Rent-A-Center: Furniture - Appliances - Computers - Electronics
NASDAQ GS: RCII
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Feb 21, 2017 4:00 p.m.(20 minute delay)
Press Release

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Rent-A-Center, Inc. Reports Second Quarter 2005 Results; Diluted Earnings per Share of $0.52, Excluding Tax Credit

PLANO, Texas--(BUSINESS WIRE)--July 25, 2005--Rent-A-Center, Inc. (the "Company") (Nasdaq:RCII), the nation's largest rent-to-own operator, today announced revenues and net earnings for the quarter ended June 30, 2005.

The Company reported total revenues for the quarter ended June 30, 2005 of $580.6 million, a $7.6 million increase from $573.0 million for the same period in the prior year. This increase of 1.3% in revenues was primarily driven by incremental revenues generated in new and acquired stores, offset by a decrease in same store sales of 2.6%.

Net earnings for the quarter ended June 30, 2005 were $39.6 million, or $0.52 per diluted share, when excluding the benefit of the tax audit reserve credit discussed below, representing a decrease of 16.1% from the $0.62 per diluted share, or net earnings of $51.2 million, for the same period in the prior year. The decrease in earnings per diluted share is primarily attributable to the decrease in same store sales as well as an increase in operating expenses, primarily related to new store openings and acquisitions, offset by a reduction in the number of the Company's outstanding shares.

Total revenues for the six months ended June 30, 2005 increased to $1.182 billion, a 2.1% increase from $1.158 billion for the same period in the prior year. Same store revenues for the six month period ending June 30, 2005 decreased 4.0%. Net earnings for the six months ended June 30, 2005 were $82.3 million, or $1.08 per diluted share, when excluding the litigation reversion credit and tax audit reserve credit discussed below, a decrease of 13.6% over the $1.25 per diluted share, or net earnings of $103.4 million, for the same period in the prior year.

"While our revenue and earnings per diluted share were within our guidance for the second quarter," commented Mark E. Speese, the Company's Chairman and Chief Executive Officer, "our business environment remains challenged. We currently have fewer agreements on rent relative to our prior expectations due to weaker than expected demand in June and to date in the month of July. As such, including a softer outlook for the balance of this year, we are lowering our guidance for the remainder of 2005. We believe a key challenge centers around higher energy costs impacting both our customers and our operations, but also believe that product evolution, particularly in low end consumer electronics, is placing additional pressure on our business," Speese continued. "We continue to evaluate new product offerings that we believe will provide additional revenue streams to leverage our mature store base," Speese stated.

During the second quarter of 2005, the Company opened 12 new store locations, acquired 34 stores, including 27 stores from a ColorTyme franchisee offering an array of financial services in addition to traditional rent-to-own products, as well as accounts from 10 additional locations, while consolidating 17 stores into existing locations and selling one store. Since June 30, 2005, the Company has opened 5 new stores and acquired one other store while consolidating 6 stores into existing locations. For the entire year ending December 31, 2005, the Company intends to open between 60 and 70 new store locations as well as pursue opportunistic acquisitions.

During the second quarter of 2005, the Company recorded a $2.0 million tax audit reserve credit associated with the examination and favorable resolution of the Company's 1998 and 1999 federal tax returns. The tax audit reserve credit increased diluted earnings per share in the second quarter of 2005 by $0.03, from $0.52 per diluted earnings per share to the reported diluted earnings per share of $0.55.

In addition, during 2005, the Company recorded an $8.0 million pre-tax credit in the first quarter associated with the settlement of the Griego/Carrillo litigation. This pre-tax litigation reversion credit increased diluted earnings per share for the six month period ended June 30, 2005 by $0.07. The litigation reversion credit, combined with the $2.0 million tax audit reserve credit in the second quarter, increased diluted earnings per share for the six month period ended June 30, 2005 by $0.10 to the reported diluted earnings per share of $1.18.

Rent-A-Center will host a conference call to discuss the second quarter financial results on Tuesday morning, July 26, 2005, at 10:45 a.m. EDT. For a live web cast 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, currently operates 2,892 company-owned stores nationwide and in Canada and Puerto Rico. The stores generally offer high-quality, durable goods such as major consumer electronics, appliances, computers and furniture and accessories under flexible rental purchase agreements that generally allow the customer to obtain ownership of the merchandise at the conclusion of an agreed upon rental period. ColorTyme, Inc., a wholly owned subsidiary of the Company, is a national franchiser of 281 rent-to-own stores, 269 of which operate under the trade name of "ColorTyme," and the remaining 12 of which operate under the "Rent-A-Center" name.

The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially. These statements do not include the potential impact of any repurchases of common stock the Company may make or the potential impact of acquisitions that may be completed after July 25, 2005.

THIRD QUARTER 2005 GUIDANCE:

Revenues

-- The Company expects total revenues to be in the range of $572 million to $580 million.

-- Store rental and fee revenues are expected to be between $517 million and $522 million.

-- Total store revenues are expected to be in the range of $560 million to $568 million.

-- Same store sales are expected to be in the (1.0%) to (2.0%) range.

-- The Company expects to open 15-20 new store locations.

Expenses

-- The Company expects cost of rental and fees to be between 21.6% and 22.0% of store rental and fee revenue and cost of goods merchandise sales to be between 75% and 80% of store merchandise sales.

-- Store salaries and other expenses are expected to be in the range of 59.5% to 61.0% of total store revenue.

-- General and administrative expenses are expected to be between 3.4% and 3.6% of total revenue.

-- Net interest expense is expected to be approximately $10.2 million, depreciation of property assets to be approximately $13.5 million and amortization of intangibles is expected to be approximately $2.2 million.

-- The effective tax rate is expected to be in the range of 37.5% to 38.0% of pre-tax income.

-- Diluted earnings per share are estimated to be in the range of $0.38 to $0.42.

-- Diluted shares outstanding are estimated to be between 75.7 million and 76.7 million.

FISCAL 2005 GUIDANCE:

Revenues

-- The Company expects total revenues to be in the range of $2.34 billion and $2.36 billion.

-- Store rental and fee revenues are expected to be between $2.085 billion and $2.100 billion.

-- Total store revenues are expected to be in the range of $2.290 billion and $2.310 billion.

-- Same store sales are expected to be in the (2.0%) to (4.0%) range.

-- The Company expects to open 60-70 new store locations.

Expenses

-- The Company expects cost of rental and fees to be between 21.6% and 22.0% of store rental and fee revenue and cost of goods merchandise sales to be between 72% and 75% of store merchandise sales.

-- Store salaries and other expenses are expected to be in the range of 58.0% to 59.5% of total store revenue.

-- General and administrative expenses are expected to be between 3.3% and 3.5% of total revenue.

-- Net interest expense is expected to be between $38.0 million and $42.0 million, depreciation of property assets is expected to be between $50.0 million and $55.0 million and amortization of intangibles is expected to be approximately $8.0 million.

-- The effective tax rate is expected to be in the range of 37.5% to 38.0% of pre-tax income.

-- Diluted earnings per share are estimated to be in the range of $1.90 to $2.00.

-- Diluted shares outstanding are estimated to be between 75.7 million and 76.7 million.

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. Although the Company believes that the expectations reflected in such forward-looking statements will prove to be correct, the Company can give no assurance that such expectations will prove to have been correct. The actual future performance of the Company 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 rent-to-own stores; the Company's ability to acquire additional rent-to-own stores on favorable terms; the Company's ability to enhance the performance of these acquired stores; the Company's ability to control store level costs; the Company's ability to identify and successfully market products and services that appeal to our customer demographic; the Company's ability to identify and successfully enter new lines of business offering products and services that appeal to our customer demographic; the results of the Company's litigation; the passage of legislation adversely affecting the rent-to-own industry; interest rates; the Company's ability to collect on its rental purchase agreements; the Company's ability to enter into new rental purchase agreements; economic pressures affecting the disposable income available to our targeted consumers, such as high fuel and utility costs; changes in the Company's effective tax rate; changes in the Company's stock price and the number of shares of common stock that the Company may or may not repurchase; and the other risks detailed from time to time in the Company's SEC filings, including but not limited to, its annual report on Form 10-K for the year ended December 31, 2004 and its quarterly report on Form 10-Q for the quarter ended March 31, 2005. 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

(In Thousands of Dollars, except per share data)
                                      Three Months Ended June 30,
                                  ------------------------------------
                                      2005        2005        2004
                                   ----------- ----------- -----------
                                   Before Tax  After Tax
                                      Audit       Audit
                                     Reserve     Reserve
                                      Credit      Credit
                                   ----------- ----------- -----------

Total Revenue                        $580,578    $580,578    $572,985
Operating Profit                       72,988      72,988      90,223
Net Earnings                           39,620   41,742 (1)     51,194
Diluted Earnings per Common Share       $0.52    $0.55 (1)      $0.62
EBITDA                                $88,414     $88,414    $105,215

Reconciliation to EBITDA:

Reported earnings before income
 taxes                                 63,553      63,553      81,459
Add back:
  Interest expense, net                 9,435       9,435       8,764
  Depreciation of property assets      13,271      13,271      11,834
  Amortization of intangibles           2,155       2,155       3,158
                                   ----------- ----------- -----------

EBITDA                                $88,414     $88,414    $105,215

                                       Six Months Ended June 30,
                                  ------------------------------------
                                      2005        2005        2004
                                   ----------- ----------- -----------
                                   Before Tax   After Tax
                                     Audit       Audit
                                     Reserve     Reserve
                                       and         and
                                    Litigation  Litigation
                                     Credits     Credits
                                   ----------- ----------- -----------

Total Revenue                      $1,182,387  $1,182,387  $1,158,365
Operating Profit                      150,980     158,980     182,882
Net Earnings                           82,305   89,411 (2)    103,403
Diluted Earnings per Common Share       $1.08    $1.18 (2)      $1.25
EBITDA                               $181,966    $181,966    $211,611

Reconciliation to EBITDA:

Reported earnings before income
 taxes                                132,079     140,079     165,262
Add back:
  Litigation Reversion                     --      (8,000)         --
  Interest expense, net                18,901      18,901      17,620
  Depreciation of property assets      26,534      26,534      23,083
  Amortization of intangibles           4,452       4,452       5,646
                                   ----------- ----------- -----------

EBITDA                               $181,966    $181,966    $211,611


(1) Including the effects of a $2.0 million tax audit reserve credit
    associated with the examination and favorable resolution of the
    Company's 1998 and 1999 federal tax returns. This credit increased
    diluted earnings per share in the second quarter by $0.03, from
    $0.52 per diluted earnings per share to the reported diluted
    earnings per share of $0.55.

(2) Including the effects of an $8.0 million pre-tax credit in the
    first quarter associated with the settlement of the
    Griego/Carrillo litigation reversion. This pre-tax credit
    increased diluted earnings per share for the six month period
    ended June 30, 2005 by $0.07. The litigation reversion credit,
    combined with the $2.0 million tax audit reserve credit in the
    second quarter, increased diluted earnings per share for the six
    month period ended June 30, 2005 by $0.10 to the reported diluted
    earnings per share of $1.18.

Selected Balance Sheet Data:  (in          June 30, 2005 June 30, 2004
 Thousands of Dollars)
                                           ------------- -------------

Cash and cash equivalents                       $25,119       $86,164
Prepaid expenses and other assets                52,566        57,155
Rental merchandise, net
  On rent                                       574,080       565,977
  Held for rent                                 197,639       169,044
Total Assets                                  1,930,793     1,930,203

Senior debt                                     364,500       396,000
Subordinated notes payable                      300,000       300,000
Total Liabilities                             1,041,531     1,069,985
Stockholders' Equity                            889,262       860,218


                 Rent-A-Center, Inc. and Subsidiaries

                 CONSOLIDATED STATEMENTS OF EARNINGS

(In Thousands of Dollars, except per share data)   Three Months Ended
                                                         June 30,
                                                   -------------------
                                                     2005      2004
                                                   --------- ---------
                                                        Unaudited

Store Revenue
   Rentals and Fees                                $526,639  $520,593
   Merchandise Sales                                 37,498    34,599
         Installment Sales                            6,618     5,801
   Other                                                997       967
                                                   --------- ---------
                                                    571,752   561,960

Franchise Revenue
  Franchise Merchandise Sales                         7,443     9,668
  Royalty Income and Fees                             1,383     1,357
                                                   --------- ---------
    Total Revenue                                   580,578   572,985

Operating Expenses
  Direct Store Expenses
    Cost of Rental and Fees                         114,068   112,743
    Cost of Merchandise Sold                         28,225    24,720
    Cost of Installment Sales                         2,750     2,477
    Salaries and Other Expenses                     332,939   311,058
  Franchise Operation Expenses
    Cost of Franchise Merchandise Sales               7,163     9,214
                                                   --------- ---------
                                                    485,145   460,212


  General and Administrative Expenses                20,290    19,392
  Amortization of Intangibles                         2,155     3,158
                                                   --------- ---------

    Total Operating Expenses                        507,590   482,762
                                                   --------- ---------

    Operating Profit                                 72,988    90,223

Interest Income                                      (1,351)   (1,488)
Interest Expense                                     10,786    10,252
                                                   --------- ---------

    Earnings before Income Taxes                     63,553    81,459

Income Tax Expense                                   21,811    30,265
                                                   --------- ---------

    NET EARNINGS                                     41,742    51,194

Preferred Dividends                                      --        --
                                                   --------- ---------

Net earnings allocable to common stockholders       $41,742   $51,194
                                                   ========= =========

BASIC WEIGHTED AVERAGE SHARES                        74,747    79,464
                                                   ========= =========

BASIC EARNINGS PER COMMON SHARE                       $0.56     $0.64
                                                   ========= =========

DILUTED WEIGHTED AVERAGE SHARES                      76,001    81,980
                                                   ========= =========

DILUTED EARNINGS PER COMMON SHARE                     $0.55     $0.62
                                                   ========= =========



                 Rent-A-Center, Inc. and Subsidiaries

                 CONSOLIDATED STATEMENTS OF EARNINGS

(In Thousands of Dollars, except per share     Six Months Ended June
 data)                                                   30,
                                               -----------------------
                                                  2005        2004
                                               ----------- -----------
                                                      Unaudited

Store Revenue
  Rentals and Fees                             $1,045,261  $1,024,883
  Merchandise Sales                               100,268      94,022
  Installment Sales                                13,202      12,499
  Other                                             2,075       2,047
                                               ----------- -----------
                                                1,160,806   1,133,451

Franchise Revenue
  Franchise Merchandise Sales                      18,787      22,132
  Royalty Income and Fees                           2,794       2,782
                                               ----------- -----------
    Total Revenue                               1,182,387   1,158,365

Operating Expenses
  Direct Store Expenses
    Cost of rental and fees                       226,536     221,286
    Cost of Merchandise Sold                       70,292      64,103
    Cost of Installment Sales                       5,613       5,622
    Salaries and Other Expenses                   666,980     620,142
  Franchise Operation Expenses
    Cost of Franchise Merchandise Sales            18,029      21,106
                                               ----------- -----------
                                                  987,450     932,259


  General and Administrative Expenses              39,505      37,578
  Amortization of Intangibles                       4,452       5,646
  Litigation Reversion                             (8,000)         --
                                               ----------- -----------

    Total Operating Expenses                    1,023,407     975,483
                                               ----------- -----------

    Operating Profit                              158,980     182,882

Interest Income                                    (2,753)     (2,991)
Interest Expense                                   21,654      20,611
                                               ----------- -----------

    Earnings before Income Taxes                  140,079     165,262

Income Tax Expense                                 50,668      61,859
                                               ----------- -----------

    NET EARNINGS                                   89,411     103,403

Preferred Dividends                                    --          --
                                               ----------- -----------

Net earnings allocable to common stockholders     $89,411    $103,403
                                               =========== ===========

BASIC WEIGHTED AVERAGE SHARES                      74,653      79,874
                                               =========== ===========

BASIC EARNINGS PER COMMON SHARE                     $1.20       $1.29
                                               =========== ===========

DILUTED WEIGHTED AVERAGE SHARES                    76,036      82,433
                                               =========== ===========

DILUTED EARNINGS PER COMMON SHARE                   $1.18       $1.25
                                               =========== ===========

CONTACT: Rent-A-Center, Inc., Plano
David E. Carpenter, 972-801-1214
dcarpenter@racenter.com

SOURCE: Rent-A-Center, Inc.



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