Rent-A-Center Inc. (RCII) is one of the largest rent-to-own operators in the U.S.and leverages an extensive network of about 3,000 stores to effectively penetrate its target markets, and gain a competitive advantage over its competitors, such as Aaron’s Inc. (AAN), and Advance America.
The company is taking prudent steps to optimize rental merchandise levels in accordance with the sales trends. Rent-A-Center implemented a centralized inventory management system, including automated merchandise replenishment. Moreover, a new centralized purchasing system allows it to better manage the rental merchandise.
The company in order to make the consumers’ shopping experience enjoyable is working on a new business model called RAC Acceptance. When the consumer is denied credit financing for a particular product from the retailer, Rent-A-Center under its RAC Acceptance program, acquires that product from the retailer and offers it to the consumer under a rental-purchase transaction.
Rent-A-Center remains optimistic about its future growth as it opens stores in international markets and accelerates the rollout of RAC Acceptance kiosks, and consequently provides an upbeat guidance. The company also hinted that it has been evaluating strategic alternatives for its financial services’ businesses, which may or may not include the divestiture of the segment.
Management now expects first-quarter 2011 earnings in the range of 82 cents to 88 cents a share. Total revenue is expected in the range of $745 million to $765 million. Rent-A-Center projects comparable-store sales to remain in the range of 1.5% to 2.5% for the quarter.
For fiscal 2011, earnings are projected between $2.90 and $3.10 per share. Total revenue is expected in the range of $2,868 million to $2,928 million. Management expects comparable-store sales between 1.5% and 2.5%.
Rent-A-Center offers consumer electronics, appliances and furniture products under rental purchase schemes that allow the customer to own the merchandise on the completion of the rental period. Due to the continued tightening of the credit market, customers see rent-to-own as a more flexible and viable option compared to credit. However, the sluggish recovery and a fragile job market may make customers reluctant to even enter new rental purchase deals.
Currently, we have a ‘Neutral’ rating on the stock. Moreover, Rent-A-Center’s shares maintain a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation.
RENT-A-CENTER (RCII): Free Stock Analysis Report
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