Rent-A-Center, Inc. Reports Third Quarter 2009 Results

October 26, 2009 at 4:21 PM EDT

Diluted Earnings Per Share Increase 25% in the 3^rd Quarter to $0.55

Cash Flow from Operations of Approximately $300 Million Year-to-Date

PLANO, Texas--(BUSINESS WIRE)--Oct. 26, 2009-- 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 September 30, 2009.

Third Quarter 2009 Results

Total revenues for the quarter ended September 30, 2009 were $671.3 million, a decrease of $37.5 million from total revenues of $708.8 million for the same period in the prior year. This decrease in revenues was primarily the result of a 6.1% reduction in same store sales, predominantly attributable to a decrease in the number of units per customer and the anticipated revenue attrition from approximately 365 stores that received customer agreements from stores closed in the 2007 restructuring plan.

Net earnings and net earnings per diluted share for the quarter ended September 30, 2009 were $36.8 million and $0.55, respectively, as compared to $29.4 million and $0.44, respectively, for the same period in the prior year. Net earnings for the quarter ended September 30, 2008 were reduced by a $200,000 pre-tax expense related to our 2007 restructuring plan as discussed below. The restructuring expense had no impact on the net earnings per diluted share in the third quarter of 2008.

“I am pleased with our results for the third quarter, where we met our revenue guidance and exceeded our net earnings per diluted share through our continued focus on managing our costs,” commented Mark E. Speese, the Company's Chairman and Chief Executive Officer. “Both our customer count and our deliveries per store have outperformed the comparable period in 2008 for each month during the third quarter,” Speese stated. “We are encouraged by these trends in our customer traffic, and we remain cautiously optimistic regarding 2010. Accordingly, our 2010 guidance includes flat to slightly increasing total revenue with net earnings per diluted share in the $2.30 to $2.50 range. In addition, our focus on improving our financial services operations in 2009 has resulted in positive results, and as such, we anticipate expanding this business with the opening of approximately 50 locations in 2010,” Speese concluded.

Nine Months Ended September 30, 2009 Results

Total revenues for the nine months ended September 30, 2009 were $2.079 billion, a decrease of $105.0 million from total revenues of $2.184 billion for the same period in the prior year. This decrease in revenues was primarily the result of a 3.9% reduction in same store sales, predominantly attributable to a decrease in the number of units per customer, plus the impact of the 2007 restructuring plan.

Net earnings and net earnings per diluted share for the nine months ended September 30, 2009 were $124.2 million and $1.86, respectively, as compared to $103.5 million and $1.54, respectively, for the same period in the prior year. Net earnings and net earnings per diluted share for the nine months ended September 30, 2009 include $4.9 million, or approximately $0.04 per share, as a result of pre-tax litigation credits related to the Hilda Perez matter as discussed below. Net earnings and net earnings per diluted share for the nine months ended September 30, 2008 were reduced by $3.1 million, or approximately $0.03 per share, as a result of a pre-tax expense related to our 2007 restructuring plan as discussed below.

When excluding the items above, adjusted net earnings per diluted share for the nine months ended September 30, 2009 were $1.82, as compared to adjusted net earnings per diluted share for the nine months ended September 30, 2008 of $1.57, an increase of 15.9%.

Through the nine month period ended September 30, 2009, the Company generated cash flow from operations of approximately $300.0 million, while ending the quarter with approximately $39.9 million of cash on hand. The Company utilized its cash flow from operations to reduce its outstanding indebtedness by approximately $288.0 million in 2009, or approximately 30% from year end 2008. During the quarter ended September 30, 2009, the Company redeemed its outstanding balance of $75.4 million in aggregate principal amount of its 7½% Senior Subordinated Notes as well as repaid approximately $41.7 million of its senior debt.

Operations Highlights

During the three and nine month periods ended September 30, 2009, the company-owned stores and financial services locations changed as follows:

	Three Months Ended September 30, 2009	Nine Months Ended September 30, 2009
Company-Owned Stores
Stores at beginning of period	3,021	3,037
New store openings	13	31
Acquired stores remaining open	1	1
Closed stores
Merged with existing stores	22	54
Sold or closed with no surviving store	9	11
Stores at end of period	3,004	3,004

Acquired stores closed and accounts merged with existing stores	11	23

Financial Services
Stores at beginning of period	350	351
New store openings	2	4
Acquired stores remaining open	-	-
Closed stores
Merged with existing stores	4	7
Sold or closed with no surviving store	3	3
Stores at end of period	345	345

Acquired stores closed and accounts merged with existing stores	-	1

Since September 30, 2009, the Company has opened two new store locations. The Company has acquired two financial services store locations as well as accounts from four additional locations since September 30, 2009.

Significant Items

Litigation Credit Related to the Hilda Perez Matter. In November 2007, the Company paid an aggregate of $109.3 million, including plaintiffs’ attorneys’ fees and administration costs, pursuant to the court approved settlement of the Hilda Perez v. Rent-A-Center, Inc. matter in New Jersey. Under the terms of the settlement, the Company is entitled to 50% of any undistributed monies in the settlement fund. The Company previously recorded during the fourth quarter of 2008 a pre-tax credit in the amount of $2.7 million and additional pre-tax credits in the amount of $3.0 million in the first quarter of 2009 and $1.9 million in the second quarter of 2009, to account for cash payments to the Company representing undistributed monies in the settlement fund to which the Company is entitled pursuant to the terms of the settlement, as well as a refund of costs to administer the settlement previously paid by the Company which were not expended during the administration of the settlement. Through the nine month period ended September 30, 2009, the total pre-tax credit of approximately $4.9 million increased net earnings per diluted share by approximately $0.04.

Restructuring Plan Expenses. During the first quarter of 2008, the Company recorded a pre-tax restructuring expense of approximately $2.9 million in connection with the restructuring plan previously announced on December 3, 2007. This restructuring expense reduced net earnings per diluted share by approximately $0.03 in the first quarter of 2008. The Company recorded additional pre-tax restructuring expense in the third quarter of 2008 of approximately $0.2 million. Through the nine month period ended September 30, 2008, the total pre-tax restructuring expense of approximately $3.1 million reduced net earnings per diluted share by approximately $0.03. As previously reported, the Company recorded a pre-tax restructuring expense of approximately $38.7 million related to this restructuring plan during the fourth quarter of 2007. The costs with respect to these store closings relate primarily to lease terminations, fixed asset disposals and other miscellaneous items.

Rent-A-Center, Inc. will host a conference call to discuss the third quarter results, guidance and other operational matters on Tuesday morning, October 27, 2009, at 10:45 a.m. EDT. 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, currently operates approximately 3,000 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 approximately 215 rent-to-own stores operating under the trade name of "ColorTyme."

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, changes in outstanding indebtedness, or the potential impact of acquisitions or dispositions that may be completed after October 26, 2009.

FOURTH QUARTER 2009 GUIDANCE:

Revenues

The Company expects total revenues to be in the range of $662 million to $677 million.
Store rental and fee revenues are expected to be between $570 million and $582 million.
Total store revenues are expected to be in the range of $653 million to $668 million.
Same store sales are expected to be in the range of down 3% to down 5%.
The Company expects to open 10 to 15 new company-owned store locations.
The Company expects to add financial services to approximately 10 rent-to-own store locations.

Expenses

The Company expects cost of rental and fees to be between 22.4% and 22.8% of store rental and fee revenue and cost of merchandise sold to be between 70.0% and 74.0% of store merchandise sales.
Store salaries and other expenses are expected to be in the range of 58.2% to 59.7% of total store revenue.
General and administrative expenses are expected to be approximately 5.0% of total revenue.
Net interest expense is expected to be approximately $4 million and depreciation of property assets is expected to be approximately $17 million.
The effective tax rate is expected to be approximately 38% of pre-tax income.
Diluted earnings per share are estimated to be in the range of $0.55 to $0.61.
Diluted shares outstanding are estimated to be between 66.3 million and 67.1 million.

FISCAL 2010 GUIDANCE:

Revenues

The Company expects total revenues to be in the range of $2.736 billion and $2.796 billion.
Store rental and fee revenues are expected to be between $2.300 billion and $2.350 billion.
Total store revenues are expected to be in the range of $2.703 billion and $2.763 billion.
Same store sales are expected to be flat.
The Company expects to open 25 to 35 new company-owned store locations.
The Company expects to add financial services to approximately 50 rent-to-own store locations.

Expenses

The Company expects cost of rental and fees to be between 22.3% and 22.9% of store rental and fee revenue and cost of merchandise sold to be between 69.0% and 73.0% of store merchandise sales.
Store salaries and other expenses are expected to be in the range of 57.7% to 59.2% of total store revenue.
General and administrative expenses are expected to be approximately 5.0% of total revenue.
Net interest expense is expected to be approximately $17 million and depreciation of property assets is expected to be between $63 million and $68 million.
The effective tax rate is expected to be in the range of 38.3% to 38.8% of pre-tax income.
Diluted earnings per share are estimated to be in the range of $2.30 to $2.50.
Diluted shares outstanding are estimated to be between 66.5 million and 67.5 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 the ability to open new rent-to-own stores; the Company’s ability to acquire additional rent-to-own stores or customer accounts on favorable terms; the Company’s ability to control costs and increase profitability; the Company’s ability to successfully add financial services locations within its existing rent-to-own stores; the Company’s ability to identify and successfully enter new lines of business offering products and services that appeal to its customer demographic, including its financial services products; 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 purchase agreements; the Company’s ability to enter into new and collect on its short-term loans; the passage of legislation adversely affecting the rent-to-own or financial services industries; the Company’s failure to comply with statutes or regulations governing the rent-to-own or financial services industries; interest rates; increases in the unemployment rate; economic pressures, such as high fuel and utility costs, affecting the disposable income available to the Company’s targeted consumers; changes in the Company’s stock price and the number of shares of common stock that it may or may not repurchase; changes in estimates relating to self-insurance liabilities and income tax and litigation reserves; changes in the Company’s effective tax rate; the Company’s ability to maintain an effective system of internal controls; changes in the number of share-based compensation grants, methods used to value future share-based payments and changes in estimated forfeiture rates with respect to share-based compensation; the resolution of any material 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, 2008, and its quarterly reports for the quarters ended March 31, 2009 and June 30, 2009. 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,
			2009			2008		2008
			(GAAP Earnings)			Before Significant Items (Non-GAAP Earnings)		After Significant Items (GAAP Earnings)

Total Revenue			$	671,251		$	708,755	$	708,755
Operating Profit				64,367			58,762		58,549	⁽¹⁾
Net Earnings				36,840			29,531		29,379	⁽¹⁾
Diluted Earnings per Common Share			$	0.55		$	0.44	$	0.44
Adjusted EBITDA			$	81,006		$	80,498	$	80,498

Reconciliation to Adjusted EBITDA:

Earnings Before Income Taxes			$	59,654		$	45,795	$	45,582
Add back:
Restructuring Expense				—			—		213
Interest Expense, net				4,713			12,967		12,967
Depreciation of Property Assets				16,054			18,191		18,191
Amortization and Write-down of Intangibles				585			3,545		3,545

Adjusted EBITDA			$	81,006		$	80,498	$	80,498


(In Thousands of Dollars, except per share data)	Nine Months Ended September 30,
	2009		2009			2008		2008
	Before Significant Items (Non-GAAP Earnings)		After Significant Items (GAAP Earnings)			Before Significant Items (Non-GAAP Earnings)		After Significant Items (GAAP Earnings)

Total Revenue	$	2,079,043	$	2,079,043		$	2,184,422	$	2,184,422
Operating Profit		216,873		221,742	⁽²⁾		213,621		210,523	⁽³⁾
Net Earnings		121,140		124,161	⁽²⁾		105,433		103,478	⁽³⁾
Diluted Earnings per Common Share	$	1.82	$	1.86	⁽²⁾	$	1.57	$	1.54	⁽³⁾
Adjusted EBITDA	$	269,488	$	269,488		$	280,327	$	280,327

Reconciliation to Adjusted EBITDA:

Earnings Before Income Taxes	$	195,419	$	200,288		$	167,141	$	164,043
Add back:
Litigation Expense (Credit)		—		(4,869)			—		—
Restructuring Expense		—		—			—		3,098
Interest Expense, net		21,454		21,454			46,480		46,480
Depreciation of Property Assets		50,187		50,187			54,569		54,569
Amortization and Write-down of Intangibles		2,428		2,428			12,137		12,137

Adjusted EBITDA	$	269,488	$	269,488		$	280,327	$	280,327

(1) Includes the effects of a $0.2 million pre-tax restructuring expense in the third quarter of 2008 related to the December 3, 2007 announced restructuring plan. The restructuring expense had no impact on the diluted earnings per share in the third quarter of 2008.

(2) Includes the effects of $4.9 million pre-tax litigation credits in the first quarter and second quarter of 2009 related to the Hilda Perez matter. The litigation credits increased diluted earnings per share by approximately $0.04 for the nine months ended June 30, 2009.

(3) Includes the effects of $3.1 million pre-tax restructuring expenses related to the December 3, 2007 announced restructuring plan. The restructuring expenses reduced diluted earnings per share by approximately $0.03 for the nine months ended June 30, 2008.


SELECTED BALANCE SHEET HIGHLIGHTS

Selected Balance Sheet Data: (in Thousands of Dollars)	September 30, 2009		September 30, 2008

Cash and Cash Equivalents	$	39,905	$	99,188
Accounts Receivable		59,943		43,992
Prepaid Expenses and Other Assets		54,472		58,552
Rental Merchandise, net
On Rent		547,418		620,438
Held for Rent		175,743		213,096
Total Assets		2,356,301		2,510,034

Senior Debt		659,080		753,964
Subordinated Notes Payable		-		240,375
Total Liabilities		1,147,044		1,456,573
Stockholders’ Equity		1,209,257		1,053,461


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

(In Thousands of Dollars, except per share data)	Three Months Ended September 30,
		2009			2008
	Unaudited

Store Revenue
Rentals and Fees	$	576,124		$	621,290
Merchandise Sales		59,085			57,062
Installment Sales		12,983			10,554
Other		15,236			10,704

		663,428			699,610

Franchise Revenue
Franchise Merchandise Sales		6,663			7,969
Royalty Income and Fees		1,160			1,176

Total Revenue		671,251			708,755

Operating Expenses
Direct Store Expenses
Cost of Rentals and Fees		130,183			142,314
Cost of Merchandise Sold		42,940			44,714
Cost of Installment Sales		4,511			4,065
Salaries and Other Expenses		389,573			417,354
Franchise Cost of Merchandise Sold		6,378			7,640

		573,585			616,087

General and Administrative Expenses		32,714			30,361
Amortization and Write-down of Intangibles		585			3,545
Restructuring Expense		—			213

Total Operating Expenses		606,884			650,206

Operating Profit		64,367			58,549

Interest Expense		4,866			15,040
Interest Income		(153	)		(2,073	)

Earnings before Income Taxes		59,654			45,582

Income Tax Expense		22,814			16,203

NET EARNINGS		36,840			29,379

BASIC WEIGHTED AVERAGE SHARES		66,077			66,696

BASIC EARNINGS PER COMMON SHARE	$	0.56		$	0.44

DILUTED WEIGHTED AVERAGE SHARES		66,693			67,473

DILUTED EARNINGS PER COMMON SHARE	$	0.55		$	0.44


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

(In Thousands of Dollars, except per share data)	Nine Months Ended September 30,
		2009			2008
	Unaudited

Store Revenue
Rentals and Fees	$	1,763,199		$	1,896,594
Merchandise Sales		211,826			198,104
Installment Sales		37,699			29,685
Other		41,818			30,912

		2,054,542			2,155,295

Franchise Revenue
Franchise Merchandise Sales		20,872			25,386
Royalty Income and Fees		3,629			3,741

Total Revenue		2,079,043			2,184,422

Operating Expenses
Direct Store Expenses
Cost of Rentals and Fees		398,278			433,987
Cost of Merchandise Sold		150,704			153,206
Cost of Installment Sales		13,201			11,875
Salaries and Other Expenses		1,175,991			1,241,340
Franchise Cost of Merchandise Sold		19,987			24,270

		1,758,161			1,864,678

General and Administrative Expenses		101,581			93,986
Amortization and Write-down of Intangibles		2,428			12,137
Litigation Expense (Credit)		(4,869	)		—
Restructuring Expense		—			3,098

Total Operating Expenses		1,857,301			1,973,899

Operating Profit		221,742			210,523

Interest Expense		22,143			52,706
Interest Income		(689	)		(6,226	)

Earnings before Income Taxes		200,288			164,043

Income Tax Expense		76,127			60,565

NET EARNINGS		124,161			103,478

BASIC WEIGHTED AVERAGE SHARES		66,034			66,697

BASIC EARNINGS PER COMMON SHARE	$	1.88		$	1.55

DILUTED WEIGHTED AVERAGE SHARES		66,612			67,336

DILUTED EARNINGS PER COMMON SHARE	$	1.86		$	1.54

Source: Rent-A-Center, Inc.

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