Rent-to-own News - Rent-A-Center reports Q1 results

Rent-A-Center, the nation's largest rent-to-own operator today announced revenues and earnings for the quarter ended March 31, 2011.

First Quarter 2011 Results
Total revenues for the quarter ended March 31, 2011, were $742.2 million, an increase of $23.8 million from total revenues of $718.4 million for the same period in the prior year. This 3.3% increase in total revenues was primarily due to an increase in revenue driven by the RAC Acceptance business, in particular the acquisition of The Rental Store completed in the fourth quarter of 2010, offset by a reduction in revenue due to the discontinuation of the financial services business. Same store sales for the quarter ended March 31, 2011 were 0.1%.

Net earnings and net earnings per diluted share for the three months ended March 31, 2011 were $44.2 million and $0.69, respectively, as compared to $51.5 million and $0.77, respectively, for the same period in the prior year.

Net earnings and net earnings per diluted share for the three months ended March 31, 2011 were impacted by the following significant items, as discussed below:

    •    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 $0.10 in the first quarter of 2011.

When excluding the items above, adjusted net earnings per diluted share for the three months ended March 31, 2011 were $0.79, as compared to net earnings per diluted share for the three months ended March 31, 2010 of $0.77.

"Our first quarter was negatively impacted by February results that ended poorly; however, the business has bounced back nicely in March and April," said Mark E. Speese, the Company's Chairman and Chief Executive Officer. "Our core rent-to-own portfolio ended the first quarter near our original forecast and, as such, we are confirming our existing guidance for 2011," Speese continued. "As for our growth initiatives, we are very pleased to report that our RAC Acceptance and Mexico businesses exceeded both their revenue and store operating income goals in the quarter. RAC Acceptance added 109 kiosks in the quarter, nine more than anticipated. In fact, we are raising our forecast for the year to add 325 to 375 kiosks, an increase of 50 kiosks, and should end the year with approximately 725 kiosks," Speese concluded.

Through the three month period ended March 31, 2011, the Company generated cash flow from operations of approximately $147.9 million, while ending the quarter with $145.0 million of cash on hand. During the three month period ended March 31, 2011, the Company repurchased 868,765 shares of its common stock for approximately $28.5 million in cash under its common stock repurchase program. To date, the Company has repurchased a total of 24,339,110 shares and has utilized approximately $579.7 million of the $800.0 million authorized by its Board of Directors since the inception of the plan. In addition, during the three month period ended March 31, 2011, the Company reduced its outstanding indebtedness by approximately $42.5 million.

2011 Significant Items
Financial Services Charge. During the fourth quarter of 2010, the Company recorded a pre-tax impairment charge of approximately $18.9 million 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 three month period ended March 31, 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.
In April 2011, we reached an agreement in principle to settle for approximately $2.7 million multiple putative class actions pending in California which allege various claims, including violations of California wage and hour laws. The terms of the prospective settlement are subject to the parties entering into a definitive settlement agreement and obtaining court approval. While we believe the terms of this prospective settlement are fair, there can be no assurance that the settlement, if completed, will be approved by the court in its present form. To account for the prospective settlement amount of approximately $2.7 million and related costs (including payroll taxes), the Company recorded a $2.8 million pre-tax litigation expense during the first quarter of 2011. For the three month period ended March 31, 2011, this pre-tax litigation expense of $2.8 million reduced net earnings per diluted share by approximately $0.03.

Rent-A-Center will host a conference call to discuss the first quarter results, guidance and other operational matters on Tuesday morning, April 26, 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 headquartered in Plano, Texas, currently operates approximately 3,020 company-owned stores nationwide and in Canada, Mexico and Puerto Rico. 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."