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Initiatives Designed to Strengthen the U.S. Core Business, Optimize and Grow AcceptanceNow and Leverage Technology Investments
Anticipates Meaningful Improvement in 2018 – 2019 Operating Results
“Rent-A-Center remains focused on our mission to provide cash- and
credit-constrained consumers with affordable and flexible access to
durable goods that promote a higher quality of living,” said
“We have also determined a clear path to strengthen the U.S. Core
business, build on the recent momentum of AcceptanceNow and leverage our
technology capabilities to drive growth in new channels. The Board and
management team are prepared to execute the strategic plan expeditiously
and are confident that these actions will maximize value for all
Enhancing Customer Value Proposition
Rent-A-Centeris taking steps to enhance its customer value proposition and create a clear path to ownership that better reflects the needs of its customers, retention rates and the natural lifecycle of products.
The Company is reestablishing the 2x2 matrix cost-based approach as its foundational pricing strategy, and implementing shorter terms and alternative term strategies with the objective of increasing ownership from approximately 25% to 40%. The Company is also improving early payout options that promote ownership, with the expectation that return on investment will increase from approximately 2.7x to 3.0x.
Rent-A-Centeranticipates that these initiatives will result in an estimated run-rate EBITDA improvement of approximately $65 millionby 2018-2019.
Taken together, the implementation of rates, terms and purchase options that are better aligned with customer needs are expected to increase ownership, accelerate inventory turn and improve cash flow in the U.S. Core business.
- ANow: Initiatives underway at ANow include implementing shorter agreement terms, menu-based pricing and early purchase option offers to support retention and incentivize ownership; encouraging lease-to-own transactions across customer segments; and utilizing packaging concepts that maintain affordability.
Restoring Growth and Profitability in the U.S. Core Business
In addition to enhancing the customer value proposition,
Optimizing the product mix to better meet customer demand by
shifting the concentration of higher-end, aspirational products across
categories from 45% to 65%, increasing the average ticket price and
leveraging the Company’s e-commerce platform to enable special-order
and extended-aisle offerings.
Rent-A-Centeranticipates that expanding its selection of “Better / Best” products will result in higher tickets and improved economics. This initiative is expected to result in an estimated run-rate EBITDA improvement of approximately $40 millionby 2018-2019.
Stabilizing and upgrading the workforce to improve customer
relationships by increasing the mix of full-time labor and
intensifying focus on co-worker development. The Company expects the
increase in labor costs will be offset by improved execution in sales,
customer service and collections. Additionally, the renewed focus on
developing employees is anticipated to increase retention and
stabilize the workforce. Since launching the initiative, store-level
turnover has improved for five consecutive months. The Company expects
that the increase of full-time labor will result in improved customer
relationships and deliver an estimated run-rate EBITDA improvement of
$20 millionby 2018-2019.
Improving account management practices to lower delinquency
rates by focusing on training, tools and incentives to resolve
store-level execution issues. The Company anticipates its enhanced
account management practices will deliver an estimated run-rate EBITDA
improvement of approximately
$35 millionby 2018-2019, and has already reduced delinquencies over the last three consecutive months.
- Optimizing the existing physical footprint to improve underperforming stores by rightsizing the number of employees across locations, enhancing inventory visibility, moving idle inventory more quickly and testing alternative opening schedules.
Building on Momentum to Optimize and Expand ANow
- Optimizing key retail partnerships to deliver improved service and profitability by aggressively pursuing opportunities to benefit from the value ANow creates, such as offering multiple relationship options with varying service levels, modifying business-to-business transaction economics and leveraging retail partner exclusivities.
- Focusing and executing on growth-enabling capabilities to optimize existing locations by centralizing account management and building out unstaffed capabilities to more effectively scale operations at a substantially lower cost and with a faster speed-to-market.
- Enhancing decision engine and risk analytics to reduce losses and increase ownership by implementing consistent risk assessment polices and strategies across all ANow locations; translating data and experience to other markets and industry verticals; improving the customer experience through data-driven application and verification processes; leveraging Rent-A-Center’s proprietary scoring model for customer approval; and shaping approval rates and amounts with consistent monitoring and adjustments.
Leveraging Technology Investments to Expand into New Channels
- Rapidly embracing digital channels as vital additional customer touch-points and opportunity to expand the rent-to-own value proposition to a broader group of customers;
- Expanding e-commerce offerings and mobile applications to help customers engage when and how they prefer;
- Simplifying transactions and expanding customer choice through self-service kiosks and assisted selling tools; and
- Leveraging the Company’s newly-implemented, cloud-based point-of-sale platform that helps manage orders and reduce losses and operating costs.
Improving Results and Creating Value for Stockholders
As a result of the new plan announced today,
|Metric||2018 Target Range||2019 Target Range|
|Revenue Growth||Low-single digits||Mid-single digits|
|EBITDA margin||7.5% - 8.5%||9.5% - 10.5%|
|Free cash flow||$70 - $90 million||$110 - $130 million|
|EPS||$1.20 - $1.40||$2.00 - $2.25|
The Company is committed to executing on these initiatives to drive improved long-term financial performance and returns for all of its stockholders.
Additional details of the strategic plan can be found at investor.rentacenter.com.
J.P. Morgan is Rent-A-Center’s financial advisor and
A rent-to-own industry leader,
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," "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; difficulties
encountered in improving the financial and operational performance of
the Company's business segments; our chief executive officer and chief
financial officer transitions, including our ability to effectively
operate and execute our strategies during the interim period and
difficulties or delays in identifying and attracting a permanent chief
financial officer with the required level of experience and expertise;
failure to manage the Company's store labor and other store expenses;
the Company’s ability to develop and successfully execute strategic
initiatives; disruptions, including capacity-related outages, caused by
the implementation and operation of the Company's new store information
management system, and its transition to more-readily scalable,
“cloud-based” solutions; 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, including mobile applications; 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
Use of Non-GAAP Financial Measures
This press release refers to EBITDA (earnings before interest, taxes, depreciation and amortization), and free cash flow (EBITDA less cash taxes, interest, capital expenditures, plus stock-based compensation expense and plus (less) the net decrease (increase) in net working capital), which are non-GAAP financial measures as defined in Item 10(e) of Regulation S-K. Management believes that presentation of these non-GAAP financial measures in this press release are useful to investors in their analysis of the Company’s projected performance in future periods. This non-GAAP financial information should be considered as supplemental in nature and not as a substitute for or superior to the historical financial information prepared in accordance with GAAP. Further, these non-GAAP financial measures may differ from similar measures presented by other companies.
The Company has not quantitatively reconciled differences between EBITDA or free cash flow and their corresponding GAAP measures for 2018 and 2019 projections due to the inherent uncertainty regarding variables affecting the comparison of these measures.
Additional Information and Where to Find It
The Company intends to file a proxy statement with the
Interim Chief Financial Officer
Joele Frank, Wilkinson Brimmer Katcher
Kelly Sullivan / James Golden / Matt Gross / Aura Reinhard