Rent-A-Center posts positive consolidated
same store sales of 9.1 percent and strong earnings and cash flow
in the fourth quarter
Rent-A-Center, Inc. (the "Company" or "Rent-A-Center")
(NASDAQ/NGS: RCII) today announced results for the quarter ended
December 31, 2018.
"When I returned to Rent-A-Center last January as CEO, we
focused the Company’s strategy on optimizing the cost structure,
increasing store traffic through an enhanced value proposition and
growing our franchising business. I am extremely pleased with our
2018 results as we made substantial progress in each of those areas
and exceeded our financial and operational expectations," stated
Mitch Fadel, Chief Executive Officer of Rent-A-Center.
Mr. Fadel continued, “Consolidated same store sales increased by
9.1 percent in the fourth quarter and extended our streak of
quarterly same store sales improvement to eight consecutive
quarters. The cost savings initiatives and improved operational
performance led to an increase of over $100 million in adjusted
EBITDA versus 2017. The operational results coupled with working
capital improvements and franchise sales helped reduce our net debt
by over $220 million in 2018 and we ended the year with over $155
million of cash on the balance sheet. In 2019, we expect to further
benefit from the full year impact of the cost savings initiatives
implemented in 2018, which are expected to reduce costs
year-over-year by approximately $50 million. Customer demand is
also on a positive trajectory and we will continue to refine our
value proposition with a strong focus on execution in 2019."
Termination of Merger
Agreement
On December 18, 2018, after the Company did not receive an
extension notice from Vintage Rodeo Parent, LLC (“Vintage”) that
was required by December 17, 2018 to extend the Merger Agreement’s
stated End Date, we terminated the Merger Agreement. Our Board of
Directors determined that terminating the Merger Agreement was in
the best interests of our stockholders, and instructed
Rent-A-Center’s management to exercise the Company’s right to
terminate the Merger Agreement and make a demand on Vintage for the
$126.5 million reverse breakup fee owed to us following the
termination of the Merger Agreement. On December 21, 2018, Vintage
and its affiliates filed a lawsuit in Delaware Court of Chancery
against Rent-A-Center, asserting that the Merger Agreement remained
in effect, and that Vintage did not owe Rent-A-Center the $126.5
million reverse breakup fee. B. Riley, a guarantor of the payment
of the reverse breakup fee, later joined the lawsuit brought by
Vintage in Delaware Court of Chancery. In addition, Rent-A-Center
brought a counterclaim against Vintage and B. Riley asserting its
right to payment of the reverse breakup fee.
On February 11th and 12th of this year, a trial was held in
Delaware Court of Chancery in the lawsuit arising from
Rent-A-Center's termination of the Merger Agreement. While it is
difficult to predict the outcome of litigation, we believe
Rent-A-Center, under the express and unambiguous language of that
agreement, had a clear right to terminate the Merger Agreement and
that it is entitled to the $126.5 million reverse breakup fee. Oral
argument on the parties' post-trial briefs is scheduled for Monday,
March 11th.
Consolidated Overview
Explanations of performance for the fourth quarter of 2018 are
excluding special items and compared to the fourth quarter of last
year unless otherwise noted.
On a consolidated basis, total revenues were $661.8 million
representing an increase of 3.6 percent primarily driven by a
consolidated same store sales increase of 9.1 percent partially
offset by closures of certain Core U.S. stores. Net earnings and
diluted earnings per share, on a GAAP basis, were $1.7 million and
$0.03 compared to net earnings and diluted earnings per share of
$34.8 million and $0.65 in the fourth quarter of last year. We note
that in 2017 GAAP diluted earnings per share were benefited by
$1.45 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 earnings per
share were $0.35 and the Company generated $49.0 million in
adjusted EBITDA in the fourth quarter, compared to a loss per
diluted share of $0.41 and adjusted EBITDA loss of $8.5 million in
the fourth quarter of last year.
Special items impacting adjusted EBITDA of $18.7 million
included charges primarily driven by cost savings initiatives,
incremental legal and advisory fees, and store closure costs.
For the twelve months ended December 31, 2018, the Company
generated $227.5 million of cash from operations and reduced its
outstanding debt balance by $139.3 million. The Company ended the
fourth quarter with $155.4 million of cash and cash equivalents
compared to $73.0 million as of the end of 2017. The Company's net
debt to adjusted EBITDA ratio ended the year at 2.1 times,
reflecting a substantial reduction compared to the ratio of 8.6
times as of the end of 2017.
Segment Operating
Performance
CORE U.S. fourth quarter revenues of $466.6 million increased
4.9 percent due to a same store sales increase of 8.8 percent
offset by the rationalization of the Core U.S. store base. Gross
profit as a percent of total revenue versus the prior year
decreased 30 basis points. Labor and other store expenses decreased
by $6.7 million and $13.7 million, respectively, primarily driven
by lower store count and the cost savings initiatives. Adjusted
EBITDA was $52.4 million and as a percent of total revenue
increased 700 basis points versus the prior year.
ACCEPTANCE NOW fourth quarter revenues of $173.1 million
decreased 1.5 percent primarily due to closures in 2017 partially
offset by a same store sales increase of 9.6 percent. Gross profit
as a percent of total revenue versus prior year decreased 290 basis
points primarily due to the intercompany book value adjustment on
returned Acceptance NOW products and certain value proposition
enhancements. Labor and other store expenses decreased by $24.4
million primarily driven by the cost savings initiatives and lower
skip/stolen losses. Adjusted EBITDA was $23.8 million and as a
percent of total revenue increased 10.9 percentage points versus
the prior year.
MEXICO fourth quarter revenues increased 12.1 percent on a
constant currency basis. Gross profit as a percent of total revenue
versus prior year increased 90 basis points driven by higher rental
and fees gross margin. Other store expense improved 70 basis points
versus prior year driven by lower skip/stolen losses. Adjusted
EBITDA was $0.5 million and as a percent of total revenue increased
110 basis points versus prior year.
FRANCHISING fourth quarter revenues of $9.5 million increased
primarily due an increase in merchandise sales driven by higher
store count and a 2018 accounting standard change for franchise
advertising fees. Adjusted EBITDA was $0.7 million.
CORPORATE fourth quarter operating expenses
decreased $6.4 million compared to the prior year primarily due to
the realization of cost savings partially offset by higher
incentive compensation.
SAME STORE SALES (Unaudited)
Table 1
Period Core U.S.
AcceptanceNow
Mexico Total Three Months
Ended December 31, 2018 (1) 8.8 % 9.6 % 13.8 % 9.1 % Three Months
Ended September 30, 2018 (1) 5.2 % 6.7 % 12.8 % 5.7 % Three Months
Ended December 31, 2017 (1) (3.6 )% 6.7 % (2.3 )% (2.0 )%
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.
2019 Guidance (1)
The Company is providing the following guidance for its 2019
fiscal year which has been updated to reflect the impact of a
franchise transaction completed in January of 2019.
- Consolidated revenues of $2.585 billion
to $2.630 billion
- Core U.S. revenues of $1.765 billion to
$1.790 billion
- Acceptance NOW revenues of $725 million
to $740 million
- Consolidated Same Store Sales increases
in the low to mid-single digits
- Adjusted EBITDA of $220 million to $250
million
- Non-GAAP diluted earnings per share of
$1.75 to $2.15
- Free cash flow of $115 million to $145
million (2)
- Net debt of $270 million to $235
million
- Leverage ratio of 1.25x to 0.90x
(1) Guidance does not include the impact of new franchising
transactions beyond the transaction completed in January of 2019,
refinancing the balance sheet or the reverse breakup fee associated
with the termination of the Merger Agreement.
(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 2018 related to cost
savings initiatives, incremental legal and advisory fees,
capitalized software write downs, store closures, and hurricane
impacts. 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 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. 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 senior
credit facilities and the indentures governing its 6.625% senior
unsecured notes due November 2020 and its 4.75% senior unsecured
notes due May 2021. 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 (loss) excluding
special items:
Table 2
Three Months Ended
December 31, Twelve Months Ended December 31,
2018 2017 2018
2017 (in thousands, except per share data)
Amount
Per Share
Amount Per Share Amount
Per Share Amount Per
Share Net earnings $ 1,664 $ 0.03 $ 34,824 $ 0.65 $ 8,492 $
0.16 $ 6,653 $ 0.12 Special items, net of taxes: Other charges (1)
14,500 0.26 17,009 0.32 45,725 0.83 37,256 0.70 Debt refinancing
charges 373 0.01 — — 373 0.01 1,239 0.02 Tax Cut and Jobs Act gain
— — (77,505 ) (1.45 ) — — (77,505 ) (1.45 ) Discrete income tax
items 2,567 0.05 3,566 0.07
3,244 0.06 3,642 0.07
Net earnings (loss) excluding special items $ 19,104 $ 0.35
$ (22,106 ) $ (0.41 ) $ 57,834 $ 1.06 $ (28,715 ) $ (0.54 )
(1) 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. Other charges for the three months ended December 31,
2017 primarily includes charges, net of tax, related to capitalized
software write-downs, hurricane damage, closure of Acceptance Now
locations, incremental legal and advisory fees, legal settlements,
and charges related to previous store closure plans. Charges
related to store closures are primarily comprised of losses on
rental merchandise, lease obligation costs, employee severance,
asset disposals, and miscellaneous costs incurred as a result of
the closures.
Reconciliation of net cash provided by operations to free cash
flow:
Table 3
Twelve Months Ended December
31, (In thousands)
2018 2017 Net
cash provided by operating activities
$
227,505
$
110,533
Purchase of property assets (27,962 ) (65,460 ) Free
cash flow
$
199,543
$
45,073
Proceeds from sale of stores
$
25,317
$
4,638
Acquisitions of businesses (2,048 ) (2,525 ) Free
cash flow including acquisitions and divestitures
$
222,812
$
47,186
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 26, 2019, 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. 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 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 2,300
stores in the United States, Mexico, and Puerto Rico, and
approximately 1,200 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 280 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
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; the
outcome of the litigation initiated by Vintage Capital and B. Riley
challenging the validity of the termination of the Merger Agreement
and the Company's right, or the ability, to collect on the $126.5
million reverse breakup fee; risks relating to operations of the
business and the Company’s financial results arising out of the
termination of the Merger Agreement; the effect of the termination
of the Merger Agreement on the Company’s relationships with third
parties, including its employees, franchisees, customers,
suppliers, business partners and vendors, which may make it more
difficult to maintain business and operations relationships, and
negatively impact the operating results of the Company’s business
segments and the Company’s business generally; the risk of material
price volatility with respect to trading in the Company’s common
stock during litigation related to the termination of the Merger
Agreement; the Company's ability to continue to effectively operate
and execute its strategic initiatives as a stand-alone enterprise
following the termination of the Merger Agreement; 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, including its ability to
execute its franchise strategy; the Company’s ability to
recapitalize its debt, including its revolving credit facility
expiring December 31, 2019, and senior notes maturing in November
2020 and May 2021 on favorable terms, if at all; 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 operate and 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 system; 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, and the impact, effects and
results of the changes the Company has made and is making to its
distribution methods; 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; 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;
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; 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, 2017, and its Quarterly Report
on Form 10-Q for the quarters ended March 31, 2018, June 30, 2018
and September 30, 2018. 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 (LOSS) HIGHLIGHTS - UNAUDITED
Table 4
Three Months Ended December 31, 2018
2018 2017
2017 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 $ 661,750 $ 661,750 $
638,954 $ 638,954 Operating profit (loss) 32,283
(1)
13,624 (27,254 )
(3)
(54,893 ) Net earnings (loss) 19,104
(1)(2)
1,664 (22,106 )
(3)(4)
34,824 Diluted earnings (loss) per common share $ 0.35
(1)(2)
$ 0.03 $ (0.41 )
(3)(4)
$ 0.65 Adjusted EBITDA $ 48,955 $ 48,955 $ (8,543 ) $ (8,543 )
Reconciliation to Adjusted EBITDA: Earnings (loss) before
income taxes $ 22,368
(1)
$ 3,234 $ (38,605 )
(3)
$ (66,244 ) Add back: Other charges — 18,659 — 27,639 Debt
refinancing charges — 475 — — Interest expense, net 9,915 9,915
11,351 11,351 Depreciation, amortization and impairment of
intangibles 16,672 16,672 18,711
18,711 Adjusted EBITDA $ 48,955 $ 48,955 $ (8,543 ) $ (8,543
)
(1) 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, $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.
(2) 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.
(3) Excludes the effects of approximately $27.6 million of
pre-tax charges including $18.2 million for capitalized software
write-downs, $3.5 million for hurricane impacts, $3.1 million for
the closure of Acceptance Now locations, $2.0 million for
incremental legal and advisory fees, $0.5 million in legal
settlements, and $0.3 million for previous store closure plans.
These charges reduced net earnings and net earnings per diluted
share for the three months ended December 31, 2017, by
approximately $17.0 million and $0.32, respectively.
(4) Excludes the effects of a $77.5 million gain resulting from
the Tax Cuts and Jobs Act and $3.6 million of discrete income tax
adjustments that increased net earnings per diluted share by
$1.38.
Table 5
Twelve Months Ended December
31, 2018 2018
2017 2017 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 $ 2,660,465 $ 2,660,465 $ 2,702,540 $ 2,702,540 Operating
profit (loss) 115,461
(1)
56,137 (3,840 )
(3)
(63,059 ) Net earnings (loss) 57,834
(1)(2)
8,492 (28,715 )
(3)(4)
6,653 Diluted earnings (loss) per common share $ 1.06
(1)(2)
$ 0.16 $ (0.54 )
(3)(4)
$ 0.12 Adjusted EBITDA $ 184,407 $ 184,407 $ 70,799 $ 70,799
Reconciliation to Adjusted EBITDA: Earnings (loss) before
income taxes $ 73,640
(1)
$ 13,841 $ (49,045 )
(3)
$ (110,200 ) Add back: Other charges — 59,324 — 59,219 Debt
refinancing charges — 475 — 1,936 Interest expense, net 41,821
41,821 45,205 45,205 Depreciation, amortization and impairment of
intangibles 68,946 68,946 74,639
74,639 Adjusted EBITDA $ 184,407 $ 184,407 $ 70,799 $
70,799
(1) 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 hurricanes 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.
(2) 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.
(3) Excludes the effects of approximately $59.2 million of
pre-tax charges including $24.0 million for the closure of
Acceptance Now locations, $18.2 million for capitalized software
write-downs, $6.5 million for incremental legal and advisory fees,
$5.4 million for hurricane impacts, $3.4 million for reductions at
the field support center, $1.1 million for previous store closure
plans, and $0.6 million in legal settlements. These charges reduced
net earnings and net earnings per diluted share for the twelve
months ended December 31, 2017, by approximately $37.3 million
and $0.70, respectively.
(4) Excludes the effects of a $77.5 million gain resulting from
the Tax Cuts and Jobs Act, $3.6 million of discrete income tax
adjustments, and $1.9 million of pre-tax debt refinancing charges
that increased net earnings per diluted share for the twelve months
ended December 31, 2017, by approximately $72.6 million and
$1.36, respectively.
SELECTED BALANCE SHEET HIGHLIGHTS -
UNAUDITED
Table 6
December 31, (In thousands)
2018
2017 Cash and cash equivalents $ 155,391 $
72,968 Receivables, net 69,645 69,823 Prepaid expenses and other
assets 51,352 64,577 Rental merchandise, net On rent 683,808
701,803 Held for rent 123,662 167,188 Goodwill 56,845 56,614 Total
assets 1,396,917 1,420,781 Senior debt, net $ — $ 134,125
Senior notes, net 540,042 538,762 Total liabilities 1,110,400
1,148,338 Stockholders' equity 286,517 272,443
Rent-A-Center, Inc. and
Subsidiaries CONSOLIDATED STATEMENTS OF EARNINGS
(LOSS) - UNAUDITED Table 7
Three Months Ended
December 31, Twelve Months Ended December 31, (In
thousands, except per share data)
2018
2017 2018 2017 Revenues Store
Rentals and fees $ 565,163 $ 544,722 $ 2,244,860 $ 2,267,741
Merchandise sales 64,968 65,341 304,455 331,402 Installment sales
20,113 19,961 69,572 71,651 Other 2,005 2,192
9,000 9,620 Total store revenues
652,249 632,216 2,627,887 2,680,414 Franchise Merchandise sales
6,438 3,946 19,087 13,157 Royalty income and fees 3,063
2,792 13,491 8,969
Total revenues 661,750 638,954 2,660,465 2,702,540 Cost of revenues
Store Cost of rentals and fees 156,008 150,847 621,860 625,358 Cost
of merchandise sold 72,657 65,898 308,912 322,628 Cost of
installment sales 7,223 7,523
23,326 23,622 Total cost of store revenues
235,888 224,268 954,098 971,608 Franchise cost of merchandise sold
6,298 3,805 18,199
12,390 Total cost of revenues 242,186
228,073 972,297 983,998 Gross
profit 419,564 410,881 1,688,168 1,718,542 Operating expenses Store
expenses Labor 169,879 181,269 683,422 732,466 Other store expenses
164,765 197,702 656,894 744,187 General and administrative expenses
35,965 40,453 163,445 171,090 Depreciation, amortization and
impairment of intangibles 16,672 18,711 68,946 74,639 Other charges
18,659
(1)
27,639
(3)
59,324
(5)
59,219
(7)
Total operating expenses 405,940 465,774 1,632,031 1,781,601
Operating profit (loss) 13,624 (54,893 ) 56,137 (63,059 ) Debt
refinancing charges 475 — 475 1,936 Interest expense 10,306 11,650
42,968 45,996 Interest income (391 ) (299 )
(1,147 ) (791 ) Earnings (loss) before income taxes 3,234
(66,244 ) 13,841 (110,200 ) Income tax (benefit) expense
1,570
(2)
(101,068 )
(4)
5,349
(6)
(116,853 )
(8)
Net earnings $ 1,664 $ 34,824 $ 8,492 $ 6,653
Basic weighted average shares 53,521
53,312 53,471 53,282 Basic
earnings per common share $ 0.03 $ 0.65 $ 0.16
$ 0.12 Diluted weighted average shares 54,967
53,894 54,542 53,844
Diluted earnings per common share $ 0.03 $ 0.65 $
0.16 $ 0.12 (1) 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, $0.4 million related to the 2018 hurricanes.
(2) Includes $2.6 million of discrete income tax adjustments. (3)
Includes pre-tax charges of $18.2 million for capitalized software
write-downs, $3.5 million for hurricane impacts, $3.1 million for
the closure of Acceptance Now locations, $2.0 million for
incremental legal and advisory fees, $0.5 million in legal
settlements, and $0.3 million for previous store closure plans. (4)
Includes a $77.5 million gain resulting from the Tax Cuts and Jobs
Act and $3.6 million of discrete income tax adjustments. (5)
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. (6)
Includes $3.2 million of discrete income tax adjustments. (7)
Includes pre-tax charges of $24.0 million for the closure of
Acceptance Now locations, $18.2 million for capitalized software
write-downs, $6.5 million for incremental legal and advisory fees,
$5.4 million for hurricane damages, $3.4 million for reductions at
the field support center, $1.1 million for previous store closure
plans, and $0.6 million in legal settlements. (8) Includes a $77.5
million gain resulting from the Tax Cuts and Jobs Act and $3.6
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)
2018
2017 2018 2017
Revenues Core U.S. $ 466,631 $ 444,735 $ 1,855,712 $ 1,835,422
Acceptance Now 173,127 175,827 722,562 797,987 Mexico 12,491 11,654
49,613 47,005 Franchising 9,501 6,738
32,578 22,126 Total revenues $ 661,750
$ 638,954 $ 2,660,465 $ 2,702,540
Table 9
Three Months Ended December 31, Twelve
Months Ended December 31, (In thousands)
2018
2017 2018 2017 Gross profit Core U.S. $
324,578 $ 310,473 $ 1,299,809 $ 1,276,212 Acceptance Now 83,175
89,551 339,616 400,002 Mexico 8,608 7,924 34,364 32,592 Franchising
3,203 2,933 14,379
9,736 Total gross profit $ 419,564 $ 410,881 $
1,688,168 $ 1,718,542 Table 10
Three Months
Ended December 31, Twelve Months Ended December 31, (In
thousands)
2018 2017 2018 2017
Operating profit (loss) Core U.S. $ 32,652
(1)
$ 6,955
(4)
$ 147,787
(7)
$ 86,196
(11)
Acceptance Now 23,086
(2)
(977 )
(5)
93,951
(8)
48,618
(12)
Mexico 299 (138 ) 2,605
(9)
(260 )
(13)
Franchising 698 1,516 4,385
5,081 Total segments 56,735 7,356 248,728
139,635 Corporate (43,111 )
(3)
(62,249 )
(6)
(192,591 )
(10)
(202,694 )
(14)
Total operating profit (loss) $ 13,624 $ (54,893 ) $ 56,137
$ (63,059 ) (1) Includes approximately $13.6
million of pre-tax charges primarily related to $12.3 million for
cost savings initiatives, $0.9 million for store closure costs,
$0.1 million in capitalized software write-downs, and $0.3 million
related to 2018 hurricane impacts. (2) Includes approximately $0.4
million of pre-tax charges primarily related to capitalized
software write-downs. (3) 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. (4) Includes approximately $4.6 million of pre-tax
charges primarily related to $2.4 million in hurricane impacts,
$1.9 million in capitalized software write-downs, and $0.3 million
in previous store closure plans. (5) Includes approximately $5.6
million of pre-tax charges primarily related to $3.1 million for
the closure of Acceptance Now locations, $1.4 million in
capitalized software write-downs, and $1.1 million in hurricane
impacts. (6) Includes approximately $17.4 million of pre-tax
charges related to $14.9 million for capitalized software
write-downs, $2.0 million in incremental legal and advisory fees,
and $0.5 million in legal settlements. (7) 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
and $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. (8) 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. (9) Includes
approximately $0.3 million of pre-tax charges primarily related to
store closure costs. (10) 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 initiatives,
$0.4 million in capitalized software write-downs, and $(1.5)
million related to a favorable contract termination settlement.
(11) Includes approximately $7.2 million of pre-tax charges
primarily related to $3.8 million in hurricane impacts, $1.9
million in capitalized software write-downs, $0.9 million in
previous store closure plans, and $0.6 million in legal
settlements. (12) Includes approximately $27.0 million of pre-tax
charges primarily related to $24.0 million for the closure of
Acceptance Now locations, $1.6 million in hurricane impacts, and
$1.4 million in capitalized software write-downs. (13) Includes
approximately $0.3 million of pre-tax charges primarily related to
$0.2 million for closure of stores and $0.1 million for legal
settlements. (14) Includes approximately $24.7 million of pre-tax
charges related to $14.9 million for capitalized software
write-downs, $6.5 million in incremental legal and advisory fees,
and $3.4 million for reductions at the field support center,
partially offset by $0.1 million in legal settlements.
Table 11
Three Months
Ended December 31, Twelve Months Ended December 31, (In
thousands)
2018 2017 2018
2017 Depreciation, amortization and impairment of
intangibles Core U.S. $ 6,084 $ 7,355 $ 25,566 $ 31,070 Acceptance
Now 389 515 1,677 2,498
(1)
Mexico 167 424 1,006 1,973 Franchising 39 44
172 177
Total segments
6,679 8,338 28,421 35,718 Corporate 9,993 10,373
40,525 38,921 Total depreciation, amortization and
impairment of intangibles $ 16,672 $ 18,711 $ 68,946 $ 74,639
(1) We recorded an impairment charge of $3.9 million to our
intangible assets, related to a vendor relationship, in the
Acceptance Now segment during the first quarter of 2017 not
included in the table above.
Table 12
Three Months Ended
December 31, Twelve Months Ended December 31, (In
thousands)
2018 2017 2018
2017 Capital expenditures Core U.S. $ 4,372 $ 5,173 $
17,173 $ 26,506 Acceptance Now 47 1,198 203 2,723 Mexico 144
21 295 124 Total segments 4,563 6,392 17,671
29,353 Corporate 908 5,540 10,291
36,107 Total capital expenditures $ 5,471 $ 11,932 $ 27,962 $
65,460 Table 13
On
Rent at December 31, Held for Rent at December 31, (In
thousands)
2018 2017 2018
2017 Rental merchandise, net Core U.S. $ 424,829 $
408,993 $ 117,294 $ 156,039 Acceptance Now 242,978 278,443 1,207
4,940 Mexico 16,001 14,367 5,161 6,209
Total rental merchandise, net $ 683,808 $ 701,803 $ 123,662 $
167,188 Table 14
December 31, (In thousands)
2018
2017 Assets Core U.S. $ 714,914 $ 776,296 Acceptance Now
312,151 350,970 Mexico 29,321 33,529 Franchising 4,287
3,802 Total segments 1,060,673 1,164,597 Corporate
336,244 256,184 Total assets $ 1,396,917 $ 1,420,781
Rent-A-Center, Inc. and Subsidiaries
LOCATION ACTIVITY – UNAUDITED Table 15
Three Months Ended December 31, 2018 Core U.S.
Acceptance NowStaffed
Acceptance NowDirect
Mexico Franchising
Total Locations at beginning of period 2,205 1,107
119 122 244 3,797 New location openings — 23 — — — 23 Acquired
locations remaining open — — — — 39 39 Conversions — — — — — —
Closed locations Merged with existing locations (8 ) (24 ) (23 ) —
— (55 ) Sold or closed with no surviving location (39 ) — —
— (2 ) (41 ) Locations at end of period 2,158
1,106 96 122 281 3,763 Acquired
locations closed and accounts merged with existing locations — — —
— — — Table 16
Three Months Ended December 31, 2017
Core U.S.
Acceptance NowStaffed
Acceptance NowDirect
Mexico Franchising Total Locations at
beginning of period 2,406 1,175 76 131 227 4,015 New location
openings — 26 13 — 1 40 Acquired locations remaining open — — — — 1
1 Conversions — (48 ) 48 — — — Closed locations Merged with
existing locations (11 ) (47 ) (12 ) — — (70 ) Sold or closed with
no surviving location (14 ) — — — (4 ) (18 )
Locations at end of period 2,381 1,106 125 131
225 3,968 Acquired locations closed and
accounts merged with existing locations 2 — — — — 2 Table 17
Twelve Months Ended December 31, 2018 Core U.S.
Acceptance NowStaffed
Acceptance NowDirect
Mexico Franchising Total Locations at
beginning of period 2,381 1,106 125 131 225 3,968 New location
openings — 122 7 — 3 132 Acquired locations remaining open 1 — — —
71 72 Conversions — (3 ) 3 — — — Closed locations Merged with
existing locations (137 ) (119 ) (39 ) (8 ) — (303 ) Sold or closed
with no surviving location (87 ) — — (1 ) (18 ) (106
) Locations at end of period 2,158 1,106 96
122 281 3,763 Acquired locations closed and
accounts merged with existing locations 6 — — — — 6 Table 18
Twelve Months Ended December 31, 2017 Core U.S.
Acceptance NowStaffed
Acceptance NowDirect
Mexico Franchising Total Locations at
beginning of period 2,463 1,431 478 130 229 4,731 New location
openings — 222 24 1 1 248 Acquired locations remaining open — — — —
4 4 Conversions — (63 ) 63 — — — Closed locations — Merged with
existing locations (51 ) (483 ) (439 ) — — (973 ) Sold or closed
with no surviving location (31 ) (1 ) (1 ) — (9 ) (42 )
Locations at end of period 2,381 1,106 125 131
225 3,968 Acquired locations closed and
accounts merged with existing locations 8 — — — — 8
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190225006050/en/
Rent-A-Center, Inc.Maureen ShortChief Financial
Officer972-801-1899maureen.short@rentacenter.com
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