Rent-A-Center, Inc. Reports Second Quarter 2013 Results

July 22, 2013 at 4:20 PM EDT
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Diluted Earnings per Share of $0.76

RAC Acceptance Revenues Increased 52.5%

Repurchased Approximately 4,592,000 Shares of Common Stock

Raises 2013 EPS Guidance

PLANO, Texas--(BUSINESS WIRE)--Jul. 22, 2013-- Rent-A-Center, Inc. (the "Company") (NASDAQ/NGS: RCII), the nation's largest rent-to-own operator, today announced revenues and earnings for the quarter ended June 30, 2013.

Second Quarter 2013 Results

Total revenues for the quarter ended June 30, 2013, were $760.5 million, an increase of $10.8 million from total revenues of $749.7 million for the same period in the prior year. This 1.4% increase in total revenues was primarily due to increases of approximately $40.4 million in the RAC Acceptance segment and approximately $5.2 million in the International segment, partially offset by a decrease of approximately $34.7 million in the Core U.S. segment. For the quarter ended June 30, 2013, same store sales declined 1.6%, primarily attributable to a decrease in the Core U.S. segment, partially offset by an increase in both the RAC Acceptance and International segments.

Net earnings and net earnings per diluted share for the quarter ended June 30, 2013, were $42.0 million and $0.76, respectively, as compared to $44.2 million and $0.74, respectively, for the same period in the prior year. These results include dilution related to the Company's international growth initiatives of approximately $0.08 per share in both the quarter ended June 30, 2013, and the same period in the prior year.

"I am pleased with our progress in building our portfolio of agreements in our Core U.S. business with a continuing period-over-period improvement in demand as measured by our 6.6% increase in deliveries for the quarter. Therefore, we believe our portfolio of agreements will surpass prior year levels in the third quarter and produce positive same store sales growth in the Core U.S. business in the fourth quarter," said Mark E. Speese, the Company's Chairman and Chief Executive Officer. "Our growth initiatives continue to perform very well. RAC Acceptance revenues were over $117 million in the quarter, an increase of over 52% and contributed over 15% of our total revenues and approximately 23% of our total operating profit. Mexico grew revenues over 137% and ended the quarter with 130 locations. We believe we will generate positive store level or four-wall monthly operating profit in Mexico by the last month of this year," Speese continued. "We believe the Core U.S. business will continually improve throughout the balance of the year and our growth initiatives will remain on their productive path. We are also incorporating the benefit of our 4.6 million share repurchase as part of the accelerated stock buyback (ASB) program and, as a result, raising our 2013 diluted earnings per share range to $3.03 to $3.15," Speese concluded.

Six Months Ended June 30, 2013 Results

Total revenues for the six months ended June 30, 2013, were $1,579.8 million, a decrease of $5.2 million from total revenues of $1,585.0 million for the same period in the prior year. This 0.3% decrease in total revenues was primarily due to a decrease of approximately $92.9 million in the Core U.S. segment, partially offset by an increase of approximately $79.9 million in the RAC Acceptance segment and approximately $9.8 million in the International segment. For the six months ended June 30, 2013, same store sales declined 3.0%, primarily attributable to a decrease in the Core U.S. segment, partially offset by an increase in both the RAC Acceptance and International segments.

Net earnings and net earnings per diluted share for the six months ended June 30, 2013, were $88.5 million and $1.56, respectively, as compared to $96.1 million and $1.61, respectively, for the same period in the prior year. These results include dilution related to the Company's international growth initiatives of approximately $0.14 per share for the six months ended June 30, 2013, and approximately $0.15 per share for the same period in the prior year.

Through the six month period ended June 30, 2013, the Company generated cash flow from operations of approximately $115.5 million, while ending the quarter with $78.5 million of cash on hand. A portion of the Company's continuing strong cash flow will be used to return value to the Company's stockholders with its thirteenth consecutive quarterly cash dividend on July 25, 2013.

Reflecting continued confidence in its strong cash flows, the Company announced on April 26, 2013 that its Board of Directors increased the authorization for stock repurchases under the Company's common stock repurchase plan from $1 billion to $1.25 billion. Subsequently, on May 2, 2013, the Company completed an offering of $250 million of senior unsecured notes due 2021. As previously reported, the Company used the net proceeds from the offering to repay $46 million of the revolving loans outstanding under its revolving credit facility and to repurchase $200 million of the Company's common stock under the accelerated stock buyback program discussed below.

During the six months ended June 30, 2013, the Company repurchased 5,057,458 shares for approximately $217.4 million. This includes the initial delivery of approximately 4.6 million shares for $200 million pursuant to the previously announced accelerated stock buyback ("ASB") program, which represents approximately 80% of the shares expected to be purchased in the ASB transaction. The total number of shares that the Company ultimately purchases in the ASB transaction will be determined based on the average of the daily volume-weighted average share price of its common stock over the duration of the ASB transaction, less an agreed discount, and is subject to certain adjustments under the terms of the ASB agreement.

To date, the Company has utilized approximately $994.8 million of the $1.25 billion authorized by its Board of Directors since the inception of the plan.

2013 Guidance

  • Approximately 3.0% total revenue growth.
    • Approximately $515 million contribution from RAC Acceptance.
  • Approximately flat to 1.0% same store sales growth.
  • Approximately 25 basis points gross profit margin decrease.
    • Due to the impact of RAC Acceptance.
  • Approximately 25 basis points operating profit margin decrease.
  • EBITDA of approximately $400 million.
  • Annual effective tax rate of approximately 37.3%.
  • Diluted earnings per share in the range of $3.03 to $3.15, including approximately $0.25 per share dilution related to our international growth initiatives.
  • Capital expenditures of approximately $115 million.
  • The Company expects to open approximately 365 domestic RAC Acceptance kiosks and net approximately 325.
  • The Company expects to open approximately 60 rent-to-own store locations in Mexico.
  • The 2013 guidance does not include the potential impact of any repurchases of common stock the Company may make, changes in future dividends, material changes in outstanding indebtedness, or the potential impact of acquisitions, dispositions or store closures that may be completed or occur after July 22, 2013.

Rent-A-Center, Inc. will host a conference call to discuss the second quarter results, guidance and other operational matters on Tuesday morning, July 23, 2013, at 10:45 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.

Rent-A-Center, Inc., headquartered in Plano, Texas, is the largest rent-to-own operator in North America, focused on improving the quality of life for its customers by providing them the opportunity to obtain ownership of high-quality, durable goods 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 3,120 stores in the United States, Canada, Mexico and Puerto Rico, and approximately 1,155 RAC Acceptance kiosk locations in the United States and Puerto Rico. ColorTyme, Inc., a wholly owned subsidiary of the Company, is a national franchiser of approximately 220 rent-to-own stores operating under the trade name of "ColorTyme." For additional information about the Company, please visit www.rentacenter.com.

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: 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 enhance the performance of acquired stores; the Company's ability to retain the revenue associated with acquired customer accounts; the Company's ability to identify and successfully market products and services that appeal to its customer demographic; 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 the unemployment rate; economic pressures, such as high fuel costs, affecting the disposable income available to the Company's current and potential customers; the general strength of the economy and other economic conditions affecting consumer preferences and spending; adverse changes in the economic conditions of the industries, countries or markets that the Company serves; 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; information technology and data security costs; 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, 2012 and its quarterly report on Form 10-Q for the quarter ended March 31, 2013. 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)
 
(In thousands, except per share data) Three Months Ended June 30,
  2013       2012
Total Revenues $ 760,511 $ 749,698
Operating Profit 77,437 79,027
Net Earnings 42,004 44,182
Diluted Earnings per Common Share $ 0.76 $ 0.74
Adjusted EBITDA $ 97,362 $ 98,846
 
Reconciliation to Adjusted EBITDA:
 
Earnings Before Income Taxes $ 67,764 $ 70,806
Add back:
Interest Expense, net 9,673 8,221
Depreciation of Property Assets 18,760 18,338
Amortization and Write-down of Intangibles   1,165   1,481
 
Adjusted EBITDA $ 97,362 $ 98,846
 
(In thousands of dollars, except per share data) Six Months Ended June 30,
  2013   2012
Total Revenues $ 1,579,792 $ 1,584,952
Operating Profit 156,720 171,061
Net Earnings 88,461 96,123
Diluted Earnings per Common Share $ 1.56 $ 1.61
Adjusted EBITDA $ 196,008 $ 210,209
 
Reconciliation to Adjusted EBITDA:
 
Earnings Before Income Taxes $ 139,339 $ 154,044
Add back:
Interest Expense, net 17,381 17,017
Depreciation of Property Assets 37,233 36,332
Amortization and Write-down of Intangibles   2,055   2,816
 
Adjusted EBITDA $ 196,008 $ 210,209
 
SELECTED BALANCE SHEET HIGHLIGHTS

(Unaudited)

 
(In thousands of dollars) June 30,
  2013       2012
Cash and Cash Equivalents $ 78,491 $ 101,131
Receivables, net 48,279 45,383
Prepaid Expenses and Other Assets 70,441 70,207
Rental Merchandise, net
On Rent 849,288 731,433
Held for Rent 218,263 189,203
Total Assets $ 2,940,452 $ 2,789,383
 
Senior Debt $ 323,775 $ 367,755
Senior Notes 550,000 300,000
Total Liabilities 1,614,193 1,355,885
Stockholders' Equity $ 1,326,259 $ 1,433,498

   
Rent-A-Center, Inc. and Subsidiaries
 
CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

 
(In thousands, except per share data) Three Months Ended June 30, Six Months Ended June 30,
  2013       2012     2013       2012  
Revenues
Store
Rentals and fees $ 668,947 $ 658,987 $ 1,342,551 $ 1,336,968
Merchandise sales 59,790 60,622 173,363 183,481
Installment sales 17,537 16,170 34,664 33,665
Other 5,001 4,537 9,761 9,469
Franchise
Merchandise sales 7,843 8,022 16,676 18,635
Royalty income and fees   1,393     1,360     2,777     2,734  
760,511 749,698 1,579,792 1,584,952
Cost of revenues
Store
Cost of rentals and fees 168,928 159,790 336,847 323,149
Cost of merchandise sold 47,260 49,525 133,559 144,541
Cost of installment sales 6,189 5,728 12,158 12,026
Franchise cost of merchandise sold   7,514     7,682     15,930     17,846  
229,891 222,725 498,494 497,562
Gross profit 530,620 526,973 1,081,298 1,087,390
Operating expenses
Salaries and other expenses 413,658 410,210 845,350 838,039
General and administrative expenses 38,360 36,255 77,173 75,474
Amortization and write-down of intangibles   1,165     1,481     2,055     2,816  
453,183 447,946 924,578 916,329
Operating profit 77,437 79,027 156,720 171,061
Interest expense 9,856 8,343 17,857 17,320
Interest income   (183 )   (122 )   (476 )   (303 )
Earnings before income taxes 67,764 70,806 139,339 154,044
Income tax expense   25,760     26,624     50,878     57,921  
NET EARNINGS $ 42,004   $ 44,182   $ 88,461   $ 96,123  
 
Basic weighted average shares   54,885     59,160     56,416     59,206  
 
Basic earnings per common share $ 0.77   $ 0.75   $ 1.57   $ 1.62  
 
Diluted weighted average shares   55,253     59,578     56,794     59,757  
 
Diluted earnings per common share $ 0.76   $ 0.74   $ 1.56   $ 1.61  
 
Rent-A-Center, Inc. and Subsidiaries
 
SEGMENT INFORMATION HIGHLIGHTS
(Unaudited)
 
(In thousands of dollars) Three Months Ended June 30, 2013
Core U.S.   RAC Acceptance   International   ColorTyme   Total
Revenue $ 619,687 $ 117,493 $ 14,095 $ 9,236 $ 760,511
Gross profit 449,944 68,770 10,184 1,722 530,620
Operating profit (loss) 66,029 17,612 (6,746 ) 542 77,437
Depreciation of property assets 15,990 1,162 1,588 20 18,760
Amortization and write-down of intangibles 1,023 142 — — 1,165
Capital expenditures 20,147 2,262 2,775 — 25,184
 
(In thousands of dollars) Three Months Ended June 30, 2012
Core U.S. RAC Acceptance International ColorTyme Total
Revenue $ 654,356 $ 77,060 $ 8,900 $ 9,382 $ 749,698
Gross profit 474,414 44,617 6,242 1,700 526,973
Operating profit (loss) 79,463 6,897 (7,811 ) 478 79,027
Depreciation of property assets 15,952 856 1,506 24 18,338
Amortization and write-down of intangibles 585 896 — — 1,481
Capital expenditures 16,692 1,047 3,153 — 20,892
 
(In thousands of dollars) Six Months Ended June 30, 2013
Core U.S. RAC Acceptance International ColorTyme Total
Revenue $ 1,289,253 $ 244,656 $ 26,430 $ 19,453 $ 1,579,792
Gross profit 923,009 135,877 18,889 3,523 1,081,298
Operating profit 134,665 33,529 (12,719 ) 1,245 156,720
Depreciation of property assets 31,918 2,251 3,024 40 37,233
Amortization and write-down of intangibles 1,770 285 — — 2,055
Capital expenditures 35,197 4,202 5,422 — 44,821
Rental merchandise, net
On rent 588,427 244,717 16,144 — 849,288
Held for rent 207,105 3,434 7,724 — 218,263
Total assets 2,537,770 333,279 67,794 1,609 2,940,452
 
(In thousands of dollars) Six Months Ended June 30, 2012
Core U.S. RAC Acceptance International ColorTyme Total
Revenue $ 1,382,186 $ 164,788 $ 16,609 $ 21,369 $ 1,584,952
Gross profit 984,471 87,787 11,609 3,523 1,087,390
Operating profit 174,671 9,765 (14,571 ) 1,196 171,061
Depreciation of property assets 31,708 1,684 2,891 49 36,332
Amortization and write-down of intangibles 1,023 1,793 — — 2,816
Capital expenditures 37,033 2,391 8,896 — 48,320
Rental merchandise, net
On rent 553,683 165,798 11,952 — 731,433
Held for rent 180,351 2,130 6,722 — 189,203
Total assets 2,476,417 247,854 62,132 2,980 2,789,383
 
Location Activity - Three Months Ended June 30, 2013
Core U.S. RAC Acceptance International ColorTyme Total
Locations at beginning of period 2,983 1,053 128 224 4,388
New location openings 2 110 20 2 134
Acquired locations remaining open 3 — — — 3
Closed locations
Merged with existing locations 14 10 — — 24
Sold or closed with no surviving location   2   —   —     5   7
Locations at end of period   2,972   1,153   148     221   4,494
Acquired locations closed and accounts merged with existing locations 9 — — — 9
 
Location Activity - Three Months Ended June 30, 2012
Core U.S. RAC Acceptance International ColorTyme Total
Locations at beginning of period 2,983 763 87 218 4,051
New location openings 8 77 13 2 100
Closed locations
Merged with existing locations 15 29 — — 44
Sold or closed with no surviving location   3   —   1     1   5
Locations at end of period   2,973   811   99     219   4,102
Acquired locations closed and accounts merged with existing locations 4 — — — 4
 
Location Activity - Six Months Ended June 30, 2013
Core U.S. RAC Acceptance International ColorTyme Total
Locations at beginning of period 2,990 966 108 224 4,288
New location openings 9 208 40 5 262
Acquired locations remaining open 6 — — — 6
Closed locations
Merged with existing locations 30 21 — — 51
Sold or closed with no surviving location   3   —   —     8   11
Locations at end of period   2,972   1,153   148     221   4,494
Acquired locations closed and accounts merged with existing locations 13 — — — 13
 
Location Activity - Six Months Ended June 30, 2012
Core U.S. RAC Acceptance International ColorTyme Total
Locations at beginning of period 2,994 750 80 216 4,040
New location openings 12 122 20 6 160
Closed locations
Merged with existing locations 29 47 — — 76
Sold or closed with no surviving location   4   14   1     3   22
Locations at end of period   2,973   811   99     219   4,102
Acquired locations closed and accounts merged with existing locations 6 — — — 6

Source: Rent-A-Center, Inc.

Rent-A-Center, Inc.
David E. Carpenter, 972-801-1214
Vice President of Investor Relations
david.carpenter@rentacenter.com