Rent-A-Center, Inc. (the "Company") (NASDAQ/NGS: RCII) today
announced results for the quarter ended September 30,
2016.
Notable Items for the
Quarter
Explanations of performance are compared to the prior year
unless otherwise noted
GAAP Basis
- Diluted earnings per share was $0.12
compared to $(0.08) for the third quarter of 2015
Excluding Special Items (see "Non-GAAP Reconciliation" and
related tables below)
- Diluted earnings per share was $0.11
compared to $0.47 for the third quarter of 2015
- Consolidated total revenues decreased
12.3 percent to $693.9 million and same store sales decreased 8.4
percent
- Acceptance Now revenue decreased by 1.1
percent primarily due to the same store sales decrease of 0.9
percent
- Core U.S. revenue decreased by 16.3
percent primarily due to the same store sales decrease and the
continued rationalization of our store base. Core U.S. same store
sales decreased by 12.0 percent driven by the impact of the store
information management system implementation and system outages,
and other factors including the recast of the smartphone category,
and declines in televisions, computers and tablets
- The Company's EBITDA as a percent of
total revenues was 5.4 percent, down 370 basis points to prior year
and operating profit as a percent of total revenues was 2.5
percent, down 400 basis points
- For the nine months ended September 30,
2016 the Company generated $374.6 million of cash from operations,
capital expenditures totaled $46.8 million, and the Company ended
the third quarter with $130.3 million of cash and cash
equivalents
- The Consolidated Leverage Ratio was at
2.52x and the Fixed Charge Coverage Ratio was at 1.72x as of
September 30, 2016
- The Company paid on July 21, 2016 a
quarterly dividend for the third quarter of 2016 in the amount of
$0.08 per share
“As previously announced, our third quarter operating results
were negatively impacted by unexpected capacity-related system
outages following the full implementation of our new store
information management system within our Core U.S.
stores. Consequently, I am terribly disappointed in the
results for the quarter, both top and bottom line. Toward the
end of the third quarter we had seen significant improvement in
system availability and a reduction in the frequency of system
outages. However, over the past two weeks on a couple of instances
we have experienced system slowness and outages similar to but less
impactful than what we saw earlier in the third quarter. Despite
these recent challenges, over the past 6 weeks, past due
percentages have been lower than they were a year ago,” said Robert
D. Davis, the Chief Executive Officer of Rent-A-Center, Inc.
Mr. Davis continued, “While certainly the third quarter results
were very disappointing and the macro environment continues to
provide challenges and headwinds, we successfully rolled out
eCommerce in October, and we have made significant progress in
readying our organization for piloting with several large national
retailers in Acceptance Now. We are enthusiastic about these
opportunities and I continue to believe our business model provides
a superior customer experience to both the retailer and the end
consumer,” Mr. Davis concluded.
SAME STORE SALES
(Unaudited) Table 1
2016 2015
Core Acceptance
Core Acceptance
Period U.S. Now Mexico
Total U.S. Now Mexico Total
Three Months Ended September 30, (12.0 )% (0.9 )% 10.1 % (8.4 )%
(0.2 )% 24.5 % 5.0 % 5.2 %
Note: Same store sales are reported on a
constant currency basis.
Quarterly Operating
Performance
Explanations of performance are excluding special items and
compared to the prior year unless otherwise noted.
ACCEPTANCE NOW third quarter revenues of $194.4 million
decreased 1.1 percent primarily due to the same store sales
decrease of 0.9 percent. Gross profit as a percent of total revenue
versus prior year improved 110 basis points driven by completing
the lap of 90 day option pricing changes, and the Company's
increased focus on driving profitable sales. Labor, as a
percent of store revenue, improved versus prior year by 130 basis
points. Other store expenses, as a percent of store revenue, were
up 170 basis points.
CORE U.S. third quarter revenues of $481.8 million decreased
16.3 percent primarily due to lower same store sales and the
continued rationalization of our store base. Gross profit as a
percent of total revenue increased 10 basis points and was
positively impacted by our supply chain initiative, revenue mix,
and a reduction in smartphone loss reserves, partially offset by a
clearance event focused on previously-rented product. Labor, as a
percent of store revenue, was negatively impacted by sales
deleverage, partially offset by improved labor productivity, and
lower incentive compensation. Other store expenses, as a percent of
store revenue, were negatively impacted by sales deleverage, higher
skip/stolen losses, and higher advertising, partially offset by a
lower store count.
MEXICO third quarter revenues decreased 14.3 percent driven by
currency fluctuations and store closures. Same store sales
were up 10.1 percent. Gross profit as a percent of total revenue
versus prior year improved 600 basis points driven by revenue mix
and higher merchandise sales gross margin due to pricing
initiatives. Operating profit improved by $2.6 million and EBITDA
was $1.0 million.
FRANCHISING third quarter revenues increased 3.0 percent and
operating profit was $1.4 million.
Other
General and administrative expenses decreased by $1.4
million primarily driven by lower incentive compensation.
The effective tax rate on a GAAP basis decreased primarily due
to the resolution of certain tax positions pertaining to prior
years and an increase in tax credits. The decrease in the effective
tax rate excluding special items was primarily related to an
increase in tax credits.
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 Tables 2 and 3 below, which exclude
restructuring charges in 2016 for the closure of certain U.S. Core
stores and Acceptance Now locations, and discrete income tax items.
Gains or charges related to sales of stores, store closures, and
discrete adjustments to tax reserves 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 in conjunction 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.
Reconciliation of net earnings to net earnings excluding special
items (in thousands, except per share data):
Table 2
Three Months Ended
Three Months Ended September 30, 2016 September
30, 2015 Amount Per Share Amount
Per Share Net earnings $ 6,181 $ 0.12 $ (4,092 ) $
(0.08 ) Special items, net of taxes: Write-down of smartphones — —
21,114 0.40 Other charges (1) 820 0.01
6,615 0.13 Discrete income tax items $
(1,092 ) $ (0.02 ) $ 1,178 $ 0.02 Net earnings
excluding special items $ 5,909 $ 0.11 $ 24,815
$ 0.47
1) Other charges for the three months ended September 30, 2016
and 2015 primarily includes restructuring charges, net of tax,
related to the closure of U.S. Core and Acceptance Now locations,
and loss incurred on the sale of U.S. Core and Canada stores in the
prior year. Restructuring charges are primarily comprised of lease
obligation costs, employee severance, asset disposals, and
miscellaneous costs incurred as a result of the closure.
2016 Outlook
The Company now projects the following for the full year
assuming a continued reduction in the impact of system related
incidents.
- Core revenue of $2,065 to $2,100
million
- Acceptance Now revenue of $805 to $835
million
- Consolidated non-GAAP diluted earnings
per share of $1.05 to $1.15
Guidance Policy
Rent-A-Center, Inc. provides annual guidance as it relates to
diluted earnings per share and will only provide updates if there
is a material change versus the original guidance. The Company
believes providing diluted earnings per share guidance provides
investors the appropriate insight into the Company’s ongoing
operating performance. Management will not discuss intra-period
sales or other key operating results not yet reported as the
limited data may not accurately reflect the final results of the
period or quarter referenced.
Webcast Information
Rent-A-Center, Inc. will host a conference call to discuss the
third quarter results, guidance and other operational matters on
Thursday morning, October 27, 2016, at 8:30 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.
About Rent-A-Center,
Inc.
A rent-to-own industry leader, Plano, TX-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, and smartphones,
under flexible rental purchase agreements with no long-term
obligation. The Company owns and operates approximately 2,600
stores in the United States, Mexico, Canada and Puerto Rico, and
approximately 1,870 Acceptance Now 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.
Forward-Looking
Statement
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; factors affecting the disposable income
available to the Company's current and potential customers; changes
in the unemployment rate; difficulties encountered in improving the
financial and operational performance of the Company's business
segments; failure to manage the Company's store labor (including
overtime pay) and other store expenses; the Company’s ability to
develop and successfully execute strategic initiatives; the
Company's ability to successfully implement its new store
information management system and a new finance/HR enterprise
system; the Company’s ability to successfully market smartphones
and related services to its customers; the Company's ability to
develop and successfully implement virtual or e-commerce
capabilities; failure to achieve the anticipated profitability
enhancements from the changes to the 90 day option pricing program
and the development of dedicated commercial sales capabilities;
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; 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 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 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 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 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, 2015, and its
Quarterly Reports on Form 10-Q for the quarters ended March 31,
2016, and June 30, 2016. 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 Table 3
Three Months Ended September 30, 2016
2016 2015 2015 (In
thousands, except per share data) Before After Before After Special
Items Special Items Special Items Special Items (Non-GAAP (GAAP
(Non-GAAP (GAAP Earnings) Earnings) Earnings) Earnings) Total
revenues $ 693,877 $ 693,877 $ 791,605 $ 791,605 Operating profit
17,656
(1)
16,700 52,199
(3)
6,565 Net earnings 5,909
(1)(2)
6,181 24,815
(3)
(4,092 ) Diluted earnings per common share $ 0.11
(1)(2)
$ 0.12 $ 0.47
(3)
$
(0.08
)
Adjusted EBITDA $ 37,654 $ 37,654 $ 72,178 $
72,178
Reconciliation to Adjusted EBITDA: Earnings before income
taxes $ 6,087
(1)
$ 5,131 $ 39,862
(3)
$ (5,772 ) Add back: Other charges and (credits) —
—
— 34,698 Other charges — 956 — 10,936 Interest expense, net 11,569
11,569 12,337 12,337 Depreciation, amortization and write-down of
intangibles 19,998 19,998 19,979 19,979
Adjusted EBITDA $ 37,654 $ 37,654 $ 72,178 $ 72,178
(1)
Excludes the effects of approximately $1.0 million of
pre-tax restructuring charges primarily related to the closure of
167 Core U.S. stores and 96 Acceptance Now locations. These charges
reduced net earnings and net earnings per diluted share for the
three months ended September 30, 2016, by approximately $0.8
million and $0.01, respectively. (2)
Excludes the effects of ($1.1) million of
discrete income tax adjustments that increased diluted net earnings
per share by $0.20.
(3) Excludes the effects of a $34.7 million pre-tax write-down of
smartphones, $4.9 million pre-tax loss on the sale of 22 Core U.S.
stores to a franchisee, a $4.3 million pre-tax charge related to
the closure of 65 Core U.S. stores, a $1.2 million pre-tax charge
for start-up and warehouse closure expenses related to our sourcing
and distribution initiative, and a $0.3 million pre-tax loss on the
sale of 14 stores in Canada. These charges reduced net loss and net
loss per diluted share for the three months ended September 30,
2015, by approximately $27.7 million and $0.53, respectively. Net
loss also excludes the effect of $1.2 million of discrete income
tax adjustments to reserves that reduced earnings per diluted share
by $0.02.
SELECTED BALANCE SHEET HIGHLIGHTS -
UNAUDITED
Table 4
September 30, 2016 2015
(In thousands)
Revised Cash and Cash Equivalents $
130,305 $ 60,072 Receivables, net 59,200 63,252 Prepaid Expenses
and Other Assets 57,624 62,212 Rental Merchandise, net On Rent
754,529 849,234 Held for Rent 215,901 272,225 Total Assets
1,748,806 3,025,630 Senior Debt, net 187,761
(1)
365,181
(1)
Senior Notes, net 537,161
(1)
535,858
(1)
Total Liabilities 1,242,745 1,623,332 Stockholders' Equity 506,061
1,402,298 (1) In accordance with a newly adopted accounting
standard, debt balances are now presented net of unamortized debt
issuance costs and the 2015 amounts have been revised to conform to
the current period presentation. Unamortized debt issuance costs
related to Senior Debt were $4.6 million and $6.4 million at
September 30, 2016 and 2015, respectively. Unamortized debt
issuance costs related to Senior Notes were $5.6 million and $6.9
million at September 30, 2016 and 2015, respectively. These
unamortized debt issuance costs were previously presented in
Prepaid Expenses and Other Assets.
Rent-A-Center, Inc. and Subsidiaries CONSOLIDATED
STATEMENTS OF EARNINGS - UNAUDITED Table 5
Three
Months Ended September 30, 2016 2015
(In thousands, except per share data) Revenues
Store Rentals and fees $ 595,179 $ 683,343 Merchandise sales 73,219
80,932 Installment sales 17,626 17,786 Other 2,633
4,475 Total store revenues 688,657 786,536 Franchise
Merchandise sales 3,113 2,456 Royalty income and fees 2,107
2,613 Total revenues 693,877 791,605 Cost of
revenues Store Cost of rentals and fees 159,454 178,094 Cost of
merchandise sold 68,684 82,043 Cost of installment sales
5,553 5,854 Total cost of store revenues
233,691 265,991 Other charges — 34,698
(3)
Franchise cost of merchandise sold 2,960 2,304
Total cost of revenues 236,651 302,993
Gross profit 457,226 488,612 Operating expenses Store
expenses Labor 186,289 209,904 Other store expenses 195,096 201,638
General and administrative expenses 38,187 39,590 Depreciation,
amortization and write-down of intangibles 19,998 19,979 Other
charges 956
(1)
10,936
(4)
Total operating expenses 440,526 482,047
Operating profit 16,700 6,565 Interest expense 11,710 12,490
Interest income (141 ) (153 ) Earnings (loss) before
income taxes 5,131 (5,772 ) Income tax benefit (1,050 )
(2)
(1,680 )
(5)
NET EARNINGS (LOSS) $ 6,181 $ (4,092 ) Basic weighted
average shares 53,155 53,060 Basic
earnings per common share $ 0.12 $ (0.08 ) Diluted weighted
average shares 53,454 53,333 Diluted
earnings per common share $ 0.12 $ (0.08 ) (1)
Includes approximately $1.0 million of pre-tax restructuring
charges related to the closure of 167 Core U.S. stores and 96
Acceptance Now locations. (2) Includes ($1.1) million of discrete
income tax adjustments. (3) Includes a $34.7 million write-down of
smartphone inventory. (4) Includes a $4.9 million loss on the sale
of 22 Core U.S. stores to a franchisee, a $4.3 million charge
related to the closures of 65 Core U.S. stores, a $1.2 million
charge for start-up and warehouse closure expenses related to our
sourcing and distribution initiative, and a $0.3 million loss on
the sale of 14 stores in Canada. (5) Includes $1.2 million of
discrete adjustments to income tax reserves.
Rent-A-Center, Inc. and Subsidiaries SEGMENT
INFORMATION HIGHLIGHTS - UNAUDITED Table 6
Three
Months Ended September 30, 2016 2015
Revenues Core U.S. $ 481,805 $ 575,356 Acceptance Now 194,398
196,652 Mexico 12,454 14,528 Franchising 5,220 5,069
Total revenues $ 693,877 $ 791,605 Table 7
Three Months Ended September 30, 2016
2015 Gross profit Core U.S. $ 343,071 $ 374,214
(1)
Acceptance Now 102,998 102,133 Mexico 8,897 9,500 Franchising
2,260 2,765 Total gross profit $
457,226 $ 488,612 (1) Includes a $34.7 million
write-down of smartphone inventory.
Table 8
Three Months Ended September 30, 2016
2015 Operating profit (loss) Core U.S. $ 26,058
(1)
$ 15,700
(2)
Acceptance Now 29,592 28,901 Mexico 235 (2,359 ) Franchising
1,430 1,797 Total
segment operating profit 57,315 44,039 Corporate (40,615 )
(37,474 ) Total operating profit
$ 16,700 $ 6,565 (1)
Includes approximately $1.0 million of restructuring charges
related to the closure of 167 Core U.S. stores and 96 Acceptance
Now locations. (2) Includes a $34.7 million write-down of
smartphone inventory, a $4.9 million loss on the sale of 22 Core
U.S. stores to a franchisee, a $4.3 million charge related to the
closure of 65 Core U.S. stores, a $1.2 million charge for start-up
and warehouse closure expenses related to our sourcing and
distribution initiative, and a $0.3 million loss on the sale of 14
stores in Canada. Table 9
Three Months
Ended September 30, 2016 2015
Depreciation, amortization and write-down of intangibles Core U.S.
$ 9,495 $ 11,818 Acceptance Now 815 836 Mexico 746 1,165
Franchising 44 45 Total segments 11,100 13,864
Corporate 8,898 6,115 Total depreciation,
amortization and write-down of intangibles $ 19,998 $ 19,979
Table 10
Three Months Ended September 30,
2016 2015 Capital expenditures Core U.S. $
3,864 $ 6,148 Acceptance Now 860 921 Mexico 36 16
Total segments 4,760 7,085 Corporate 13,895 11,171
Total capital expenditures $ 18,655 $ 18,256
Table 11
On Rent at September 30, Held for
Rent at September 30, 2016 2015
2016 2015 Rental merchandise, net Core U.S. $
413,955 $ 496,524 $ 202,738 $ 260,563 Acceptance Now 326,553
334,167 6,689 6,354 Mexico 14,021 18,543 6,474
5,308 Total rental merchandise, net $ 754,529 $ 849,234 $
215,901 $ 272,225 Table 12
September
30, 2016 2015 Assets
Revised
Core U.S. $ 1,000,572 $ 2,404,391 Acceptance Now 403,305 410,892
Mexico 32,166 39,923 Franchising 1,732
1,840 Total segments 1,437,775 2,857,046 Corporate
311,031
(1)
168,584
(1)
Total assets $ 1,748,806 $ 3,025,630
(1) In accordance with a newly adopted accounting standard,
debt balances are now presented net of unamortized debt issuance
costs and the 2015 amounts have been revised to conform to the
current period presentation. Unamortized debt issuance costs
related to Senior Debt were $4.6 million and $6.4 million at
September 30, 2016 and 2015, respectively. Unamortized debt
issuance costs related to Senior Notes were $5.6 million and $6.9
million at September 30, 2016 and 2015, respectively. These
unamortized debt issuance costs were previously presented in
Prepaid Expenses and Other Assets.
Rent-A-Center, Inc. and Subsidiaries LOCATION
ACTIVITY - UNAUDITED Table 13
Three Months Ended
September 30, 2016
Acceptance Now
Acceptance Now
Core U.S.
Staffed
Direct
Mexico Franchising Total Locations at
beginning of period 2,478 1,374 545 129 228 4,754 New location
openings — 35 3 1 — 39 Acquired locations remaining open — — — — 5
5 Conversions — 2 (3 ) — — (1 ) Closed locations Merged with
existing locations (3 ) (38 ) — — (1 ) (42 ) Sold or closed with no
surviving location (6 ) — (50 ) — (1 ) (57 ) Locations at
end of period 2,469 1,373 495 130 231
4,698 Acquired locations closed and accounts merged with
existing locations — — — — — — Table 14
Three Months Ended September 30, 2015
Acceptance Now
Acceptance Now Core U.S.
Staffed Direct Mexico Franchising
Total Locations at beginning of period 2,803 1,459 12 143
187 4,604 New location openings — 30 208 — 1 239 Acquired locations
remaining open — — — — — — Conversions (22 ) (3 ) 3 22 — Closed
locations Merged with existing locations (68 ) (18 ) — — — (86 )
Sold or closed with no surviving location (16 ) — — — (3 )
(19 ) Locations at end of period 2,697 1,468 223 143
207 4,738 Acquired locations closed and accounts
merged with existing locations 7 — — — — 7
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161026006772/en/
Rent-A-Center, Inc.Maureen Short, 972-801-1899Senior Vice
President - Finance, Investor Relations and Treasurymaureen.short@rentacenter.com
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