strategy to significantly grow the virtual business, maintain strong profitability and continue to enhance the Rent-A-Center customer experience."

Mr. Fadel continued, “We launched an integrated retail partner offering under the Preferred Lease brand to start the year, and we're focused on driving profitable sales by maximizing retail partners' opportunity to grow revenue using our flexible, differentiated offering. Our model has momentum, with 11 percent revenue growth and 35 percent invoice volume growth in the quarter driven by organic expansion and strong performance in Merchants Preferred. A new leader of national accounts supplemented by recent additions to our board has advanced our virtual strategy and positioned us to significantly expand invoice volume in our retail partner business."

"We also achieved our eighth consecutive quarter of positive same store sales in the core business, with a significant increase in the adjusted EBITDA margin in the quarter. Our lease portfolio continued to expand throughout 2019 and we are confident in our ability to sustain positive comparable store sales in 2020. We're encouraged by our e-commerce performance and have a number of initiatives underway to increase digital revenues and leverage our store base for final mile delivery," concluded Mr. Fadel.

Federal Trade Commission Update

The Company entered into an agreement with the Federal Trade Commission (subject to a 30-day comment period) resolving the Civil Investigative Demand received in April 2019 related to the purchase and sale of customer lease agreements among Rent-A-Center, Aaron's and Buddy's. There are no fines, penalties, admission of wrongdoing, fault or liability on the part of the Company. The settlement permits the Company to continue purchasing and selling customer lease agreements. This inquiry was entirely unrelated to the FTC's investigation of Aaron's Progressive segment and the large proposed settlement announced last week by Aaron's. We have a long history of working with the FTC and other regulatory bodies to ensure customers clearly understand the key distinctions in our transaction that provide flexibility and added value and we will continue to do so. We have no additional inquiries from the FTC at this time

Consolidated Results

To reflect the Company's strategic focus, the Company will now report results for our retail partner business under the Preferred Lease segment (formerly Acceptance Now), which includes our virtual, staffed and hybrid offerings; and the Rent-A-Center Business segment (formerly Core U.S.), for our corporate owned stores in the U.S. and our e-commerce platform through rentacenter.com. These results will be provided in addition to the Company's existing Mexico, Franchise and Corporate segments. Results for the fourth quarter of 2019 are Non-GAAP excluding special items and compared to the fourth quarter of last year unless otherwise noted.

On a consolidated basis, total revenues of $667.9 million increased 0.9 percent, driven by a consolidated same store sales increase of 1.6 percent partially offset by refranchising approximately 100 locations in the past twelve months and the closures of certain Rent-A-Center stores. Excluding effects on revenues resulting from the refranchising efforts, revenues increased 2.4 percent. As a result of our debt refinancing in August 2019, net interest expense decreased $5.3 million versus the prior year. Net earnings and diluted earnings per share, on a GAAP basis, were $40.5 million and $0.72 compared to net earnings and diluted earnings per share of $1.7 million and $0.03 in the fourth quarter of 2018.

Special items in the fourth quarter of $19.4 million were primarily driven by a gain related to the sale of the Company's corporate headquarters.

The Company's Non-GAAP fourth quarter diluted earnings per share were $0.58 compared to $0.35 in the fourth quarter of 2018, an increase of 66.4 percent. The Company generated $48.4 million in operating profit in the fourth quarter compared to $32.3 million in the fourth quarter of 2018, an increase of 50.0 percent. Adjusted EBITDA in the fourth quarter was $63.7 million compared to $49.0 million in the fourth quarter of 2018, an increase of 30.2 percent.

For the twelve months ended December 31, 2019, the Company generated $215.4 million of cash from operations. The Company ended the fourth quarter with $70.5 million of cash and cash equivalents and outstanding indebtedness of $240 million, down $20 million from the end of the third quarter. The Company's net debt to adjusted EBITDA ratio ended the fourth quarter at 0.7 times compared to 2.1 times as of the end of the fourth quarter 2018.

The Rent-A-Center Board of Directors declared a cash dividend of $0.29 per share for the first quarter of 2020, which was paid out on January 29, 2020.

Preferred Lease Segment (formerly Acceptance Now)

Fourth quarter revenues of $191.9 million increased 10.8 percent. Invoice volume increased 35.1 percent, driven by strong performance from Acceptance Now, a 2.1 percent increase in same store sales, and the addition of the Merchants Preferred virtual solution. Operating profit was $17.1 million in the fourth quarter. Adjusted EBITDA was $17.6 million, and as a percent of revenue decreased 460 basis points versus the prior year driven by a higher mix of virtual locations and investments to support expected revenue growth.

Rent-A-Center Business Segment (formerly Core U.S.)

Fourth quarter revenues of $438.8 million decreased 6.0 percent driven by the refranchising of approximately 100 locations in the past 12 months and rationalization of the Rent-A-Center store base, partially offset by a same store sales increase of 1.2 percent. As a percent of revenue, skip/stolen losses were 4.1 percent, flat sequentially with the third quarter of 2019 and 40 basis points higher versus the prior year. Operating profit was $66.9 million and as a percent of revenue increased 530 basis points versus the prior year, driven by lower supply chain expenses and an increase in vendor marketing contributions. Adjusted EBITDA was $72.1 million and as a percent of total revenue increased 520 basis points versus the prior year.

Franchising Segment

Fourth quarter revenues of $23.5 million increased due to higher store count with approximately 100 locations refranchised in the past 12 months and higher inventory purchases by our franchisees. Operating profit was $2.5 million and as a percent of total revenue increased 330 basis points versus the prior year.

Mexico Segment

Fourth quarter revenues increased 6.6 percent on a constant currency basis. Operating profit was $1.5 million and as a percent of total revenue increased 840 basis points versus the prior year.

Corporate Segment

Fourth quarter expenses increased $1.2 million and as a percent of revenue increased 10 basis points versus the prior year, driven by performance based compensation.

SAME STORE SALES

(Unaudited)

     

Table 1

 

 

Period

 

Rent-A-Center Business

 

Preferred

Lease(2)

 

Mexico

 

Total

Three Months Ended December 31, 2019 (1)

 

1.2

%

 

2.1

%

 

7.6

%

 

1.6

%

Three Months Ended September 30, 2019 (1)

 

3.7

%

 

6.2

%

 

8.1

%

 

4.5

%

Three Months Ended December 31, 2018 (1)

 

8.8

%

 

9.6

%

 

13.8

%

 

9.1

%

Note: Same store sale methodology - Same store sales generally represents revenue earned in stores that were operated by us for 13 months or more and are reported on a constant currency basis. The Company excludes from the same store sales base any store that receives a certain level of customer accounts from closed stores or acquisitions. The receiving store will be eligible for inclusion in the same store sales base in the 24th full month following account transfer.

(1) Given the severity of the 2017 hurricanes, the Company instituted a change to the same store sales store selection starting in the month of September 2017, excluding geographically impacted regions for 18 months.

(2) Preferred Lease segment same store sales does not include virtual locations

2020 Guidance (1)

The Company is providing the following guidance for its 2020 fiscal year, reflecting the ongoing execution of our strategic plan.

Consolidated

  • Revenues of $2.755 to $2.875 billion
  • Adjusted EBITDA of $255 to $285 million
  • Non-GAAP diluted earnings per share of $2.45 to $2.85
  • Capital Expenditures of $40 to $45 million
  • Free cash flow of $105 million to $135 million (2)

Preferred Lease Segment (formerly Acceptance Now)

  • Revenues of $860 to $910 million
  • Adjusted EBITDA of $95 to $105 million

Rent-A-Center Business Segment (formerly Core U.S.)

  • Revenues of $1.755 to $1.825 billion, including Same Store Sales increases in the low single digits
  • Adjusted EBITDA of $265 to $285 million

(1)

 

Guidance does not include the impact of new franchising transactions

(2)

 

Free cash flow defined as net cash provided by operating activities less purchase of property assets (reference table 3).

 

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 2 below, which primarily excludes financial impacts in the fourth quarter of 2019 related to the sale of our corporate headquarters, store closures, state tax audit assessments, other litigation settlements, transaction fees for the Merchants Preferred acquisition, and cost savings initiatives and in the full year 2019 these same items as well as debt refinancing charges. 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 together 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. This press release also refers to the non-GAAP measures adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) and Free Cash Flow (net cash provided by operating activities less purchase of property assets). Reconciliation of adjusted EBITDA and Free Cash Flow to the most comparable GAAP measures are provided in Tables 3 and 4, below.

The Company believes that presentation of adjusted EBITDA is useful to investors as, among other things, this information impacts certain financial covenants under the Company's credit agreements. The Company believes that presentation of Free Cash Flow provides investors with meaningful additional information regarding the Company's liquidity. While management believes these non-GAAP financial measures are 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, these non-GAAP financial measures may differ from similar measures presented by other companies.

Reconciliation of net earnings to net earnings excluding special items:

Table 2

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

 

2019

 

2018

 

2019

 

2018

(in thousands, except per share data)

 

Amount

 

Per Share

 

Amount

 

Per Share

 

Amount

 

Per Share

 

Amount

 

Per Share

Net earnings

 

$

40,491

 

 

$

0.72

 

 

$

1,664

 

 

$

0.03

 

 

$

173,546

 

 

$

3.10

 

 

$

8,492

 

 

$

0.16

 

Special items, net of taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other charges (1)

 

(13,777

)

 

(0.24

)

 

14,500

 

 

0.26

 

 

(46,725

)

 

(0.83

)

 

45,725

 

 

0.83

 

Debt refinancing charges

 

 

 

 

 

373

 

 

0.01

 

 

1,470

 

 

0.03

 

 

373

 

 

0.01

 

Discrete income tax items(2)

 

6,009

 

 

0.10

 

 

2,567

 

 

0.05

 

 

(3,194

)

 

(0.06

)

 

3,244

 

 

0.06

 

Net earnings excluding special items

 

$

32,723

 

 

$

0.58

 

 

$

19,104

 

 

$

0.35

 

 

$

125,097

 

 

$

2.24

 

 

$

57,834

 

 

$

1.06

 

(1) Other charges for the three months ended December 31, 2019 primarily includes financial impacts, net of tax, related to the sale of our corporate headquarters, store closures, state tax audit assessments, other litigation settlements, transaction fees for the Merchants Preferred acquisition, and cost savings initiatives. Other charges for the three months ended December 31, 2018 primarily includes financial impacts, net of tax, related to cost savings initiatives, incremental legal and advisory fees, store closures, capitalized software write-downs, and hurricane damage. Charges related to store closures are primarily comprised of losses on leased merchandise, lease impairments, employee severance, asset disposals, and miscellaneous costs incurred as a result of the closures.

(2) Includes the reversal of previously recorded reserves for uncertain tax positions due to the lapse of the statute of limitations for certain years in certain jurisdictions.

Reconciliation of net cash provided by operations to free cash flow:

Table 3

 

Twelve Months Ended December 31,

(In thousands)

 

2019

 

2018

Net cash provided by operating activities

 

$

215,416

 

 

$

227,505

 

Purchase of property assets

 

(21,157

)

 

(27,962

)

Hurricane insurance recovery proceeds

 

1,113

 

 

 

Free cash flow

 

$

195,372

 

 

$

199,543

 

 

 

 

 

 

Proceeds from sale of stores

 

$

69,717

 

 

$

25,317

 

Acquisitions of businesses

 

(28,915

)

 

(2,048

)

Free cash flow including acquisitions and divestitures

 

$

236,174

   

$

222,812

 

Webcast Information

Rent-A-Center, Inc. will host a conference call to discuss the fourth quarter results, guidance and other operational matters on Tuesday morning, February 25, 2020, at 8:30 a.m. ET. For a live webcast of the call, visit https://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.

About Rent-A-Center, Inc.

A lease-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 lease purchase agreements with no long-term obligation. The Company owns and operates approximately 2,100 stores in the United States, Mexico, and Puerto Rico, and approximately 1,000 Preferred Lease staffed 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 370 lease-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.

Forward Looking Statements

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," "predict," "continue," "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; capital market conditions, including availability of funding sources for the Company; changes in the Company's credit ratings; difficulties encountered in improving the financial and operational performance of the Company's business segments; risks associated with pricing changes and strategies being deployed in the Company's businesses; the Company's ability to continue to realize benefits from its initiatives regarding cost-savings and other EBITDA enhancements, efficiencies and working capital improvements; the Company's ability to continue to effectively execute its strategic initiatives; failure to manage the Company's store labor and other store expenses; disruptions caused by the operation of the Company's store information management systems; the Company's ability to take advantage of merger and acquisition opportunities consistent with its strategies; the Company's ability to realize the strategic benefits from acquisitions to successfully integrate acquired businesses and their operations which may be more difficult, time-consuming or costly than expected and to retain key employees at acquired businesses including in respect of the acquisition of Merchants Preferred in August 2019; risks related to the Company's virtual lease-to-own business; including the Company's ability to continue to develop and successfully implement the necessary technologies; the Company's ability to achieve the benefits expected from its recently announced integrated retail preferred offering, Preferred Lease, including its ability to integrate its historic retail partner business (Acceptance Now) and the Merchants Preferred business under the Preferred Lease offering; the Company's 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 and its ability to generate sufficient cash flow to continue paying dividends; 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 brands; 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 lease purchase agreements; changes in the enforcement of existing laws and regulations and the enactment of new laws and regulations adversely affecting the Company's businesses; the Company's compliance with applicable statutes or regulations governing its businesses; changes in interest rates; changes in tariff policies; 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 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; litigation or administrative proceedings to which the Company is or may be a party to from time to time; 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, 2018, and its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2019, June 30, 2019, and September 30, 2019. 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

 

STATEMENT OF EARNINGS HIGHLIGHTS - UNAUDITED

       

Table 4

 

Three Months Ended December 31,

 

 

 

2019

 

 

2019

 

2018

 

 

2018

 

 

 

Before

 

 

After

 

Before

 

 

After

 

 

 

Special Items

 

 

Special Items

 

Special Items

 

 

Special Items

 

 

 

(Non-GAAP

 

 

(GAAP

 

(Non-GAAP

 

 

(GAAP

 

(In thousands, except per share data)

 

Earnings)

 

 

Earnings)

 

Earnings)

 

 

Earnings)

 

Total revenues

 

$

667,862

 

 

 

$

667,862

 

 

$

661,750

 

 

 

$

661,750

 

 

Operating profit

 

48,414

 

(1)

 

67,834

 

 

32,283

 

(3)

 

13,624

 

 

Net earnings

 

32,723

 

(1)(2)

 

40,491

 

 

19,104

 

(3)(4)

 

1,664

 

 

Diluted earnings per common share

 

$

0.58

 

(1)(2)

 

$

0.72

 

 

$

0.35

 

(3)(4)

 

$

0.03

 

 

Adjusted EBITDA

 

$

63,730

 

 

 

$

63,730

 

 

$

48,955

 

 

 

$

48,955

 

 

Reconciliation to Adjusted EBITDA:

 

 

 

 

 

 

 

 

 

 

 

Earnings before income taxes

 

$

43,764

 

(1)

 

$

63,184

 

 

$

22,368

 

(3)

 

$

3,234

 

 

Add back:

 

 

 

 

 

 

 

 

 

 

 

Other charges

 

 

 

 

(19,420

)

 

 

 

 

18,659

 

 

Debt refinancing charges

 

 

 

 

 

 

 

 

 

475

 

 

Interest expense, net

 

4,650

 

 

 

4,650

 

 

9,915

 

 

 

9,915

 

 

Depreciation, amortization and impairment of intangibles

 

15,316

 

 

 

15,316

 

 

16,672

 

 

 

16,672

 

 

Adjusted EBITDA

 

$

63,730

 

 

 

$

63,730

 

 

$

48,955

 

 

 

$

48,955

 

 

(1) Excludes the effects of approximately $19.4 million of pre-tax gains, primarily including a $21.8 million gain on the sale of our corporate headquarters, partially offset by $1.3 million related to store closure costs, $0.5 million related to state tax audit assessments, $0.3 million related to other litigation settlements, $0.2 million in transaction fees for the Merchants Preferred acquisition, and $0.1 million related to cost savings initiatives. These charges decreased net earnings and net earnings per diluted share for the three months ended December 31, 2019, by approximately $13.8 million and $0.24, respectively.

(2) Excludes the effects of $6.0 million of discrete income tax adjustments.

(3) Excludes the effects of approximately $18.7 million of pre-tax charges including $12.3 million related to cost savings initiatives, $4.3 million in incremental legal and advisory fees, $0.9 million related to store closure costs, $0.8 million in capitalized software write-downs, and $0.4 million related to the 2018 hurricanes. These charges increased net earnings and net earnings per diluted share for the three months ended December 31, 2018, by approximately $14.5 million and $0.26, respectively.

(4) Excludes the effects of $2.6 million of discrete income tax adjustments and $0.5 million of pre-tax debt refinancing charges that increased net earnings per diluted share for the three months ended December 31, 2018, by approximately $2.9 million and $0.06, respectively.

 

Table 5

 

Twelve Months Ended December 31,

 

 

 

2019

 

 

2019

 

2018

 

 

2018

 

 

 

Before

 

 

After

 

Before

 

 

After

 

 

 

Special Items

 

 

Special Items

 

Special Items

 

 

Special Items

 

 

 

(Non-GAAP

 

 

(GAAP

 

(Non-GAAP

 

 

(GAAP

 

(In thousands, except per share data)

 

Earnings)

 

 

Earnings)

 

Earnings)

 

 

Earnings)

 

Total revenues

 

$

2,669,852

 

 

 

$

2,669,852

 

 

$

2,660,465

 

 

 

$

2,660,465

 

 

Operating profit

 

193,131

 

(1)

 

253,859

 

 

115,461

 

(3)

 

56,137

 

 

Net earnings

 

125,097

 

(1)(2)

 

173,546

 

 

57,834

 

(3)(4)

 

8,492

 

 

Diluted earnings per common share

 

$

2.24

 

(1)(2)

 

$

3.10

 

 

$

1.06

 

(3)(4)

 

$

0.16

 

 

Adjusted EBITDA

 

$

254,235

 

 

 

$

254,235

 

 

$

184,407

 

 

 

$

184,407

 

 

Reconciliation to Adjusted EBITDA:

 

 

 

 

 

 

 

 

 

 

 

Earnings before income taxes

 

$

165,223

 

(1)

 

$

223,783

 

 

$

73,640

 

(3)

 

$

13,841

 

 

Add back:

 

 

 

 

 

 

 

 

 

 

 

Other charges

 

 

 

 

(60,728

)

 

 

 

 

59,324

 

 

Debt refinancing charges

 

 

 

 

2,168

 

 

 

 

 

475

 

 

Interest expense, net

 

27,908

 

 

 

27,908

 

 

41,821

 

 

 

41,821

 

 

Depreciation, amortization and impairment of intangibles

 

61,104

 

 

 

61,104

 

 

68,946

 

 

 

68,946

 

 

Adjusted EBITDA

 

$

254,235

 

 

 

$

254,235

 

 

$

184,407

 

 

 

$

184,407

 

 

(1) Excludes the effects of approximately $60.7 million of pre-tax gains, primarily including $92.5 million related to the merger termination settlement, $21.8 million gain on the sale of our corporate headquarters, and $1.1 million of insurance proceeds related to the 2017 hurricanes, partially offset by $20.1 million in merger termination and other incremental legal and professional fees, $13.0 million related to the Blair class action settlement, $10.2 million related to cost savings initiatives, $7.3 million related to store closure costs, $2.4 million related to state tax audit assessments, $1.4 million in transaction fees for the Merchants Preferred acquisition, and $0.3 million related to other litigation settlements. These gains decreased net earnings and net earnings per diluted share for the twelve months ended December 31, 2019, by approximately $46.7 million and $0.83, respectively.

(2) Excludes the effects of $3.2 million of discrete income tax adjustments and $2.2 million of pre-tax debt refinancing charges that decreased net earnings per diluted share for the twelve months ended December 31, 2019, by approximately $1.7 million and $0.03, respectively.

(3) Excludes the effects of approximately $59.3 million of pre-tax charges including $30.4 million related to cost savings initiatives, $16.4 million in incremental legal and advisory fees, $11.6 million related to store closure costs, $1.2 million in capitalized software write-downs, and $(0.3) million related to 2018 and 2017 hurricane impacts. These charges increased net earnings and net earnings per diluted share for the twelve months ended December 31, 2018, by approximately $45.7 million and $0.83, respectively.

(4) Excludes the effects of $3.2 million of discrete income tax adjustments and $0.5 million of pre-tax debt refinancing charges that increased net earnings per diluted share for the twelve months ended December 31, 2018, by approximately $3.6 million and $0.07, respectively.

 

SELECTED BALANCE SHEET HIGHLIGHTS - UNAUDITED

       

Table 6

 

December 31,

 

(In thousands)

 

2019

 

2018

 

Cash and cash equivalents

 

$

70,494

 

 

$

155,391

 

 

Receivables, net

 

84,123

 

 

69,645

 

 

Prepaid expenses and other assets

 

46,043

 

 

51,352

 

 

Rental merchandise, net

 

 

 

 

 

On rent

 

697,270

 

 

683,808

 

 

Held for rent

 

138,418

 

 

123,662

 

 

Operating lease right-of-use assets

 

281,566

 

 

 

 

Goodwill

 

70,217

 

 

56,845

 

 

Total assets

 

1,582,798

 

 

1,396,917

 

 

 

 

 

 

 

 

Operating lease liabilities

 

$

285,041

 

 

$

 

 

Senior debt, net

 

230,913

 

 

 

 

Senior notes, net

 

 

 

540,042

 

 

Total liabilities

 

1,123,835

 

 

1,110,400

 

 

Stockholders' equity

 

458,963

 

 

286,517

 

 

 

Rent-A-Center, Inc. and Subsidiaries

 

CONSOLIDATED STATEMENTS OF EARNINGS - UNAUDITED

           

Table 7

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

(In thousands, except per share data)

 

2019

 

2018

 

2019

 

2018

 

Revenues

 

 

 

 

 

 

 

 

 

Store

 

 

 

 

 

 

 

 

 

Rentals and fees

 

$

558,573

 

 

$

565,163

 

 

$

2,224,402

 

 

$

2,244,860

 

 

Merchandise sales

 

63,766

 

 

64,968

 

 

304,630

 

 

304,455

 

 

Installment sales

 

20,776

 

 

20,113

 

 

70,434

 

 

69,572

 

 

Other

 

1,833

 

 

2,005

 

 

4,795

 

 

9,000

 

 

Total store revenues

 

644,948

 

 

652,249

 

 

2,604,261

 

 

2,627,887

 

 

Franchise

 

 

 

 

 

 

 

 

 

Merchandise sales

 

18,828

 

 

6,438

 

 

49,135

 

 

19,087

 

 

Royalty income and fees

 

4,086

 

 

3,063

 

 

16,456

 

 

13,491

 

 

Total revenues

 

667,862

 

 

661,750

 

 

2,669,852

 

 

2,660,465

 

 

Cost of revenues

 

 

 

 

 

 

 

 

 

Store

 

 

 

 

 

 

 

 

 

Cost of rentals and fees

 

161,877

 

 

156,008

 

 

634,878

 

 

621,860

 

 

Cost of merchandise sold

 

69,006

 

 

72,657

 

 

319,006

 

 

308,912

 

 

Cost of installment sales

 

7,250

 

 

7,223

 

 

23,383

 

 

23,326

 

 

Total cost of store revenues

 

238,133

 

 

235,888

 

 

977,267

 

 

954,098

 

 

Franchise cost of merchandise sold

 

18,591

 

 

6,298

 

 

48,514

 

 

18,199

 

 

Total cost of revenues

 

256,724

 

 

242,186

 

 

1,025,781

 

 

972,297

 

 

Gross profit

 

411,138

 

 

419,564

 

 

1,644,071

 

 

1,688,168

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

Store expenses

 

 

 

 

 

 

 

 

 

Labor

 

156,875

 

 

169,879

 

 

630,096

 

 

683,422

 

 

Other store expenses

 

153,721

 

 

164,765

 

 

617,106

 

 

656,894

 

 

General and administrative expenses

 

36,812

 

 

35,965

 

 

142,634

 

 

163,445

 

 

Depreciation and amortization

 

15,316

 

 

16,672

 

 

61,104

 

 

68,946

 

 

Other charges

 

(19,420

)

(1)

18,659

 

(3)

(60,728

)

(5)

59,324

 

(7)

Total operating expenses

 

343,304

 

 

405,940

 

 

1,390,212

 

 

1,632,031

 

 

Operating profit

 

67,834

 

 

13,624

 

 

253,859

 

 

56,137

 

 

Debt refinancing charges

 

 

 

475

 

 

2,168

 

 

475

 

 

Interest expense

 

4,817

 

 

10,306

 

 

31,031

 

 

42,968

 

 

Interest income

 

(167

)

 

(391

)

 

(3,123

)

 

(1,147

)

 

Earnings before income taxes

 

63,184

 

 

3,234

 

 

223,783

 

 

13,841

 

 

Income tax expense

 

22,693

 

(2)

1,570

 

(4)

50,237

 

(6)

5,349

 

(8)

Net earnings

 

$

40,491

 

 

$

1,664

 

 

$

173,546

 

 

$

8,492

 

 

Basic weighted average shares

 

54,730

 

 

53,521

 

 

54,325

 

 

53,471

 

 

Basic earnings per common share

 

$

0.74

 

 

$

0.03

 

 

$

3.19

 

 

$

0.16

 

 

Diluted weighted average shares

 

56,571

 

 

54,967

 

 

55,955

 

 

54,542

 

 

Diluted earnings per common share

 

$

0.72

 

 

$

0.03

 

 

$

3.10

 

 

$

0.16

 

 

(1) Includes pre-tax gains of approximately $21.8 million related to the sale of our corporate headquarters, partially offset by $1.3 million related to store closure costs, $0.5 million related to state tax audit assessments, $0.3 million related to other litigation settlements, $0.2 million in transaction fees for the Merchants Preferred acquisition, and $0.1 million related to cost savings initiatives.

(2) Includes $6.0 million of discrete income tax adjustments.

(3) Includes pre-tax charges of $12.3 million related to cost savings initiatives, $4.3 million in incremental legal and advisory fees, $0.9 million related to store closure costs, $0.8 million in capitalized software write-downs, and $0.4 million related to the 2018 hurricanes.

(4) Includes $2.6 million of discrete income tax adjustments.

(5) Includes pre-tax gains of approximately $92.5 million related to the merger termination settlement, $21.8 million gain on the sale of our corporate headquarters, and $1.1 million of insurance proceeds related to the 2017 hurricanes, partially offset by $20.1 million in merger termination and other incremental legal and professional fees, $13.0 million related to the Blair class action settlement, $10.2 million related to cost savings initiatives, $7.3 million related to store closure costs, $2.4 million related to state tax audit assessments, $1.4 million in transaction fees for the Merchants Preferred acquisition, and $0.3 million related to other litigation settlements.

(6) Includes $3.2 million of discrete income tax adjustments.

(7) Includes pre-tax charges of $30.4 million related to cost savings initiatives, $16.4 million in incremental legal and advisory fees, $11.6 million related to store closure costs, $1.2 million in capitalized software write-downs, $0.6 million for 2018 hurricane damages, and $(0.9) million related to the 2017 hurricanes.

(8) Includes $3.2 million of discrete income tax adjustments.

 

Rent-A-Center, Inc. and Subsidiaries

 

SEGMENT INFORMATION HIGHLIGHTS - UNAUDITED

                 

Table 8

 

Three Months Ended December 31,

 

 

 

Twelve Months Ended December 31,

 

 

(In thousands)

 

2019

 

 

 

2018

 

 

 

2019

 

 

 

2018

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rent-A-Center Business

 

$

438,836

 

 

 

 

$

466,631

 

 

 

 

$

1,800,486

 

 

 

 

$

1,855,712

 

 

 

Preferred Lease

 

191,863

 

 

 

 

173,127

 

 

 

 

749,260

 

 

 

 

722,562

 

 

 

Mexico

 

13,694

 

 

 

 

12,491

 

 

 

 

53,960

 

 

 

 

49,613

 

 

 

Franchising

 

23,469

 

 

 

 

9,501

 

 

 

 

66,146

 

 

 

 

32,578

 

 

 

Total revenues

 

$

667,862

 

 

 

 

$

661,750

 

 

 

 

$

2,669,852

 

 

 

 

$

2,660,465

 

 

 

Table 9

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

(In thousands)

 

2019

 

2018

 

2019

 

2018

 

Gross profit

 

 

 

 

 

 

 

 

 

Rent-A-Center Business

 

$

309,761

 

 

$

324,578

 

 

$

1,255,153

 

 

$

1,299,809

 

 

Preferred Lease

 

86,977

 

 

83,175

 

 

333,798

 

 

339,616

 

 

Mexico

 

9,522

 

 

8,608

 

 

37,488

 

 

34,364

 

 

Franchising

 

4,878

 

 

3,203

 

 

17,632

 

 

14,379

 

 

Total gross profit

 

$

411,138

 

 

$

419,564

 

 

$

1,644,071

 

 

$

1,688,168

 

 

Table 10

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

(In thousands)

 

2019

 

2018

 

2019

 

2018

 

Operating profit

 

 

 

 

 

 

 

 

 

Rent-A-Center Business

 

$

65,553

 

(1)

$

32,652

 

(4)

$

235,964

 

(7)

$

147,787

 

(11)

Preferred Lease

 

16,989

 

(2)

23,086

 

(5)

83,066

 

(8)

93,951

 

(12)

Mexico

 

1,451

 

 

299

 

 

5,357

 

(9)

2,605

 

(13)

Franchising

 

2,489

 

 

698

 

 

7,205

 

 

4,385

 

 

Total segments

 

86,482

 

 

56,735

 

 

331,592

 

 

248,728

 

 

Corporate

 

(18,648

)

(3)

(43,111

)

(6)

(77,733

)

(10)

(192,591

)

(14)

Total operating profit

 

$

67,834

 

 

$

13,624

 

 

$

253,859

 

 

$

56,137

 

 

(1) Includes approximately $1.4 million of pre-tax charges primarily related to $1.3 million in store closure costs, $0.2 million in cost savings initiatives, partially offset by $0.1 million of insurance proceeds related to the 2017 hurricanes.

(2) Includes approximately $0.1 million of pre-tax charges primarily related to cost savings initiatives.

(3) Includes approximately $20.9 million of pre-tax gains primarily related to $21.8 million gain on sale of our corporate headquarters, and $(0.1) million in cost savings initiatives, partially offset by $0.5 million in state tax audit assessments, $0.3 million for other litigation settlements, and $0.2 million in transaction fees for the Merchants Preferred acquisition.

(4) Includes approximately $13.6 million of pre-tax charges primarily related to $12.3 million for cost savings initiatives, $0.1 million in capitalized software write-downs, and $0.3 million related to 2018 hurricane impacts.

(5) Includes approximately $0.4 million of pre-tax charges primarily related to capitalized software write-downs.

(6) Includes approximately $4.7 million of pre-tax charges primarily related to $4.3 million for incremental legal and advisory fees, and $0.4 million in capitalized software write-downs.

(7) Includes approximately $14.2 million of pre-tax charges primarily related to $7.2 million in store closure costs, and $8.1 million in cost savings initiatives, partially offset by a credit of $1.1 million for insurance proceeds related to the 2017 hurricanes.

(8) Includes approximately $0.5 million of pre-tax charges primarily related to cost savings initiatives.

(9) Includes approximately $0.1 million of pre-tax charges primarily related to store closure costs.

(10) Includes approximately $75.5 million of pre-tax gains primarily related to $92.5 million for the merger termination settlement, $21.8 million for the sale of our corporate headquarters, partially offset by $20.1 million in merger termination and other incremental legal and professional fees, $13.0 million related to the Blair class action settlement, $2.4 million for the state tax audit assessments, $1.6 million for cost savings initiatives, $1.4 million in transaction fees for the Merchants Preferred acquisition, and $0.3 million for other litigation settlements.

(11) Includes approximately $31.7 million of pre-tax charges primarily related to $20.2 million for cost savings initiatives, $11.7 million for store closure costs, $0.5 million related to 2018 hurricane impacts, $0.1 million in capitalized software write-downs, and $(0.8) million related to 2017 hurricane impacts.

(12) Includes approximately $5.3 million of pre-tax charges primarily related to $3.5 million for cost savings initiatives, $2.2 million in capitalized software write-downs, and $(0.4) million for store closure adjustments.

(13) Includes approximately $0.3 million of pre-tax charges primarily related to store closure costs.

(14) Includes approximately $22.0 million of pre-tax charges primarily related to $16.4 million for incremental legal and advisory fees, $6.7 million for cost savings initatives, $0.4 million in capitalized software write-downs, and $(1.5) million related to a favorable contract termination settlement.

Table 11

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

(In thousands)

 

2019

 

2018

 

2019

 

2018

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

Rent-A-Center Business

 

$

5,203

 

 

$

6,084

 

 

$

20,822

 

 

$

25,566

 

 

Preferred Lease

 

493

 

 

389

 

 

1,533

 

 

1,677

 

 

Mexico

 

84

 

 

167

 

 

401

 

 

1,006

 

 

Franchising

 

3

 

 

39

 

 

45

 

 

172

 

 

Total segments

 

5,783

 

 

6,679

 

 

22,801

 

 

28,421

 

 

Corporate

 

9,533

 

 

9,993

 

 

38,303

 

 

40,525

 

 

Total depreciation and amortization

 

$

15,316

 

 

$

16,672

 

 

$

61,104

 

 

$

68,946

 

 

Table 12

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

(In thousands)

 

2019

 

2018

 

2019

 

2018

 

Capital expenditures

 

 

 

 

 

 

 

 

 

Rent-A-Center Business

 

$

4,661

 

 

$

4,372

 

 

$

10,255

 

 

$

17,173

 

 

Preferred Lease

 

16

 

 

47

 

 

141

 

 

203

 

 

Mexico

 

107

 

 

144

 

 

172

 

 

295

 

 

Total segments

 

4,784

 

 

4,563

 

 

10,568

 

 

17,671

 

 

Corporate

 

4,363

 

 

908

 

 

10,589

 

 

10,291

 

 

Total capital expenditures

 

$

9,147

 

 

$

5,471

 

 

$

21,157

 

 

$

27,962

 

 

Table 13

 

On Lease at December 31,

 

Held for Lease at December 31,

 

(In thousands)

 

2019

 

2018

 

2019

 

2018

 

Lease merchandise, net

 

 

 

 

 

 

 

 

 

Rent-A-Center Business

 

$

411,482

 

 

$

424,829

 

 

$

131,086

 

 

$

117,294

 

 

Preferred Lease

 

268,845

 

 

242,978

 

 

1,254

 

 

1,207

 

 

Mexico

 

16,943

 

 

16,001

 

 

6,078

 

 

5,161

 

 

Total lease merchandise, net

 

$

697,270

 

 

$

683,808

 

 

$

138,418

 

 

$

123,662

 

 

Table 14

December 31,

 

(In thousands)

2019

 

2018

 

Assets

 

 

 

 

Rent-A-Center Business

$

953,151

 

 

$

714,914

 

 

Preferred Lease(1)

357,859

 

 

312,151

 

 

Mexico

33,707

 

 

29,321

 

 

Franchising

11,095

 

 

4,287

 

 

Total segments

1,355,812

 

 

1,060,673

 

 

Corporate

226,986

 

 

336,244

 

 

Total assets

$

1,582,798

 

 

$

1,396,917

 

 

(1) Includes $13.4 million of goodwill recorded in 2019 related to the acquisition of Merchants Preferred.

Contacts:

Maureen Short
Rent-A-Center, Inc.
EVP, Chief Financial Officer
972-801-1899
maureen.short@rentacenter.com

SOURCE Rent-A-Center, Inc.

###

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