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Rent-A-Center, Inc. Reports 6.6% Revenue Decline

Furniture World News Desk on 2/20/2018


Rent-A-Center, Inc.  announced results for the quarter ended December 31, 2017.

On a Consolidated basis, total revenues of $639.0 million declined by 6.6 percent primarily due to closures of certain of the Company's Acceptance NOW locations, a same store sales decline of 2.0 percent and the 2017 hurricane activity. Net profit and diluted earnings per share, on a GAAP basis, were $34.8 million and $0.65 compared to net loss and diluted loss per share of $146.4 million and $2.76 in the fourth quarter of last year.

GAAP earnings benefited by $1.45 per share related to the Tax Cuts and Jobs Act (the “Tax Act”) passed in December of 2017, which resulted in the revaluation of net deferred tax liabilities to a 21 percent federal tax rate.

Excluding special items, the Company’s diluted loss per share was $0.41 and the Company generated negative $8.5 million in adjusted EBITDA in the fourth quarter. Adjusted EBITDA as a percent of revenue decreased 390 basis points versus the third quarter.

For the twelve months ended December 31, 2017, the Company generated $110.5 million of cash from operations, ended the fourth quarter with $73.0 million of cash and cash equivalents, and reduced its outstanding debt balance by $52.5 million.

“I am excited to be back at Rent-A-Center to lead the organization through these challenging times and believe my experience spanning over 30 years in the business will be invaluable. I fully understand the headwinds the Company is facing and will aggressively pursue a path that brings the Company back to health. The fourth quarter performance was more challenging than the Company expected and demonstrated the need for change,” stated Mitch Fadel, Chief Executive Officer of Rent-A-Center.

“In order to improve company performance, we are focusing our attention on reducing costs and improving cash flow. We also intend to improve traffic trends through a more targeted value proposition and customer centric approach. In addition, we have also initiated efforts to more aggressively expand our franchising operations in order to enhance our brand in a more capital-efficient way.”

Mr. Fadel continued, “In December, the Board of Directors engaged AlixPartners, a well-known business consulting firm, to assist the Company in identifying financial cost-savings and efficiencies. We are pleased to report the Company has identified approximately $100 million of annualized EBITDA and working capital opportunities. Additionally, the new tax reform, passed in December of 2017, is expected to generate a material benefit to cash taxes of approximately $200 million over the next three years, which the Company expects to utilize to improve our capital position by paying down debt. These cost reductions and working capital opportunities will be pursued alongside our Board of Directors ongoing review and evaluation of strategic and financial alternatives in an effort to maximize stockholder value.”

Strategic Plan:

  • The Company's strategic plan will now focus on several improvement areas including a significant cost savings plan, a more targeted value proposition, and a refranchising program. The Company will track performance against these areas to monitor progress on a quarterly basis.

  • The Company is targeting significant cost savings opportunities across the business in the areas of overhead, supply chain and other store expenses.

  • The updated value proposition in the Core is intended to improve traffic trends with a balanced approach of competitively pricing elastic categories while capturing more margin in inelastic categories.
  • Within Acceptance NOW, the value proposition will center around improved return on investment through a shorter payback period and higher ownership levels.
  • Refranchising brick and mortar locations will enable the Company to maintain and grow its presence while using proceeds to pay down debt.


Segment Operating Performance

CORE U.S. fourth quarter revenues of $444.7 million decreased 6.0 percent primarily due to a same store sales decline of 3.6 percent, the impact from the 2017 hurricanes and the rationalization of the Core U.S. store base. In addition, same store sales was negatively impacted by higher promotional free time activity in the quarter. Gross profit as a percent of total revenue versus prior year increased 10 basis points. Labor decreased $4.2 million versus prior year driven primarily by lower store count. Other store expenses decreased $2.7 million driven by lower skip/stolen losses and lower store count.

ACCEPTANCE NOW fourth quarter revenues of $175.8 million decreased 9.1 percent primarily due to closures of the Company's Conn’s and HHGregg locations as well as the impact from the 2017 hurricanes, which was partially offset by a same store sales increase of 6.7 percent. Gross profit as a percent of total revenue versus prior year decreased 220 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 200 basis points versus prior year due to efforts to improve store level profitability through conversions of staffed locations to direct locations. Other store expenses, as a percent of store revenue, increased by 740 basis points primarily driven by a one-time, non-cash, charge to write off unreconciled invoices and higher skip/stolen losses.

MEXICO fourth quarter revenues decreased 2.4 percent on a constant currency basis driven by a same store sales decline of 2.3 percent. Gross profit as a percent of total revenue versus prior year decreased 270 basis points driven by lower rental sales gross margin and merchandise sales gross margin.

FRANCHISING fourth quarter revenues were $6.7 million and operating profit was $1.5 million.

CORPORATE operating expenses decreased $6.6 million compared to the prior year primarily driven by lower executive and incentive compensation.

2018 Selected Guidance

As the Company remains in the midst of a strategic and financial alternatives review process, the following selected guidance is being provided at this time:

The Board of Directors recently engaged AlixPartners to assist in identifying financial cost-savings and efficiencies. The Company has identified annualized cost savings opportunities of $65 to $85 million, approximately two thirds of which is expected to be realized in 2018.


About Rent-A-Center, Inc.: 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.