Rent-A-Center, Inc., the nation's largest rent-to-own operator, announced revenues and earnings for the quarter and year ended December 31, 2010.
Fourth Quarter 2010 Results
Total revenues for the quarter ended December 31, 2010, were $677.1 million, an increase of $4.2 million from total revenues of $672.9 million for the same period in the prior year. This increase in revenues was primarily due to a $5.5 million increase in rentals and fees revenue driven by the RAC Acceptance business. Same store sales for the quarter ended December 31, 2010, excluding financial services revenue, were flat.
Net earnings and net earnings per diluted share for the three months ended December 31, 2010 were $31.9 million and $0.49, respectively, as compared to $43.7 million and $0.66, respectively, for the same period in the prior year.
Net earnings and net earnings per diluted share for the three months ended December 31, 2010 were impacted by the following significant items, as discussed below:
An $18.9 million pre-tax impairment charge, or approximately $0.19 per share, related to the discontinuation of the financial services business; and
A $3.1 million pre-tax financing expense, or approximately $0.03 per share, related to the repayment of $200.0 million of term loans under the Company's senior secured credit facilities.
Collectively, these items reduced net earnings per diluted share by approximately $0.22 in the fourth quarter of 2010.
When excluding the items above, adjusted net earnings per diluted share for the three months ended December 31, 2010 were $0.71, as compared to net earnings per diluted share for the three months ended December 31, 2009 of $0.66, an increase of 7.6%.
"We had excellent results in the fourth quarter," said Mark E. Speese, the Company's Chairman and Chief Executive Officer. "In our core rent-to-own business, customer demand remained strong with our best gain in customer agreements in years and improvement in our margins with our continued focus on expense control," Speese stated. "As to our growth initiatives, we accelerated the expansion of our RAC Acceptance business with the acquisition of 158 kiosk locations from The Rental Store and have more than doubled our expected 2011 kiosk openings. We also successfully entered the Mexico market with the opening of five stores during the fourth quarter. In addition to these growth initiatives, we anticipate expanding in Canada, testing other retail concepts and investing in technology in an effort to continue to improve the top line and drive additional efficiencies," Speese concluded.
Year End December 31, 2010 Results
Total revenues for the twelve months ended December 31, 2010, were $2.732 billion, a decrease of $20.0 million from total revenues of $2.752 billion for the same period in the prior year. This decrease in revenues was attributable to the November 2009 divestiture of dPi Teleconnect, LLC, the Company's subsidiary engaged in the prepaid telecommunications and energy business, which had contributed approximately $50.5 million in merchandise sales for the twelve months ended December 31, 2009. Same store sales for the twelve months ended December 31, 2010, excluding financial services revenue, decreased 0.4%.
Net earnings and net earnings per diluted share for the twelve months ended December 31, 2010 were $171.6 million and $2.60, respectively, as compared to $167.9 million and $2.52, respectively, for the same period in the prior year.
Net earnings and net earnings per diluted share for the twelve months ended December 31, 2010 were impacted by the following significant items, as discussed below:
An $18.9 million pre-tax impairment charge, or approximately $0.18 per share, related to the discontinuation of the financial services business; and
A $3.1 million pre-tax financing expense, or approximately $0.03 per share, related to the repayment of $200.0 million of term loans under the Company's senior secured credit facilities.
Collectively, these items reduced net earnings per diluted share by approximately $0.21 for the twelve months ended December 31, 2010.
Net earnings and net earnings per diluted share for the twelve months ended December 31, 2009 included $4.9 million in pre-tax litigation credits, or approximately $0.04 per share, related to the Hilda Perez matter as discussed below.
When excluding the items above, adjusted net earnings per diluted share for the twelve months ended December 31, 2010 were $2.81, as compared to adjusted net earnings per diluted share for the twelve months ended December 31, 2009 of $2.48, an increase of 13.3%.
"As a result of our strong operating results, we generated positive cash flow from operations of approximately $216.5 million for the twelve month period through December 31, 2010, while ending the quarter with approximately $70.7 million of cash on hand," commented Robert D. Davis, the Company's Executive Vice President and Chief Financial Officer. "This significant cash flow enabled us to return value to our stockholders with our first ever dividend of $0.06 per share in the third quarter and our second dividend of $0.06 per share in the fourth quarter, as well as repurchase 3.6 million shares of our common stock," Davis stated. "In addition, we enhanced our capital structure and extended our debt repayment schedules with the offering of $300 million of senior unsecured notes due 2020. We used $200 million of the net proceeds from the offering to repay term loans under the Company's existing senior secured credit facility and the remaining net proceeds will continue to be used to repurchase shares of the Company's common stock," Davis concluded.
During the twelve month period ended December 31, 2010, the Company repurchased 3,585,495 shares of its common stock for approximately $84.6 million in cash under its common stock repurchase program. In the fourth quarter, the Company repurchased 1,403,993 shares of its common stock for approximately $38.7 million in cash. To date, the Company has repurchased a total of 23,470,345 shares and has utilized approximately $551.2 million of the $800.0 million authorized by its Board of Directors since the inception of the plan.
2010 Significant Items
Financial Services Charge. On October 25, 2010, the Company announced that, in connection with the analysis of available growth initiatives, the Company was exploring strategic alternatives with respect to the financial services business, including the possible sale or divestiture of such business. As of December 31, 2010, the Company has sold a majority of the customer accounts at approximately 214 financial services store locations, and closed six financial services store locations in Montana as a result of state law changes enacted in the November general election. Since December 31, 2010, the Company has sold a majority of the customer accounts at approximately 66 financial services store locations.
During the fourth quarter of 2010, the Company recorded a pre-tax impairment charge of approximately $18.9 million related to the discontinuation of the financial services business. The charge with respect to discontinuing the operations of all 331 store locations relate primarily to fixed asset disposals, loan write-downs, and other miscellaneous items. This impairment charge reduced diluted earnings per share in the fourth quarter of 2010 by approximately $0.19 and for the twelve month period ended December 31, 2010 by approximately $0.18.
Senior Credit Facility Financing Expense. During the fourth quarter of 2010, the Company recorded a pre-tax expense of approximately $3.1 million to write off the unamortized financing costs related to the repayment of $200.0 million of term loans under the Company's existing senior secured credit facilities. This financing expense reduced diluted earnings per share in both the fourth quarter of 2010 and for the twelve month period ended December 31, 2010 by approximately $0.03.
2009 Significant Item
Hilda Perez Matter. In connection with the court approved settlement of the Hilda Perez v. Rent-A-Center, Inc. matter in New Jersey, the Company previously recorded a pre-tax credit in the amount of $3.0 million in the first quarter of 2009 and a pre-tax credit in the amount of $1.9 million in the second quarter of 2009 to account for cash payments to the Company representing undistributed monies in the settlement fund to which the Company is entitled pursuant to the terms of the settlement, as well as a refund of costs to administer the settlement previously paid by the Company which were not expended during the administration of the settlement. Through the twelve month period ended December 31, 2009, the total pre-tax credit of approximately $4.9 million increased net earnings per diluted share by approximately $0.04.
Rent-A-Center, Inc., headquartered in Plano, Texas, currently operates approximately 3,000 company-owned stores nationwide and in Canada, Mexico and Puerto Rico. The stores generally offer high-quality, durable goods such as major consumer electronics, appliances, computers and furniture and accessories under flexible rental purchase agreements that generally allow the customer to obtain ownership of the merchandise at the conclusion of an agreed upon rental period. ColorTyme, Inc., a wholly owned subsidiary of the Company, is a national franchiser of approximately 210 rent-to-own stores operating under the trade name of "ColorTyme."