Rent-A-Center, Inc. Reports Third Quarter 2011 Results

October 24, 2011 at 4:13 PM EDT
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Total Revenues Increased 6.0%
Same Store Sales Increased 2.0%
Diluted Earnings per Share of $0.52 in the 3rd Quarter, Including a Restructuring Charge of $0.08 per Diluted Share Related to Store Closings
Repurchased 2.9 Million Shares of Common Stock

PLANO, Texas, Oct 24, 2011 (BUSINESS WIRE) -- 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, 2011.

Third Quarter 2011 Results

Total revenues for the quarter ended September 30, 2011, were $704.3 million, an increase of $39.7 million from total revenues of $664.6 million for the same period in the prior year. This 6.0% growth in total revenues was primarily due to an increase in revenue driven by the RAC Acceptance business, offset by a reduction in revenue due to the discontinuation of the financial services business. Same store sales for the three months ended September 30, 2011, increased 2.0%.

Net earnings and net earnings per diluted share for the three months ended September 30, 2011, were $31.2 million and $0.52, respectively, as compared to $40.5 million and $0.62, respectively, for the same period in the prior year. Net earnings and net earnings per diluted share for the three months ended September 30, 2011, were reduced by $7.6 million, and approximately $0.08 per share, respectively, due to a pre-tax restructuring charge related to store closings, as discussed below.

When excluding the pre-tax restructuring charge above, adjusted net earnings per diluted share for the three months ended September 30, 2011, were $0.60, as compared to net earnings per diluted share for the three months ended September 30, 2010, of $0.62. These results include approximately $0.07 per share dilution for the three months ended September 30, 2011 and $0.03 per share dilution for the same period in the prior year related to the Company's growth initiatives.

"Our results for the quarter were excellent in this very challenging economy as the demand for our products and services remained strong," said Mark E. Speese, the Company's Chairman and Chief Executive Officer. "Both our core rent-to-own and RAC Acceptance businesses reflected this customer demand in the quarter with the company's 2.0% same store sales growth split evenly between the two businesses," Speese added. "In 2012, we will continue to execute on our strategic plan that we communicated in November 2010. We will continue to focus on keeping the core business strong and extending our reach both domestically and internationally with a compelling set of growth initiatives," Speese continued. "Accordingly, our 2012 guidance includes total revenue growth in the range of 8% to 11% and net earnings per diluted share growth in the range of 8% to 15%, including approximately $0.20 per share dilution related to our international growth initiatives. We believe our growth will continue to be supported with our significant cash flow from operations and a solid balance sheet," Speese concluded.

Nine Months Ended September 30, 2011 Results

Total revenues for the nine months ended September 30, 2011, were $2.145 billion, an increase of $90.0 million from total revenues of $2.055 billion for the same period in the prior year. This 4.4% growth in total revenues was primarily due to an increase in revenue driven by the RAC Acceptance business, offset by a reduction in revenue due to the discontinuation of the financial services business. Same store sales for the nine months ended September 30, 2011, increased 0.4%.

Net earnings and net earnings per diluted share for the nine months ended September 30, 2011, were $115.3 million and $1.84, respectively, as compared to $139.8 million and $2.11, respectively, for the same period in the prior year.

Net earnings and net earnings per diluted share for the nine months ended September 30, 2011, were impacted by the following significant items, as discussed below:

  • A $7.6 million pre-tax restructuring charge, or approximately $0.08 per share, related to store closings;
  • A $4.9 million pre-tax restructuring charge, or approximately $0.05 per share, related to the acquisition of The Rental Store, Inc.;
  • A $7.3 million pre-tax impairment charge, or approximately $0.07 per share, related to the discontinuation of the financial services business; and
  • A $2.8 million pre-tax litigation expense, or approximately $0.03 per share, related to the prospective settlement of wage and hour claims in California.

Collectively, these items reduced net earnings per diluted share by approximately $0.23 for the nine months ended September 30, 2011.

When excluding the items above, adjusted net earnings per diluted share for the nine months ended September 30, 2011, were $2.07, as compared to net earnings per diluted share for the nine months ended September 30, 2010, of $2.11. These results include approximately $0.17 per share dilution for the nine months ended September 30, 2011 and $0.06 per share dilution for the same period in the prior year related to the Company's growth initiatives.

Through the nine month period ended September 30, 2011, the Company generated cash flow from operations of approximately $266.7 million, while ending the quarter with approximately $76.0 million of cash on hand. During the nine month period ended September 30, 2011, the Company repurchased 5,852,408 shares of its common stock for approximately $164.3 million in cash under its common stock repurchase program. To date, the Company has repurchased a total of 29,322,753 shares and has utilized approximately $715.5 million of the $800.0 million authorized by its Board of Directors since the inception of the plan. Also, reflecting continued confidence in its strong cash flows, the Company announced on September 28, 2011 that its Board of Directors approved a $0.16 per share cash dividend for the fourth quarter of 2011, its sixth consecutive quarterly cash dividend.

2011 Significant Items

Restructuring Charges. During the third quarter of 2011, the Company recorded a $7.6 million pre-tax restructuring charge related to the closure of eight Home Choice stores in Illinois and 24 RAC Limited locations within third party grocery stores, all of which had been operated on a test basis, as well as the closure of 26 core rent-to-own stores following the sale of all customer accounts at those locations. The charge with respect to these store closings relates primarily to lease terminations, fixed asset disposals and other miscellaneous items. This pre-tax restructuring charge of $7.6 million reduced net earnings per diluted share by approximately $0.08 in both the three month and nine month periods ended September 30, 2011.

As previously reported, the Company recorded a $4.9 million pre-tax restructuring charge during the second quarter of 2011 in connection with the December 2010 acquisition of The Rental Store, Inc. This charge relates to post-acquisition lease terminations. For the nine months ended September 30, 2011, this pre-tax restructuring charge of $4.9 million reduced net earnings per diluted share by approximately $0.05.

Financial Services Charge. As previously reported, the Company recorded an $18.9 million pre-tax impairment charge during the fourth quarter of 2010 related to the discontinuation of the financial services business. The charge with respect to discontinuing the operations of all 331 store locations related primarily to fixed asset disposals, goodwill impairment, loan write-downs and other miscellaneous items. During the first quarter of 2011, the Company recorded an additional pre-tax impairment charge of $7.3 million related primarily to loan write-downs, fixed asset disposals (store reconstruction), and other miscellaneous items. For the nine months ended September 30, 2011, this pre-tax impairment charge of $7.3 million reduced net earnings per diluted share by approximately $0.07.

Settlement of Wage & Hour Claims in California. As previously reported, the Company recorded a $2.8 million pre-tax litigation expense during the first quarter of 2011 in connection with the settlement of certain putative class actions pending in California alleging various claims, including violations of California wage and hour laws. For the nine months ended September 30, 2011, this pre-tax litigation expense of $2.8 million reduced net earnings per diluted share by approximately $0.03.

Rent-A-Center, Inc. will host a conference call to discuss the third quarter results, guidance and other operational matters on Tuesday morning, October 25, 2011, 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, Mexico and Puerto Rico and approximately 720 RAC Acceptance locations within traditional retailers in the United States. 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 210 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, future dividends, changes in outstanding indebtedness, or the potential impact of acquisitions or dispositions that may be completed after October 24, 2011.

FOURTH QUARTER 2011 GUIDANCE:

Revenues

  • The Company expects total revenues to be in the range of $739 million to $754 million.
  • Store rental and fee revenues are expected to be between $652 million and $664 million.
  • Total store revenues are expected to be in the range of $731 million to $746 million.
  • Same store sales are expected to be in the range of 3.0% to 5.0%.
  • The Company expects to open approximately 20 domestic rent-to-own store locations.
  • The Company expects to open approximately 45 domestic RAC Acceptance kiosks.
  • The Company expects to open approximately 20 rent-to-own store locations in Mexico.
  • The Company expects to open approximately 5 rent-to-own store locations in Canada.

Expenses

  • The Company expects cost of rental and fees to be between 23.4% and 23.8% of store rental and fee revenue and cost of merchandise sold to be between 78.0% and 82.0% of store merchandise sales.
  • Store salaries and other expenses are expected to be in the range of 55.0% to 56.5% of total store revenue.
  • General and administrative expenses are expected to be approximately 4.6% of total revenue.
  • Net interest expense is expected to be approximately $9 million and depreciation of property assets is expected to be approximately $17 million.
  • The effective tax rate is expected to be in the range of 37.0% to 37.4% of pre-tax income.
  • Diluted shares outstanding are estimated to be between 60.5 million and 61.0 million.
  • Diluted earnings per share are estimated to be in the range of $0.78 to $0.84.

FISCAL 2012 GUIDANCE:

Revenues

  • The Company expects total revenues to be in the range of $3.128 billion to $3.198 billion.
  • Store rental and fee revenues are expected to be between $2.713 billion and $2.773 billion.
  • Total store revenues are expected to be in the range of $3.091 billion to $3.161 billion.
  • Same store sales are expected to be in the range of 3.5% to 5.5%.
  • The Company expects to open approximately 50 domestic rent-to-own store locations.
  • The Company expects to open approximately 200 domestic RAC Acceptance kiosks.
  • The Company expects to open approximately 60 rent-to-own store locations in Mexico.
  • The Company expects to open approximately 10 rent-to-own store locations in Canada.

Expenses

  • The Company expects cost of rental and fees to be between 23.7% and 24.3% of store rental and fee revenue and cost of merchandise sold to be between 74.2% and 78.2% of store merchandise sales.
  • Store salaries and other expenses are expected to be in the range of 54.7% to 56.2% of total store revenue.
  • General and administrative expenses are expected to be approximately 4.6% of total revenue.
  • Net interest expense is expected to be approximately $34 million and depreciation of property assets is expected to be in the range of $73 million to $78 million.
  • The effective tax rate is expected to be in the range of 38.3% to 38.8% of pre-tax income.
  • Diluted shares outstanding are estimated to be between 60.5 million and 61.5 million.
  • Diluted earnings per share are estimated to be in the range of $3.10 to $3.30.

Store Activity

Domestic International
RAC Get It Now/
RTO Acceptance Home Choice Canada Mexico
Three Months Ended September 30, 2011
Stores at beginning of period 2,948 611 41 18 15
New store openings 14 120 2 2 9
Acquired stores remaining open 5 2 -- -- --
Closed stores
Merged with existing stores 16 3 -- -- --
Sold or closed with no surviving store 28 9 8 -- --
Stores at end of period 2,923 721 35 20 24
Acquired stores closed and accounts 10 -- -- -- --
merged with existing stores
Domestic International
RAC Get It Now/
RTO Acceptance Home Choice Canada Mexico
Nine Months Ended September 30, 2011
Stores at beginning of period 2,943 384 42 18 5
New store openings 29 359 2 2 19
Acquired stores remaining open 5 5 -- -- --
Closed stores
Merged with existing stores 24 9 -- -- --
Sold or closed with no surviving store 30 18 9 -- --
Stores at end of period 2,923 721 35 20 24
Acquired stores closed and accounts 16 -- -- -- --
merged with existing stores

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 locations ; the Company's ability to acquire additional stores or customer accounts on favorable terms; the Company's ability to control costs and increase profitability; the Company's ability to 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 passage of legislation adversely affecting the rent-to-own industry; the Company's failure to comply with statutes or regulations governing the rent-to-own or financial services industries; interest rates; changes in the unemployment rate; economic pressures, such as high fuel costs, affecting the disposable income available to the Company's targeted consumers; conditions affecting consumer spending and the impact, depth, and duration of current economic conditions; changes in the Company's stock price, the number of shares of common stock that it may or may not repurchase, and future dividends, if any; changes in estimates relating to self-insurance liabilities and income tax and litigation reserves; changes in the Company's effective tax rate; 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 the Company's litigation; and the other risks detailed from time to time in the Company'sSEC reports, including but not limited to, its annual report on Form 10-K for the year ended December 31, 2010 and its quarterly reports on Form 10-Q for the quarters ended March 31, 2011 and June 30, 2011.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,
2011 2011 2010
Before After
Significant Items Significant Items
(Non-GAAP (GAAP (GAAP
Earnings) Earnings) Earnings)
Total Revenue $ 704,271 $ 704,271 $ 664,580
Operating Profit 65,382 57,796

(1)

 69,393
Net Earnings 36,033 31,224

(1)

 40,497
Diluted Earnings per Common Share $ 0.60 $ 0.52

(1)

 $ 0.62
Adjusted EBITDA $ 82,750 $ 82,750 $ 85,551
Reconciliation to Adjusted EBITDA:
Earnings Before Income Taxes $ 56,662 $ 49,076 $ 63,590
Add back:
Restructuring charge -- 7,586 --
Interest Expense, net 8,720 8,720 5,803
Depreciation of Property Assets 16,107 16,107 15,629
Amortization and Write-down of Intangibles 1,261 1,261 529
Adjusted EBITDA $ 82,750 $ 82,750 $ 85,551
(In thousands of dollars, except per share data) Nine Months Ended September 30,
2011 2011 2010
Before After

Significant Items Significant Items

(Non-GAAP (GAAP (GAAP
Earnings) Earnings) Earnings)
Total Revenue $ 2,144,702 $ 2,144,702 $ 2,054,542
Operating Profit 234,006 211,367

(1)(2)(3)(4)

 240,927
Net Earnings 129,559 115,342

(1)(2)(3)(4)

 139,788
Diluted Earnings per Common Share $ 2.07 $ 1.84

(1)(2)(3)(4)

 $ 2.11
Adjusted EBITDA $ 285,195 $ 285,195 $ 291,199
Reconciliation to Adjusted EBITDA:
Earnings Before Income Taxes $ 206,304 $ 183,665 $ 223,314
Add back:
Litigation Settlement -- 2,800 --
Impairment Charge -- 7,320 --
Restructuring charge -- 12,519 --
Interest Expense, net 27,702 27,702 17,613
Depreciation of Property Assets 47,938 47,938 47,152
Amortization and Write-down of Intangibles 3,251 3,251 3,120
Adjusted EBITDA $ 285,195 $ 285,195 $ 291,199

(1)

Includes the effects of a $7.6 million pre-tax restructuring charge in the third quarter of 2011 related to the closure of eight Home Choice stores in Illinois and 24 RAC Limited locations within third party grocery stores, as well as the closure of 26 core rent-to-own stores following the sale of all customer accounts at these locations. The charge reduced net earnings per diluted share by approximately $0.08 for the three and nine months ended September 30, 2011.

(2)

Includes the effects of a $4.9 million pre-tax restructuring charge in the second quarter of 2011 for lease terminations related to The Rental Store acquisition. The charge reduced net earnings per diluted share by approximately $0.05 in the nine month period ended September 30, 2011.

(3)

Includes the effects of a $7.3 million pre-tax impairment charge in the first quarter of 2011 related to the discontinuation of the financial services business. The charge reduced net earnings per diluted share by approximately $0.07 for the nine month period ended September 30, 2011.

(4)

Includes the effects of a $2.8 million pre-tax litigation expense in the first quarter of 2011 related to the prospective settlement of wage and hour claims in California. The expense reduced net earnings per diluted share by approximately $0.03 for the nine month period ended September 30, 2011.

SELECTED BALANCE SHEET HIGHLIGHTS
(In thousands of dollars) September 30,
2011 2010
Cash and Cash Equivalents $ 76,025 $ 80,775
Receivables, net 43,441 67,625
Prepaid Expenses and Other Assets 65,366 47,836
Rental Merchandise, net

On Rent

689,975 544,308
Held for Rent 187,342 172,784
Total Assets $ 2,666,517 $ 2,400,215
Senior Debt $ 388,340 $ 596,084
Senior Notes 300,000 --
Total Liabilities 1,347,147 1,047,301
Stockholders' Equity $ 1,319,370 $ 1,352,914
Rent-A-Center, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands of dollars, except per share data) Three Months Ended September 30,
2011 2010
Unaudited
Store Revenue
Rentals and Fees $ 622,474 $ 576,019
Merchandise Sales 52,802 44,352
Installment Sales 16,348 15,599
Other 4,147 20,413
695,771 656,383
Franchise Revenue
Franchise Merchandise Sales 7,250 6,975
Royalty Income and Fees 1,250 1,222
Total Revenue 704,271 664,580
Operating Expenses
Direct Store Expenses
Cost of Rentals and Fees 142,796 127,573
Cost of Merchandise Sold 43,170 34,807
Cost of Installment Sales 5,655 5,507
Salaries and Other Expenses 405,633 389,295
Franchise Cost of Merchandise Sold 6,926 6,680
604,180 563,862
General and Administrative Expenses 33,448 30,796
Amortization and Write-down of Intangibles 1,261 529
Restructuring Charge 7,586 --
Total Operating Expenses 646,475 595,187
Operating Profit 57,796 69,393
Interest Expense 8,811 6,085
Interest Income (91 ) (282 )
Earnings before Income Taxes 49,076 63,590
Income Tax Expense 17,852 23,093
NET EARNINGS $ 31,224 $ 40,497
BASIC WEIGHTED AVERAGE SHARES 60,030 65,094
BASIC EARNINGS PER COMMON SHARE $ 0.52 $ 0.62
DILUTED WEIGHTED AVERAGE SHARES 60,504 65,746
DILUTED EARNINGS PER COMMON SHARE $ 0.52 $ 0.62
Rent-A-Center, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands of dollars, except per share data) Nine Months Ended September 30,
2011 2010
Unaudited
Store Revenue
Rentals and Fees $ 1,850,698 $ 1,746,390
Merchandise Sales 203,041 176,780
Installment Sales 49,606 45,239
Other 13,629 60,272
2,116,974 2,028,681
Franchise Revenue
Franchise Merchandise Sales 23,921 22,155
Royalty Income and Fees 3,807 3,706
Total Revenue 2,144,702 2,054,542
Operating Expenses
Direct Store Expenses
Cost of Rentals and Fees 417,740 387,505
Cost of Merchandise Sold 151,259 129,221
Cost of Installment Sales 17,601 15,936
Salaries and Other Expenses 1,197,922 1,161,887
Franchise Cost of Merchandise Sold 22,875 21,202
1,807,397 1,715,751
General and Administrative Expenses 100,048 94,744
Amortization and Write-down of Intangibles 3,251 3,120
Litigation Settlement 2,800 --
Impairment Charge 7,320 --
Restructuring Charge 12,519 --
Total Operating Expenses 1,933,335 1,813,615
Operating Profit 211,367 240,927
Interest Expense 28,184 18,219
Interest Income (482 ) (606 )
Earnings before Income Taxes 183,665 223,314
Income Tax Expense 68,323 83,526
NET EARNINGS $ 115,342 $ 139,788
BASIC WEIGHTED AVERAGE SHARES 61,944 65,579
BASIC EARNINGS PER COMMON SHARE $ 1.86 $ 2.13
DILUTED WEIGHTED AVERAGE SHARES 62,648 66,345
DILUTED EARNINGS PER COMMON SHARE $ 1.84 $ 2.11

SOURCE: Rent-A-Center, Inc.

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