Rent-A-Center: Furniture - Appliances - Computers - Electronics
NASDAQ GS: RCII
$11.55(-0.28)
Nov 17, 2017 4:00 p.m.(20 minute delay)
Press Release

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Rent-A-Center, Inc. Reports Third Quarter 2005 Results; Cash Flow From Operations of $87.5 Million; Repurchased 3.9 Million Shares of Common Stock

PLANO, Texas--(BUSINESS WIRE)--Oct. 24, 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 September 30, 2005.

The Company reported total revenues for the quarter ended September 30, 2005 of $573.5 million, a $3.9 million increase from $569.6 million for the same period in the prior year. This increase of 0.7% in revenues was primarily driven by incremental revenues generated in new and acquired stores, offset by a decrease in same store sales of 0.4%.

Net earnings for the quarter ended September 30, 2005 were $26.0 million, or $0.35 per diluted share, when excluding the expenses for restructuring and the impact of the hurricanes discussed below, representing a decrease of 25.5% from the $0.47 per diluted share, or net earnings of $37.6 million for the same period in the prior year, when excluding the litigation and finance charges discussed below. The decrease in earnings per diluted share is primarily attributable to the decrease in same store sales as well as increases in operating expenses related to new store openings, acquisitions and normal operating costs such as utility and fuel costs, offset by a reduction in the number of the Company's outstanding shares.

Reported net earnings for the quarter ended September 30, 2005 were $11.3 million, or $0.15 per diluted share, when including the $0.20 effect of restructuring expenses and the impact of the hurricanes. Also, as a result of the hurricanes impact, the Company estimates that revenue in the third quarter was lower by approximately $1.7 million.

Total reported revenues for the nine months ended September 30, 2005 increased to $1.756 billion, a 1.6% increase from $1.728 billion for the same period in the prior year. Same store revenues for the nine month period ending September 30, 2005 decreased 2.8%. Net earnings for the nine months ended September 30, 2005 were $108.3 million, or $1.44 per diluted share, when excluding the restructuring expenses, the impact of the hurricanes and the credits for the litigation reversion and tax audit reserve discussed below, representing a decrease of 16.8% from the $1.73 per diluted share, or net earnings of $141.0 million for the same period in the prior year, when excluding the litigation and finance charges discussed below. Reported net earnings for the nine months ended September 30, 2005 were $100.7 million, or $1.34 per diluted share, when including the $0.10 effect of restructuring expenses and the impact of the hurricanes as well as the credits for the tax audit reserve and litigation.

"This quarter, as well as the past year and a half, have been challenging for our customer and for our company due, we believe, to the macroeconomic environment, and more specifically the higher energy prices," commented Mark E. Speese, the Company's Chairman and Chief Executive Officer. "Despite the challenges in the quarter, we saw an improvement in our same store sales trend, generated cash flow from operations of more than $87 million and made significant progress on our store consolidation plan, having closed 100 of the identified stores," Speese continued. "As we prepare to enter 2006, our strategic objectives will continue to be to enhance store level operations, open new stores, pursue opportunistic acquisitions in rent-to-own and other businesses that serve our customer demographic, and enhance stockholder value by repurchasing additional shares of our common stock, while maintaining a solid balance sheet," Speese stated.

During the third quarter of 2005, the Company opened 17 new store locations, acquired two stores as well as accounts from 15 additional locations, consolidated 114 stores into existing locations, sold two stores and closed eight stores. Since September 30, 2005, the Company has opened three new stores, acquired accounts from one location, consolidated seven stores into existing locations, sold 15 stores and closed five stores. For the fourth quarter ending December 31, 2005, the Company intends to open between 20 and 25 new store locations as well as pursue opportunistic acquisitions.

Through the nine month period ended September 30, 2005, the Company generated cash flow from operations of approximately $143.7 million, while ending the quarter with $52.8 million of cash on hand. On August 22, 2005, the Company announced that its Board of Directors increased the authorization for stock repurchases under the Company's common stock repurchase program to $400 million. Through the nine month period ended September 30, 2005, the Company repurchased 4,084,600 shares for $84.1 million in cash under the program and has utilized a total of $321.6 million of the total amount authorized by its Board of Directors since the inception of the plan.

During the third quarter of 2005, the Company recorded a pre-tax restructuring expense of approximately $13.0 million as part of the store consolidation plan announced on September 6, 2005. The costs with respect to these store closings relate primarily to lease terminations of approximately $6.5 million, goodwill impairment of approximately $4.5 million and fixed asset disposals of approximately $1.8 million. This restructuring expense reduced diluted earnings per share in the third quarter of 2005 by $0.12 and for the nine month period ended September 30, 2005 by $0.12.

Also, during the third quarter of 2005, the Company recorded a pre-tax expense of approximately $7.7 million related to the damage caused by Hurricanes Katrina and Rita. These costs relate primarily to goodwill impairment of approximately $3.7 million and inventory losses of approximately $3.6 million. The hurricanes affected approximately 180 stores in Louisiana, Texas, Mississippi and Alabama, of which 14 stores in Louisiana and one store in Mississippi have been permanently closed. These expenses reduced diluted earnings per share in the third quarter of 2005 by $0.08 and for the nine month period ended September 30, 2005 by $0.08.

In addition, during 2005, the Company recorded a $2.0 million tax audit reserve credit in the second quarter associated with the examination and favorable resolution of the Company's 1998 and 1999 federal tax returns. Also in 2005, the Company recorded an $8.0 million pre-tax credit in the first quarter associated with the settlement of the Griego/Carrillo litigation. The litigation reversion credit in the first quarter, combined with the $2.0 million tax audit reserve credit in the second quarter, increased diluted earnings per share for the nine month period ended September 30, 2005 by $0.10.

During the third quarter of 2004, the Company recorded $47.0 million in pre-tax charges associated with the aforementioned Griego/Carrillo litigation and $4.2 million in pre-tax charges associated with the refinancing of its senior credit facility. These charges reduced diluted earnings per share in the third quarter of 2004 by $0.40, $0.37 for the litigation charge and $0.03 for the refinancing charge, from $0.47 per diluted earnings per share to the reported diluted earnings per share of $0.07. Additionally, these charges reduced diluted earnings per share for the nine month period ended September 30, 2004 by $0.39 to the reported diluted earnings per share of $1.34.

Rent-A-Center will host a conference call to discuss the third quarter financial results on Tuesday morning, October 25, 2005, at 10:45 a.m. EST. 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 2,763 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 288 rent-to-own stores, 276 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, expenses to be incurred in connection with the store consolidation plan, expenses to be incurred relating to the damage caused by Hurricanes Katrina or Rita, or the potential impact of acquisitions that may be completed after October 24, 2005.

    FOURTH QUARTER 2005 GUIDANCE:

    Revenues

    --  The Company expects total revenues to be in the range of $575
        million to $583 million.

    --  Store rental and fee revenues are expected to be between $521
        million and $526 million.

    --  Total store revenues are expected to be in the range of $565
        million to $573 million.

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

    --  The Company expects to open 20-25 new store locations.

    Expenses

    --  The Company expects cost of rental and fees to be between
        21.7% and 22.1% 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
        3.5% and 3.7% of total revenue.

    --  Net interest expense is expected to be approximately $11.5
        million, depreciation of property assets to be approximately
        $13.5 million and amortization of intangibles is expected to
        be approximately $1.3 million.

    --  The effective tax rate is expected to be in the range of 37.0%
        to 37.5% of pre-tax income.

    --  Diluted earnings per share are estimated to be in the range of
        $0.43 to $0.47.

    --  Diluted shares outstanding are estimated to be between 71.3
        million and 72.3 million.

    FISCAL 2006 GUIDANCE:

    Revenues

    --  The Company expects total revenues to be in the range of $2.37
        billion and $2.40 billion.

    --  Store rental and fee revenues are expected to be between
        $2.105 billion and $2.130 billion.

    --  Total store revenues are expected to be in the range of $2.332
        billion and $2.362 billion.

    --  Same store sales are expected to be flat.

    --  The Company expects to open 60-80 new store locations.

    Expenses

    --  The Company expects cost of rental and fees to be between
        21.7% and 22.1% of store rental and fee revenue and cost of
        goods merchandise sales to be between 70% 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
        3.5% and 3.7% of total revenue.

    --  Net interest expense is expected to be between $42.0 million
        and $47.0 million, depreciation of property assets is expected
        to be between $53.0 million and $58.0 million and amortization
        of intangibles is expected to be approximately $3.3 million.

    --  The effective tax rate is expected to be in the range of
        36.75% to 37.25% of pre-tax income.

    --  Diluted earnings per share, when including stock option
        expense, are estimated to be in the range of $2.00 to $2.10,
        and $2.04 to $2.14, excluding stock option expense.

    --  Diluted shares outstanding are estimated to be between 72.0
        million and 73.5 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 additional costs and expenses that could be incurred in connection with the store consolidation plan, 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 reports on Form 10-Q for the quarter ended March 31, 2005 and the Form 10-Q for the six month period ended June 30, 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 September 30,
                                     ---------------------------------
                                           2005             2005
                                     ------------------ --------------
                                                            After
                                          Before         Restructuring
                                      Restructuring and       and
                                         Hurricanes       Hurricanes
                                           Expense           Expense
                                     ------------------ --------------

Total Revenue                                 $573,507     $573,507
Operating Profit                                51,750       30,980
Net Earnings                                    25,985       11,277(1)
Diluted Earnings per Common Share                $0.35        $0.15(1)
Adjusted EBITDA                                $67,493      $67,493

Reconciliation to Adjusted EBITDA:

Earnings before income taxes                    41,279       20,509
Add back:
    Restructuring expense                           --       13,028
    Hurricanes expense                              --        4,075
    Litigation settlement                           --           --
    Finance charge from
     recapitalization                               --           --
    Interest expense, net                       10,471       10,471
    Depreciation of property assets             13,484       13,484
    Amortization of intangibles                  2,259        5,926(4)
                                     ------------------ --------------

Adjusted EBITDA                                $67,493      $67,493


 (In Thousands of Dollars, except per share data)

                                     Three Months Ended September 30,
                                     --------------------------------
                                          2004            2004
                                      -------------- ----------------
                                         Before
                                       Litigation &  After Litigation
                                         Finance        & Finance
                                          Charges         Charges
                                      -------------- ----------------

Total Revenue                              $569,607        $569,607
Operating Profit                             71,344          24,344
Net Earnings                                 37,552           5,573(2)
Diluted Earnings per Common Share             $0.47           $0.07(2)
Adjusted EBITDA                             $86,608         $86,608

Reconciliation to Adjusted EBITDA:

Earnings before income taxes                 62,821          11,648
Add back:
    Restructuring expense                        --              --
    Hurricanes expense                           --              --
    Litigation settlement                        --          47,000
    Finance charge from
     recapitalization                            --           4,173
    Interest expense, net                     8,523           8,523
    Depreciation of property assets          12,508          12,508
    Amortization of intangibles               2,756           2,756
                                      -------------- ----------------

Adjusted EBITDA                             $86,608         $86,608


                                       Nine Months Ended September 30,
                                       -------------------------------
                                            2005            2005
                                       ---------------- --------------
                                                            After
                                                         Restructuring
                                        Before            and
                                     Restructuring     Hurricanes
                                     and Hurricanes   Expense & Tax
                                     Expense & Tax    Audit Reserve
                                     Audit Reserve        and
                                     and Litigation    Litigation
                                         Credits         Credits
                                    ---------------- --------------

Total Revenue                         $1,755,894       $1,755,894
Operating Profit                         202,730          189,960
Net Earnings                             108,290          100,688(1,3)
Diluted Earnings per Common Share          $1.44            $1.34(1,3)
Adjusted EBITDA                         $249,459         $249,459

Reconciliation to Adjusted EBITDA:

Earnings before income taxes             173,358          160,588
Add back:
    Restructuring expense                     --           13,028
    Hurricanes expense impact                 --            4,075
    Litigation credit & settlement            --           (8,000)
    Finance charge from
     recapitalization                         --               --
    Interest expense, net                 29,372           29,372
    Depreciation of property assets       40,018           40,018
    Amortization of intangibles            6,711           10,378(4)
                                       ------------- --------------

Adjusted EBITDA                         $249,459         $249,459


                                     Nine Months Ended September 30,
                                     --------------------------------
                                          2004            2004
                                      -------------- ----------------
                                         Before
                                       Litigation &  After Litigation
                                         Finance        & Finance
                                          Charges         Charges
                                      -------------- ----------------

Total Revenue                            $1,727,972      $1,727,972
Operating Profit                            254,226         207,226
Net Earnings                                140,955         108,976(2)
Diluted Earnings per Common Share             $1.73           $1.34(2)
Adjusted EBITDA                            $298,219        $298,219

Reconciliation to Adjusted EBITDA:

Earnings before income taxes                228,083         176,910
Add back:
    Restructuring expense                        --              --
    Hurricanes expense impact                    --              --
    Litigation credit & settlement               --          47,000
    Finance charge from
     recapitalization                            --           4,173
    Interest expense, net                    26,143          26,143
    Depreciation of property assets          35,591          35,591
    Amortization of intangibles               8,402           8,402
                                      -------------- ----------------

Adjusted EBITDA                            $298,219        $298,219

    (1) Including the effects of a $13.0 million pre-tax restructuring
        expense as part of the store consolidation plan announced
        September 6, 2005 and $7.7 million in pre-tax expenses related
        to the damage caused by Hurricanes Katrina and Rita. The
        expenses reduced diluted earnings per share in the third
        quarter of 2005 and the nine month period ending September 30,
        2005, by $0.12 and $0.12 respectively for the restructuring
        expense and by $0.08 and $0.08 respectively for the hurricanes
        expense.

    (2) Including the effects of $47.0 million in pre-tax charges
        associated with the Griego/Carrillo litigation and $4.2
        million in pre-tax charges associated with refinancing of the
        Company's senior credit facility. These charges reduced
        diluted earnings per share in the third quarter of 2004 by
        $0.40, $0.37 for the litigation charge and $0.03 for the
        refinancing charge, to the reported diluted earnings per share
        of $0.07. Additionally, these charges reduced diluted earnings
        per share for the nine month period ended September 30, 2004
        by $0.39 to the reported diluted earnings per share of $1.34.

    (3) 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, and 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 in the second quarter of 2005. These credits
        increased diluted earnings per share for the nine month period
        ended September 30, 2005 by $0.10.

    (4) Includes $3.667 million of goodwill impairment related to
        Hurricanes Katrina and Rita.


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

    Cash and cash equivalents       $ 52,790             $ 64,521
    Prepaid expenses and other
     assets                           42,067               47,387
    Rental merchandise, net
       On rent                       572,224              555,024
       Held for rent                 178,825              162,489
    Total Assets                   1,939,384            1,906,164

    Senior debt                      406,625              399,125
    Subordinated notes payable       300,000              300,000
    Total Liabilities              1,117,385            1,128,919
    Stockholders' Equity             821,999              777,245


                 Rent-A-Center, Inc. and Subsidiaries

                 CONSOLIDATED STATEMENTS OF EARNINGS

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

Store Revenue
   Rentals and Fees                        $516,433         $516,576
   Merchandise Sales                         39,212           36,265
   Installment Sales                          6,372            5,469
   Other                                      2,938              919
                                     ---------------  ----------------
                                            564,955          559,229

Franchise Revenue
   Franchise Merchandise Sales                7,245            8,967
   Royalty Income and Fees                    1,307            1,411
                                     ---------------  ----------------
       Total Revenue                        573,507          569,607

Operating Expenses
   Direct Store Expenses
       Cost of Rentals and Fees             112,174          112,582
       Cost of Merchandise Sold              30,314           26,978
       Cost of Installment Sales              2,556            2,180
       Salaries and Other Expenses          350,389          326,410
   Franchise Operation Expenses
       Cost of Franchise Merchandise
        Sales                                 6,964            8,585
                                     ---------------  ----------------
                                            502,397          476,735


   General and Administrative
    Expenses                                 21,176           18,772
   Amortization of Intangibles                5,926            2,756
   Restructuring charge                      13,028               --
   Class Action Litigation
    Settlement                                   --           47,000
                                     ---------------  ----------------

       Total Operating Expenses             542,527          545,263
                                     ---------------  ----------------

       Operating Profit                      30,980           24,344

Finance Charge from Recapitalization             --            4,173
Interest Income                              (1,331)          (1,391)
Interest Expense                             11,802            9,914
                                     ---------------  ----------------

       Earnings before Income Taxes          20,509           11,648

Income Tax Expense                            9,232            6,075
                                     ---------------  ----------------

       NET EARNINGS                          11,277            5,573

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

Net earnings allocable to common
 stockholders                               $11,277           $5,573
                                     ===============  ================

BASIC WEIGHTED AVERAGE SHARES                72,826           77,989
                                     ===============  ================

BASIC EARNINGS PER COMMON SHARE               $0.15            $0.07
                                     ===============  ================

DILUTED WEIGHTED AVERAGE SHARES              73,713           79,928
                                     ===============  ================

DILUTED EARNINGS PER COMMON SHARE             $0.15            $0.07
                                     ===============  ================


                 Rent-A-Center, Inc. and Subsidiaries

                 CONSOLIDATED STATEMENTS OF EARNINGS

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

Store Revenue
   Rentals and Fees                       $1,561,694       $1,541,459
   Merchandise Sales                         139,480          130,287
   Installment Sales                          19,574           17,968
   Other                                       5,013            2,966
                                       -------------- ----------------
                                           1,725,761        1,692,680

Franchise Revenue
   Franchise Merchandise Sales                26,032           31,099
   Royalty Income and Fees                     4,101            4,193
                                       -------------- ----------------
       Total Revenue                       1,755,894        1,727,972

Operating Expenses
   Direct Store Expenses
       Cost of Rentals and Fees              338,710          333,868
       Cost of Merchandise Sold              100,606           91,081
       Cost of Installment Sales               8,169            7,802
       Salaries and Other Expenses         1,017,369          946,552
   Franchise Operation Expenses
       Cost of Franchise Merchandise
        Sales                                 24,993           29,691
                                       -------------- ----------------
                                           1,489,847        1,408,994


   General and Administrative Expenses        60,681           56,350
   Amortization of Intangibles                10,378            8,402
   Restructuring charge                       13,028               --
   Class Action Litigation Settlement
    (Reversion)                               (8,000)          47,000
                                       -------------- ----------------

       Total Operating Expenses            1,565,934        1,520,746
                                       -------------- ----------------

       Operating Profit                      189,960          207,226

Finance Charge from Recapitalization              --            4,173
Interest Income                               (4,084)          (4,382)
Interest Expense                              33,456           30,525
                                       -------------- ----------------

       Earnings before Income Taxes          160,588          176,910

Income Tax Expense                            59,900           67,934
                                       -------------- ----------------

                NET EARNINGS                 100,688          108,976

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

Net earnings allocable to common
 stockholders                               $100,688         $108,976
                                       ============== ================

BASIC WEIGHTED AVERAGE SHARES                 74,044           79,246
                                       ============== ================

BASIC EARNINGS PER COMMON SHARE                $1.36            $1.38
                                       ============== ================

DILUTED WEIGHTED AVERAGE SHARES               75,262           81,598
                                       ============== ================

DILUTED EARNINGS PER COMMON SHARE              $1.34            $1.34
                                       ============== ================

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

SOURCE: Rent-A-Center, Inc.



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