Rent-A-Center Stock Down on Dismal U.S. Comps for September

Rent-A-Center, Inc. RCII disappointed investors with dismal Core U.S. comps for the month of September. Following the report, the company’s shares decreased nearly 2% yesterday. Moreover, if we go by the company’s performance in the past six months, the stock has declined 5.3%, against the industry’s advance of 19.8%.

Core U.S. comps declined 4.2% in September following a decline of 5.3% and 5.7% in August and July, respectively. However, Acceptance NOW comps jumped 8.1% after increasing 8.6% and 7.1% in the August and July, respectively. Delinquencies rate for Core U.S. came in at 6.9%, up 30 basis points (bps) sequentially, while the same decreased 90 bps to 11.2% for Acceptance NOW.

Moreover, the company stated that core U.S. same store sales have improved 850 bps year to date owing to effective implementation of account management process, which had positive impact on revenues collection. The company has been grappling with soft comparable-store sales performance for quite some time now. In the first and second quarters of fiscal 2017, comparable-store sales have declined 7.8% and 7.4%, respectively.

Turnaround Strategies

The Zacks Rank #2 (Buy) company is concentrating on a new labor model, supply chain initiative and productivity enhancements. These endeavors are directed toward improving the performance of Core U.S. segment, optimizing the Acceptance NOW business and enhancing distribution channels as well as integrating retail and online offerings. The company is also optimizing product mix, increasing the average ticket price, upgrading workforce, concentrating on lowering delinquency rates and rationalizing existing stores as well as contemplating on new ones.

The company had earlier highlighted believes that if strategic growth endeavors are executed well, it will help attain revenue growth of low-single digits in 2018 and mid-single digits in 2019. Rent-A-Center anticipates achieving EBITDA margin of 7.5-8.5% in 2018 and 9.5-10.5% in 2019. The company projects free cash flow generation of $70-$90 million and $110-$130 million in 2018 and 2019, respectively. The company envisions earnings in the band of $1.20-$1.40 per share for 2018 and between $2.00 and $2.25 for 2019.

Other Stock to Consider

Other top-ranked stocks which warrants a look in the retail sector includes, Big Lots, Inc. BIG, Dollar Tree, Inc. DLTR and Ross Stores, Inc. ROST. All these stocks carry the same rank as Rent-A-Center. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Big Lots has an impressive long-term earnings growth rate of 13.5%.

Dollar Tree delivered an average positive earnings surprise of 5% in the trailing four quarters.

Ross Stores delivered an average positive earnings surprise of 6.3% in the trailing three quarters. The company also has a long-term earnings growth rate of 10%.

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Rent-A-Center Inc. (RCII) : Free Stock Analysis Report
 
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