Rent-A-Center, Inc. Reports First Quarter Revenue Increase

Furniture World Magazine

the nation’s largest rent-to-own operator, announced revenues and earnings for the quarter ended March 31, 2008. First Quarter 2008 Results The Company reported total revenues for the quarter ended March 31, 2008 of $756.6 million, an increase of $1.3 million from the reported total revenues of $755.3 million for the same period in the prior year. This increase in revenues was primarily driven by a 2.8% increase in same store sales, offset by a reduction in revenue as a result of approximately 315 fewer stores over the past year primarily due to the previously announced restructuring plan. Reported net earnings for the quarter ended March 31, 2008 were $36.4 million, as compared to the reported net earnings of $15.1 million for the same period in the prior year. Reported net earnings for the quarter ended March 31, 2008 were reduced by a $2.9 million pre-tax restructuring expense related to the previously announced restructuring plan, as discussed below. Reported net earnings for the quarter ended March 31, 2007 were reduced by a $51.3 million pre-tax litigation charge related to the Hilda Perez matter, as discussed below. Reported net earnings per diluted share for the quarter ended March 31, 2008 were $0.54, as compared to the reported net earnings per diluted share of $0.21 for the same period in the prior year. Reported net earnings per diluted share for the quarter ended March 31, 2008 were reduced by $0.03 per share as a result of the restructuring expense related to the previously announced restructuring plan, as discussed below. Reported net earnings per diluted share for the quarter ended March 31, 2007 were reduced by approximately $0.46 per share as a result of the litigation expense related to the Hilda Perez matter, as discussed below. “I am pleased with our results for the first quarter, where we exceeded our guidance for total revenue, same store sales and net earnings per diluted share,” commented Mark E. Speese, the Company's Chairman and Chief Executive Officer. “These positive results primarily benefited from higher merchandise sales and an earlier than planned benefit from our restructuring plan,” Speese continued. “While we are mindful of the challenging macro-economic environment, we will continue to stay the course and focus on those areas within our control including the customer’s in-store experience, collections, and managing our resources wisely,” Speese concluded. Through the three month period ended March 31, 2008, the Company generated cash flow from operations of approximately $128.3 million, while ending the quarter with approximately $78.6 million of cash on hand. In addition, during the three month period ended March 31, 2008, the Company reduced its outstanding indebtedness by approximately $134.1 million. Since March 31, 2008, the Company has further reduced its outstanding indebtedness by approximately $11.7 million. Operations Highlights During the first quarter of 2008, the Company opened two new store locations, acquired accounts from six locations, consolidated 10 stores into existing locations and sold seven stores, for a net reduction of 15 stores and an ending balance as of March 31, 2008 of 3,066 company-owned stores. During the first quarter of 2008, the Company added financial services to seven existing rent-to-own store locations, consolidated two stores with financial services into existing locations, and closed one location, ending the quarter with a total of 280 stores providing these services. Since March 31, 2008, the Company has acquired accounts from six locations, consolidated one store into an existing location and sold five stores. The Company has added financial services to 12 existing rent-to-own store locations, acquired accounts from one location, and closed one location since March 31, 2008. 2008 Significant Item Restructuring Plan Expenses. During the first quarter of 2008, the Company recorded a pre-tax restructuring expense of approximately $2.9 million in connection with the restructuring plan previously announced on December 3, 2007. This restructuring expense reduced net earnings per diluted share in the first quarter of 2008 by approximately $0.03. As previously reported, the Company recorded a pre-tax restructuring expense of approximately $38.7 million related to this restructuring plan during the fourth quarter of 2007. The costs with respect to these store closings relate primarily to lease terminations, fixed asset disposals and other miscellaneous items. 2007 Significant Item Hilda Perez. On November 5, 2007, the Company paid an aggregate of $109.3 million, including plaintiffs’ attorneys’ fees and administration costs, pursuant to the court approved settlement of the Hilda Perez v. Rent-A-Center, Inc. matter pending in New Jersey. Under the terms of the settlement, the Company is entitled to 50% of any undistributed monies in the settlement. As previously reported, the Company recorded a pre-tax expense of $58.0 million in connection with the Perez matter during the fourth quarter of 2006, and an additional pre-tax charge of $51.3 million in the first quarter of 2007, to account for the aforementioned costs. The litigation expense with respect to the Perez settlement reduced net earnings per diluted share by approximately $0.46 in the first quarter of 2007. Rent-A-Center, Inc., headquartered in Plano, Texas, currently operates approximately 3,060 company-owned stores nationwide and in Canada 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 215 rent-to-own stores operating under the trade name of "ColorTyme." SECOND QUARTER 2008 GUIDANCE: Revenues - The Company expects total revenues to be in the range of $701 million to $716 million. - Store rental and fee revenues are expected to be between $625 million and $637 million. - Total store revenues are expected to be in the range of $693 million to $708 million. - Same store sales are expected to be flat. - The Company expects to open approximately 5 new rent-to-own store locations. - The Company expects to add financial services to approximately 25 rent-to-own store locations. Expenses - The Company expects cost of rental and fees to be between 22.6% and 23.0% of store rental and fee revenue and cost of merchandise sold to be between 74% and 78% of store merchandise sales. - Store salaries and other expenses are expected to be in the range of 57.1% to 58.6% of total store revenue. - General and administrative expenses are expected to be between 4.3% and 4.5% of total revenue. - Net interest expense is expected to be approximately $16 million, depreciation of property assets is expected to be approximately $18 million and amortization of intangibles is expected to be approximately $4 million. - The effective tax rate is expected to be in the range of 37.5% to 38.0% of pre-tax income. - Diluted earnings per share are estimated to be in the range of $0.53 to $0.59. - Diluted shares outstanding are estimated to be between 66.8 million and 67.8 million. FISCAL 2008 GUIDANCE: Revenues - The Company expects total revenues to be in the range of $2.868 billion and $2.908 billion. - Store rental and fee revenues are expected to be between $2.515 billion and $2.555 billion. - Total store revenues are expected to be in the range of $2.830 billion and $2.870 billion. - Same store sales are expected to be in the flat to 2% range. The Company expects to open approximately 30 - 40 new rent-to-own store locations. - The Company expects to add financial services to approximately 150 rent-to-own store locations. Expenses - The Company expects cost of rental and fees to be between 22.6% and 23.0% of store rental and fee revenue and cost of merchandise sold to be between 74% and 78% of store merchandise sales. - Store salaries and other expenses are expected to be in the range of 56.9% to 58.4% of total store revenue. - General and administrative expenses are expected to be between 4.3% and 4.5% of total revenue. - Net interest expense is expected to be approximately $65 million, depreciation of property assets is expected to be between $70 million and $75 million and amortization of intangibles is expected to be approximately $14 million. - The effective tax rate is expected to be approximately 37% of pre-tax income. - Diluted earnings per share are estimated to be in the range of $2.17 to $2.32. - Diluted shares outstanding are estimated to be between 66.8 million and 67.8 million.