Rent-A-Center, Inc. Reports Third Quarter 2001 Results; Same Store Sales Increase 4.5
PLANO, Texas, Nov. 12 -- Rent-A-Center, Inc. (Nasdaq: RCII) (the "Company") announced today net earnings and record revenues for the quarter ended September 30, 2001.
The Company, the nation's largest rent-to-own operator, had net earnings for the quarter ended September 30, 2001 of $18.9 million, or $0.50 per diluted share, when excluding the after-tax effect of a non-recurring charge discussed below, representing a 20.8% decrease from the comparable 2000 period net earnings of $23.9 million, or $0.68 per diluted share. Total revenues for the quarter ended September 30, 2001 increased to $447.1 million as compared to $405.0 million for the same quarter of the prior year. The 10.4% increase in revenues was primarily driven by incremental revenues generated in new and acquired stores, as well as growth in same store revenues. Same store revenues (revenues earned in stores operated for the entirety of both periods) during the third quarter of 2001 increased 4.5% above the comparable quarter of 2000. The Company's quarterly decline in net earnings, exclusive of the one-time charge, resulted primarily from costs associated with new store growth initiatives, an overall increase in expenses, as well as a deterioration of the gross profit margin resulting from in store promotions whereby rates and terms were reduced on certain rental agreements.
Net earnings for the nine months ended September 30, 2001 were $71.5 million, or $1.93 per diluted share, representing an increase of 5.6% over the net earnings of $67.7 million, when excluding the non-recurring charge and the one time gain discussed below, or $1.95 per diluted share for the same period in the prior year. Total revenues for the nine months ended September 30, 2001 increased to $1.330 billion from $1.190 billion in 2000, representing an increase of 11.8%. Same store revenues for the nine month period ending September 30, 2001 increased 7.5%.
During the third quarter of 2001, the Company recorded a one-time, non-recurring pre-tax charge of $16.0 million as a result of the agreement in principal for the settlement of Margaret Bunch, et al v. Rent-A-Center, Inc., a lawsuit pending in federal court in Kansas City, Missouri, asserting various claims of gender discrimination and other gender based claims on behalf of a nationwide class. Under the terms of the proposed settlement, the Company, while not admitting liability, agreed to pay an aggregate of $12.25 million to the plaintiffs, and approximately $3.75 million is estimated for attorney's fees, administrative costs, and various other costs. The settlement is subject to court approval.
During 2000, the Company received a reimbursement of $22.4 million from the settlement fund related to three class action lawsuits in the state of New Jersey which it settled in December 1998. Accordingly, the Company recorded a one-time pre-tax gain of $22.4 million to reflect this reimbursement during the quarter ended June 30, 2000.
"We continue to be encouraged by the strong level of demand and foot traffic in our store locations, as evidenced by the strength in the number of deliveries week after week, as well as our same store sales results," commented Mark E. Speese, the Company's Chairman and Chief Executive Officer. "However, we are clearly disappointed in our current level of profitability," continued Mr. Speese, "and therefore, our near term focus is on expense and gross margin management in an effort to return to the store operating margin levels we enjoyed as recently as early 2001."
During the third quarter of 2001, the Company opened 18 new store locations and acquired an additional 13 stores through five separate transactions. Through September 30, 2001, the Company has opened 61 new stores and acquired a total of 91 others this year. Mitchell E. Fadel, the Company's President commented, "Our long term future earnings growth will be driven by our new store and acquisition programs. Since we began opening new stores again in late September 2000, the Company has opened a total of 108 locations. While, as we expected, these stores are currently dilutive to earnings," added Mr. Fadel, "we are continuing to refine our new store program and as a result, our most recent openings are tracking ahead of the stores we opened almost a year ago at a similar point in time."
The Company's cash flow from operations was $53.2 million for the third quarter and $116.8 million for the nine months ended September 30, 2001. The Company has reduced debt by $32.0 million since June 30, 2001 and over $108.0 million since December 31, 2000. All debt reductions for 2001 are after providing for the cost of the new stores and acquisitions mentioned above.
"The fourth quarter of this year is an important period for our Company," Speese commented, "and we believe we can and will build consistent earnings growth off the third quarter of 2001. We expect diluted earnings per share to be between $0.58 to $0.60 in the fourth quarter of 2001 and $2.51 to $2.53 for the 2001 fiscal year, excluding the one-time charge. We remain confident in the fundamentals of our business and as we look to 2002, we expect same store sales of 3% to 5% and earnings of $3.30 to $3.40 per share. This guidance excludes any benefit from expense management efforts that we will be implementing over the next 12 to 24 months."
Rent-A-Center will host a conference call to discuss the third quarter financial results on Tuesday morning, November 13, 2001, at 10:45 a.m. EST. For a live webcast of the call, visit http://www.rentacenter.com/CompanyInfo/CompanyInfo.html . The webcast will be archived for a period of two weeks.
Rent-A-Center, Inc., headquartered in Plano, Texas, currently operates 2,297 rent-to-own stores in 50 states, Washington, D.C. and Puerto Rico, offering high-quality, durable goods such as consumer electronics, appliances, computers, furniture and accessories to consumers under flexible rental purchase arrangements that 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 344 rent-to-own stores, 331 of which operate under the trade name of "ColorTyme," and the remaining 13 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 store acquisitions that may be completed after September 30, 2001.
FOURTH QUARTER 2001 GUIDANCE:
Revenues
-
The Company expects total revenues to be in the range of $460 million to $470 million.
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Store rental and fee revenues are expected to be between $427 million and $432 million.
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Total store revenues are expected to be in the range of $445 million to $452 million.
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Same store sales increases are expected to be in the 6% to 7% range.
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The Company expects to open 10-15 new store locations.
Expenses
-
The Company expects depreciation of rental merchandise to be between 21.0% and 21.4% of store rental and fee revenue and cost of goods merchandise sales to be between 75% and 85% of store merchandise sales.
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Store salaries and other expenses are expected to be in the range of 59% to 61% of total store revenue.
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General and administrative expenses are expected to be between 3.1% and 3.4% of total revenue.
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Interest expense is expected to be approximately $14.0 million and amortization of intangibles is expected to be approximately $8.0 million.
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The effective tax rate is expected to be approximately 44.0% of pre-tax income.
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Diluted earnings per share are estimated to be in the range of $0.58 to $0.60.
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Diluted shares outstanding are estimated to be between 37.0 million and 37.3 million.
FISCAL 2002 GUIDANCE:
Revenues
-
The Company expects total revenues to be in the range of $1.90 billion and $1.95 billion.
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Store rental and fee revenues are expected to be between $1.76 billion and $1.79 billion.
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Total store revenues are expected to be in the range of $1.85 billion and $1.88 billion.
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Same store sales increases are expected to be in the 3% to 5% range.
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The Company expects to open approximately 75 new store locations.
Expenses
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The Company expects depreciation of rental merchandise to be between 20.8% and 21.3% of store rental and fee revenue and cost of goods merchandise sales to be between 75% and 80% of store merchandise sales.
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Store salaries and other expenses are expected to be in the range of 58.0% to 60.0% of total store revenue.
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General and administrative expenses are expected to be between 3.3% and 3.5% of total revenue.
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Interest expense is expected to be between $54.0 million and $59.0 million and amortization of intangibles is expected to be approximately $3.0 million.
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Tax rate is expected to be between 40.25% and 40.75% of pre-tax income.
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Diluted earnings per share are estimated to be in the range of $3.30 to $3.40.
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Diluted shares outstanding are estimated to be between 36.8 million and 37.2 million.
This press release and the guidance above contains 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," "estimate," "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 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 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 effectively hedge interest rates on its outstanding debt; changes in the Company's effective tax rate; and the other risks detailed from time to time in the Company's SEC filings, included but not limited to, its annual report on Form 10-K for the year ended December 31, 2000, its quarterly report on Form 10-Q/A for the quarter ended March 31, 2001 and its quarterly report on Form 10-Q for the quarter ended June 30, 2001. 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,
2001 2001 2000
Before Non- After Non-
Recurring Legal Recurring Legal
Charge Charge
Unaudited
Total Revenue $ 447,074 $ 447,074 $ 404,968
Operating Profit 48,372 32,372(A) 63,720
Net Earnings 18,934 9,974(A) 23,901
Diluted Earnings Per
Common Share $ 0.50 $ 0.26(A) $ 0.68
EBITDA $ 65,904 $ 50,166(A) $ 79,197
Nine Months Ended September 30,
2001 2001 2000 2000
Before Non- After Non- Before Non- After Non-
Recurring Recurring Recurring Recurring
Legal Legal Legal Legal
Charge Charge Reversion Reversion
Unaudited
Total Revenue $1,329,535 $1,329,535 $1,189,739 $1,189,739
Operating Profit 177,497 161,497(A) 184,073 206,456(B)
Net Earnings 71,477 62,517(A) 67,663 79,414(B)
Diluted Earnings
Per Common Share $ 1.93 $ 1.68(A) $ 1.95 $ 2.30(B)
EBITDA $ 228,005 $ 212,267(A) $ 229,833 $ 252,216(B)
(A) Including the effects of a pre-tax, non-recurring legal charge of
$16.0 million associated with the settlement in principle of an
asserted class action lawsuit pending in federal court in the state
of Missouri.
(B) Including the effects of a pre-tax, non-recurring legal reversion of
$22.4 million associated with the 1999 settlement of three class
action lawsuits in the state of New Jersey.
Rent-A-Center, Inc. and Subsidiaries
Diluted Earnings Per Common Share Before Goodwill Amortization
(In Thousands of Dollars, except per share data)
Three Months Ended September 30,
2001 2001 2000
Before Non- After Non-
Recurring Recurring
Legal Charge Legal Charge
Unaudited
Net Earnings $ 18,934 $ 9,974 $ 23,901
Goodwill Amortization Net
of Tax Effects 6,380 6,380 6,153
Adjusted Net Earnings $ 25,314 $ 16,354 $ 30,054
Diluted Weighted Average
Shares Outstanding 37,779 37,779 35,113
Diluted Earnings Per Common Share
Before Goodwill Amortization $ 0.67 $ 0.43 $ 0.86
Nine Months Ended September 30,
2001 2001 2000 2000
Before Non- After Non- Before Non- After Non-
Recurring Recurring Recurring Recurring
Legal Legal Legal Legal
Charge Charge Reversion Reversion
Unaudited
Net Earnings $ 71,477 $ 62,517(A) $ 67,663 $ 79,414(B)
Goodwill Amortization
Net of Tax Effects 18,725 18,725 18,163 18,163
Adjusted Net
Earnings $ 90,202 $ 81,242(A) $ 85,826 $ 97,577(B)
Diluted Weighted
Average Shares
Outstanding 37,117 37,117 34,601 34,601
Diluted Earnings Per
Common Share Before
Goodwill
Amortization $ 2.43 $ 2.19(A) $ 2.48 $ 2.82(B)
(A) Including the effects of a pre-tax, non-recurring legal charge of
$16.0 million associated with the settlement in principle of an
asserted class action lawsuit pending in federal court in the state
of Missouri.
(B) Including the effects of a pre-tax, non-recurring legal reversion of
$22.4 million associated with the 1999 settlement of three class
action lawsuits in the state of New Jersey.
Selected Balance Sheet Data:
(in Thousands of Dollars) Sept. 30, 2001 Dec. 31, 2000
Cash and cash equivalents $ 28,935 $ 36,495
Prepaid expenses and other assets 33,737 31,805
Rental merchandise, net
On rent 527,724 477,095
Held for rent 116,670 110,137
Total Assets 1,530,344 1,486,910
Senior debt 458,020 566,051
Subordinated notes payable 175,000 175,000
Total Liabilities 812,749 896,307
Stockholders' Equity 428,394 309,371
Rent-A-Center, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands of Dollars, except per share data)
Three Months Ended September 30,
2001 2000
Unaudited
Store Revenue
Rentals and Fees $ 411,241 $ 372,402
Merchandise Sales 21,569 18,887
Other 640 922
433,450 392,211
Franchise Revenue
Franchise Merchandise Sales 12,087 11,143
Royalty Income and Fees 1,537 1,614
Total Revenue 447,074 404,968
Operating Expenses
Direct Store Expenses
Depreciation of Rental Merchandise 86,198 77,014
Cost of Merchandise Sold 17,176 14,348
Salaries and Other Expenses 261,992 219,195
Franchise Operation Expenses
Cost of Franchise Merchandise Sales 11,624 10,815
376,990 321,372
General and Administrative Expenses 13,974 12,708
Amortization of Intangibles 7,738 7,168
Non-Recurring Legal Settlements 16,000 ---
Total Operating Expenses 414,702 341,248
Operating Profit 32,372 63,720
Interest Expense 14,837 18,915
Interest Income (282) (720)
Earnings Before Income Taxes 17,817 45,525
Income Tax Expense 7,843 21,624
NET EARNINGS 9,974 23,901
Preferred Dividends 2,709 2,631
Net earnings allocable to
common stockholders $ 7,265 $ 21,270
BASIC WEIGHTED AVERAGE SHARES 26,666 24,404
BASIC EARNINGS PER COMMON SHARE $ 0.27 $ 0.87
DILUTED WEIGHTED AVERAGE SHARES 37,779 35,113
DILUTED EARNINGS PER COMMON SHARE $ 0.26 $ 0.68
Rent-A-Center, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands of Dollars, except per share data)
Nine Months Ended September 30,
2001 2000
Unaudited
Store Revenue
Rentals and Fees $1,213,387 $1,082,949
Merchandise Sales 72,440 63,906
Other 2,878 1,916
1,288,705 1,148,771
Franchise Revenue
Franchise Merchandise Sales 36,346 36,355
Royalty Income and Fees 4,484 4,613
Total Revenue 1,329,535 1,189,739
Operating Expenses
Direct Store Expenses
Depreciation of Rental Merchandise 251,286 222,545
Cost of Merchandise Sold 54,176 51,744
Salaries and Other Expenses 748,576 639,041
Franchise Operation Expenses
Cost of Franchise Merchandise Sales 34,821 35,049
1,088,859 948,379
General and Administrative Expenses 40,777 36,189
Amortization of Intangibles 22,402 21,098
Non-Recurring Legal Reversion 16,000 (22,383)
Total Operating Expenses 1,168,038 983,283
Operating Profit 161,497 206,456
Interest Expense 47,215 56,284
Interest Income (870) (1,094)
Earnings Before Income Taxes 115,152 151,266
Income Tax Expense 52,635 71,852
NET EARNINGS 62,517 79,414
Preferred Dividends 12,087 7,764
Net earnings allocable to
common stockholders $ 50,430 $ 71,650
BASIC WEIGHTED AVERAGE SHARES 25,766 24,347
BASIC EARNINGS PER COMMON SHARE $ 1.96 $ 2.94
DILUTED WEIGHTED AVERAGE SHARES 37,117 34,601
DILUTED EARNINGS PER COMMON SHARE $ 1.68 $ 2.30
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SOURCE Rent-A-Center, Inc.
CONTACT: Peter J. Bates, Vice President - Finance, Director of Investor Relations, +1-972-801-1205, or pbates@racenter.com , or Robert D. Davis, Chief Financial Officer, +1-972-801-1204, or rdavis@racenter.com , or Mitchell E. Fadel, President, +1-972-801-1114, or mfadel@racenter.com , or Mark E. Speese, Chairman and CEO, +1-972-801-1199, or mspeese@racenter.com , all of Rent-A-Center, Inc./