Rent-A-Center Inc. (RCII), the largest rent-to-own operator in the U.S, announced the opening of a new store in the state of Illinois and another one in New York. The company now operates through 104 and 177 locations in Illinois and New York, respectively.
With the addition of the latest stores, the company expects to offer luxury furnishings, electrical devices, electronics and computers to the residents of Illinois and New York. Further, the new showrooms will offer brands like HP, Ashley, Sony, Serta and Whirlpool.
Rent-A-Center leverages an extensive network of stores to effectively penetrate into its target markets, which in turn, facilitates the company to generate healthy sales and gain a competitive advantage over its competitors.
The residents of the above regions will have the benefit of purchasing goods with flexible payment options, facilitating them to pay weekly, bi-weekly or monthly. Moreover, the company offers a lifetime recall service, which facilitates its customers to re-rent the same or a comparable item and get payments.
Rent-A-Centre’s business model – RAC Acceptance, is gaining traction as it enhances consumers shopping experience. When the retailer denies the customer credit financing for a particular product, the RAC Acceptance program enables Rent-A-Centre to acquire that product from the retailer and offer it to the consumer under a rental-purchase transaction.
However, the company’s business is seasonal in nature and typically generates stronger sales during the first quarter. The business is characterized by federal income tax refunds, which are used by the company’s customers to exercise early purchase option on the existing rental agreements. As a result, the company is exposed to significant risks if the quarter fails to deliver the expected operating performance.
Further, Rent-A-Centre’s customers remain sensitive to macro-economic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels, and high household debt levels, which may negatively impact their discretionary spending, and in turn, the company’s growth and profitability.
Currently, we have a long-term ‘Neutral’ recommendation on the stock. Besides, the company, which competes with Aaron’s Inc. (AAN) and Advance America, has a Zacks #2 Rank, which translates into a short-term ‘Buy’ recommendation.
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