Rent-A-Center Up 11% in 3 Months: Will Momentum Sustain?

Shares of Rent-A-Center, Inc. RCII have rallied approximately 11% in the past three months, outperforming the industry’s growth of 0.7%. Notably, this Zacks Rank #3 (Hold) company is benefiting from its focus on cost containment, improved traffic trends, targeted value proposition and augmentation of cash flow. It is also rationalizing store base and lowering debt load. However, the company is witnessing soft revenues at the Core U.S. segment due to refranchising efforts and constant store base rationalization.

A Sneak Peek

With an extensive network of stores, Rent-A-Center is one of the largest rent-to-own operators in North America. In our view, the sheer geographic reach enables the company to effectively penetrate its target markets. It is investing in enhancing omni-channel platform so that customers can experience a seamless approach across channels, markets, retailers, products and brands. The company is increasing e-commerce offerings and mobile applications, and leveraging cloud-based point-of-sale platform to manage orders more efficiently, lower losses and cut operating costs.

Management is also focusing on optimizing retail partnerships in order to enhance service and profitability, centralizing account management to tackle operations more effectively and executing risk assessment policies across all locations.

 

Rent-A-Center’s Acceptance Now business model has been gaining traction. Notably, revenues at Acceptance Now grew 6.4% in the third quarter of 2019 driven by robust comparable sales and acquisition of Merchants Preferred. Also, same-store sales at the segment improved 6.2% during the quarter. It has been taking prudent steps to optimize rental merchandise levels in accordance with sales trends. Rent-A-Center implemented a centralized inventory management system, including automated merchandise replenishment.

Apart from these, management has undertaken initiatives to strengthen the performance of its Core U.S. segment, which has been struggling lately. Revenues at the Core U.S. segment declined 3.3% during the third quarter of 2019. Comparable-store sale at the Core U.S. segment rose 3.7% during the same time period. However, the metric contracted 190 basis points on a sequential basis.

Nonetheless, in an attempt to augment cash flow generation from Core U.S. business, the company is focusing on rates, terms and purchase options that are much more aligned with customers’ needs. It is also optimizing product mix, increasing the average ticket price, upgrading workforce, and rationalizing existing stores.

Key Picks

Ross Stores, Inc. ROST has a long-term earnings growth rate of 10.5% and sports a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Dollar General Corporation DG has a long-term earnings growth rate of 11.4% and a Zacks Rank #2.

Target Corporation TGT has a long-term earnings growth rate of 7.5% and a Zacks Rank #2.

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