Rent-A-Center, Inc. Reports Fourth Quarter and Year End 2013 Results

Total Revenues Increased 1.5% for Quarter and 0.7% for Year

Revenue Increased for Year Over 46% in Acceptance Now and Over 45% in International

Diluted Earnings per Share of $0.25 for Quarter and $2.32 for Year

PLANO, Texas--()--Rent-A-Center, Inc. (the "Company") (NASDAQ/NGS: RCII), the nation's largest rent-to-own operator, today announced revenues and earnings for the quarter and year ended December 31, 2013.

Fourth Quarter 2013 Results

Total revenues for the quarter ended December 31, 2013, were $769.6 million, an increase of $11.2 million from total revenues of $758.4 million for the same period in the prior year. This 1.5% increase in total revenues was primarily due to an increase of approximately $38.9 million in the Acceptance Now segment and approximately $4.3 million in the International segment, partially offset by a decrease of approximately $28.7 million in the Core U.S. segment. For the quarter ended December 31, 2013, same store sales declined 1.1% as compared to the same period in the prior year, primarily attributable to a 5.5% decrease in the Core U.S. segment, partially offset by increases of 26.4% and 25.7% in the Acceptance Now and International segments, respectively.

“We continue to face meaningful headwinds in our domestic U.S. rent-to-own business, including a customer under severe economic pressure and an intensified promotional environment. These conditions significantly impacted our Core U.S. segment customer agreement growth in December, which was the most challenging in years. While our Acceptance Now segment grew quarterly revenue over 41% year-over-year, this business also faced similar challenges and did not meet our revenue target. As a result, revenue and earnings for the fourth quarter and year ended December 31, 2013 are well below expectations,” said Mark E. Speese, the Company’s Chairman and Chief Executive Officer.

Net earnings and net earnings per diluted share for the quarter ended December 31, 2013, were $13.1 million and $0.25, respectively, as compared to $47.2 million and $0.80, respectively, for the same period in the prior year. These results include dilution related to the Company's international growth initiatives of approximately $0.09 per share for the quarter ended December 31, 2013, and approximately $0.07 per share for the same period in the prior year. The $0.55 year-over-year decline in net earnings per diluted share for the quarter ended December 31, 2013 is largely attributable to a reduction in gross profit in the Core U.S. segment and an overall increase in operating expenses.

“In addition to the extremely disappointing gross profit miss in the Core U.S. segment, several unexpected operating expenses negatively impacted the fourth quarter,” said Robert D. Davis, the Company’s current Chief Financial Officer and Chief Executive Officer-Designate. “Some examples of these expenses include claims paid under our self-funded health insurance program, an adjustment to on-rent merchandise reserves, and severance payable to former executives of the Company,” Mr. Davis continued.

Year Ended December 31, 2013 Results

Total revenues for the year ended December 31, 2013, were $3,104.2 million, an increase of $21.5 million from total revenues of $3,082.6 million in the prior year. This 0.7% increase in total revenues was primarily due to increases of approximately $158.8 million in the Acceptance Now segment and approximately $18.2 million in the International segment, substantially offset by a decrease of approximately $147.9 million in the Core U.S. segment. For the year ended December 31, 2013, same store sales decreased 2.0% as compared to the prior year, primarily attributable to a 6.4% decrease in the Core U.S. segment, partially offset by increases of 30.1% and 40.6% in the Acceptance Now and International segments, respectively.

Net earnings and net earnings per diluted share for the year ended December 31, 2013, were $128.2 million and $2.32, respectively, as compared to $181.7 million and $3.06, respectively, in the prior year. These results include dilution related to the Company's international growth initiatives of approximately $0.32 per share for the year ended December 31, 2013, and $0.33 per share in the prior year.

For the year ended December 31, 2013, the Company generated cash flow from operations of approximately $134.3 million, while ending the year with approximately $42.3 million of cash on hand. For the year ended December 31, 2013, the Company repurchased 5,874,374 shares for approximately $217.4 million in cash under its common stock repurchase program, which included $200 million under an accelerated stock buyback commenced in May 2013 and settled in October 2013. To date, the Company has repurchased a total of 36,994,653 shares and has utilized approximately $994.8 million of the $1.25 billion authorized by its Board of Directors since the inception of the plan. Also, the Company announced on December 12, 2013, that its Board of Directors approved a 10% increase in its quarterly cash dividend from $0.21 per share to $0.23 per share, beginning with the dividend for the first quarter of 2014. The Company paid its 15th consecutive quarterly cash dividend on January 23, 2014.

“Obviously, we are deeply disappointed in the conclusion of 2013 and recognize the challenges we face to improve the results in our Core U.S. segment in 2014 and beyond. We continue to believe strongly in the long-term potential of our growth initiatives and in our ability to improve execution in the core business,” Mr. Speese said.

“Our initial 2014 revenue and earnings guidance incorporates the year-end position of our portfolios, our expectations that the macroeconomic trends will continue throughout 2014, and the investments we plan to make in strategic initiatives and to improve execution in the Core U.S. segment. We believe a renewed and intense focus on our customer is critical to radically improving performance in the Core U.S. segment. As such, we have made several significant management changes within our organizational structure to reestablish the focus of our operational execution in the Core U.S. segment,” Mr. Davis stated.

2014 Guidance

  • 4.5% to 7.5% total revenue growth.
    • Approximately $695 million contribution from Acceptance Now.
  • Approximately 3.0% to 5.5% same store sales growth.
  • EBITDA in the range of $325 to $345 million.
  • Annual effective tax rate of approximately 38.2%.
  • Diluted earnings per share in the range of $2.30 to $2.50, including approximately $0.25 per share dilution related to Mexico.
  • Capital expenditures of approximately $100 million.
  • The Company expects to open approximately 100 domestic Acceptance Now kiosks.
  • The Company expects to open approximately 30 rent-to-own store locations in Mexico.
  • The 2014 guidance does not include the potential impact of any repurchases of common stock the Company may make, changes in future dividends, material changes in outstanding indebtedness, or the potential impact of acquisitions or dispositions that may be completed or occur after January 27, 2014.

Rent-A-Center, Inc. will host a conference call to discuss the fourth quarter results, guidance and other operational matters on Tuesday morning, January 28, 2014, at 10:45 a.m. ET. 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, Inc., headquartered in Plano, Texas, is the largest rent-to-own operator in North America, focused on improving the quality of life for its customers by providing them the opportunity to obtain ownership of high-quality, durable goods such as consumer electronics, appliances, computers, furniture and accessories, under flexible rental purchase agreements with no long-term obligation. The Company owns and operates approximately 3,205 stores in the United States, Canada, Mexico and Puerto Rico, and approximately 1,325 Acceptance Now kiosk locations in the United States and Puerto Rico. Rent-A-Center Franchising International, Inc., (previously ColorTyme, Inc.), a wholly owned subsidiary of the Company, is a national franchiser of approximately 180 rent-to-own stores operating under the trade name of "Rent-A-Center" or "ColorTyme." For additional information about the Company, please visit www.rentacenter.com.

This press release and the guidance above contain forward-looking statements that involve risks and uncertainties. Such forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "could," "estimate," "should," "anticipate," or "believe," or the negative thereof or variations thereon or similar terminology. The Company believes that the expectations reflected in such forward-looking statements are accurate. However, there can be no assurance that such expectations will occur. The Company's actual future performance could differ materially from such statements. Factors that could cause or contribute to such differences include, but are not limited to: the general strength of the economy and other economic conditions affecting consumer preferences and spending; economic pressures, such as high fuel costs, affecting the disposable income available to the Company's current and potential customers; changes in the unemployment rate; difficulties encountered in improving the financial performance of the Core U.S. segment or in executing the Company's growth initiatives; the Company's ability to develop and successfully implement virtual or electronic commerce capabilities; the Company's ability to identify and successfully market products and services that appeal to its customer demographic; consumer preferences and perceptions of the Company's brand; uncertainties regarding the ability to open new locations; the Company's ability to acquire additional stores or customer accounts on favorable terms; the Company's ability to control costs and increase profitability; the Company's ability to enhance the performance of acquired stores; the Company's ability to retain the revenue associated with acquired customer accounts; the Company's ability to enter into new and collect on its rental or lease purchase agreements; the passage of legislation adversely affecting the rent-to-own industry; the Company's compliance with applicable statutes or regulations governing its transactions; changes in interest rates; adverse changes in the economic conditions of the industries, countries or markets that the Company serves; the Company’s available cash flow; information technology and data security costs; our ability to protect the integrity and security of individually identifiable data of our customers and employee; the impact of any breaches in data security or other disturbances to our information technology and other networks; changes in the Company's stock price, the number of shares of common stock that it may or may not repurchase, and future dividends, if any; changes in estimates relating to self-insurance liabilities and income tax and litigation reserves; changes in the Company's effective tax rate; fluctuations in foreign currency exchange rates; the Company's ability to maintain an effective system of internal controls; the resolution of the Company's litigation; and the other risks detailed from time to time in the Company's SEC reports, including but not limited to, its annual report on Form 10-K for the year ended December 31, 2012 and its quarterly reports on Form 10-Q for the quarters ended March 31, 2013, June 30, 2013, and September 30, 2013. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Except as required by law, the Company is not obligated to publicly release any revisions to these forward-looking statements to reflect the events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events.

 
 
Rent-A-Center, Inc. and Subsidiaries
STATEMENT OF EARNINGS HIGHLIGHTS - UNAUDITED
 
(In thousands of dollars, except per share data)     Three Months Ended December 31,
2013     2012
Revised
Total Revenues $ 769,611 $ 758,380
Operating Profit 34,382 78,943
Net Earnings 13,064 47,209
Diluted Earnings per Common Share $ 0.25 $ 0.80
Adjusted EBITDA $ 63,014 $ 98,186
 
Reconciliation to Adjusted EBITDA:
 
Earnings Before Income Taxes $ 23,683 $ 72,666
Add back:
Interest Expense, net 10,699 6,277
Depreciation of Property Assets 19,797 18,617
Amortization and Write-down of Intangibles   8,835   626
Adjusted EBITDA $ 63,014 $ 98,186
 
 
(In thousands of dollars, except per share data) Year Ended December 31,
2013 2012
Revised
Total Revenues $ 3,104,183 $ 3,082,646
Operating Profit 246,169 315,671
Net Earnings 128,238 181,703
Diluted Earnings per Common Share $ 2.32 $ 3.06
Adjusted EBITDA $ 334,149 $ 394,921
 
Reconciliation to Adjusted EBITDA:
 
Earnings Before Income Taxes $ 207,356 $ 284,448
Add back:
Interest Expense, net 38,813 31,223
Depreciation of Property Assets 76,451 73,361
Amortization and Write-down of Intangibles   11,529   5,889
Adjusted EBITDA $ 334,149 $ 394,921
 
 

SELECTED BALANCE SHEET HIGHLIGHTS - UNAUDITED

 
    December 31,
2013     2012
(In thousands of dollars) Revised
Cash and Cash Equivalents $ 42,274 $ 61,087
Receivables, net 58,686 52,819
Prepaid Expenses and Other Assets 78,471 71,963
Rental Merchandise, net
On Rent 914,618 807,397
Held for Rent 210,450 200,122
Total Assets $ 3,018,553 $ 2,859,817
 
Senior Debt $ 366,275 $ 387,500
Senior Notes 550,000 300,000
Total Liabilities 1,675,002 1,395,759
Stockholders' Equity $ 1,343,551 $ 1,464,058

Note: During the fourth quarter of 2013, the Company revised its 2012 balance sheet and its statements of earnings for the three- and twelve-month periods ended December 31, 2012, to correct immaterial errors from prior years that resulted in an overstatement of on rent merchandise and understatements of held for rent merchandise and receivables. The correction resulted in a decrease in on rent merchandise of $14.5 million and increases in held for rent merchandise of $1.2 million and receivables of $4.0 million at December 31, 2012, respectively. The above corrections resulted in decreases to net income of $0.3 million and $1.8 million for the three- and twelve-month periods ended December 31, 2012, respectively. The statements of earnings for the three-month periods ended March 31, 2013, June 30, 2013, and September 30, 2013, will be revised in future filings to decrease net earnings by $0.3 million, $0.1 million and $0.5 million, respectively.

 
 
Rent-A-Center, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS - UNAUDITED
 
    Three Months Ended December 31,     Year Ended December 31,
  2013         2012     2013         2012  
(In thousands, except per share data) Revised Revised
Revenues
Store
Rentals and fees $ 684,510 $ 665,054 $ 2,698,395 $ 2,654,081
Merchandise sales 51,582 57,742 278,753 300,077
Installment sales 20,567 19,131 72,705 68,356
Other 3,889 4,111 18,133 16,391
Franchise
Merchandise sales 7,919 11,095 30,991 38,427
Royalty income and fees   1,144     1,247     5,206     5,314  
769,611 758,380 3,104,183 3,082,646
Cost of revenues
Store
Cost of rentals and fees 175,395 164,136 683,221 646,090
Cost of merchandise sold 40,303 49,181 216,206 241,219
Cost of installment sales 7,630 7,170 25,771 24,572
Franchise cost of merchandise sold   7,467     10,707     29,539     36,848  
230,795 231,194 954,737 948,729
Gross profit 538,816 527,186 2,149,446 2,133,917
Operating expenses
Salaries and other expenses 451,402 412,679 1,733,324 1,663,857
General and administrative expenses 44,197 34,938 158,424 148,500
Amortization and write-down of intangibles   8,835     626     11,529     5,889  
504,434 448,243 1,903,277 1,818,246
Operating profit 34,382 78,943 246,169 315,671
Interest expense 10,855 6,649 39,628 32,065
Interest income   (156 )   (372 )   (815 )   (842 )
Earnings before income taxes 23,683 72,666 207,356 284,448
Income tax expense   10,619     25,457     79,118     102,745  
NET EARNINGS $ 13,064   $ 47,209   $ 128,238   $ 181,703  
 
Basic weighted average shares   52,946     58,356     54,804     58,913  
 
Basic earnings per common share $ 0.25   $ 0.81   $ 2.34   $ 3.08  
 
Diluted weighted average shares   53,247     58,793     55,162     59,405  
 
Diluted earnings per common share $ 0.25   $ 0.80   $ 2.32   $ 3.06  
 
 
Rent-A-Center, Inc. and Subsidiaries
SEGMENT INFORMATION HIGHLIGHTS - UNAUDITED
 
(In thousands of dollars)     Three Months Ended December 31, 2013
Core U.S.     Acceptance Now     International     Franchising     Total
Revenue $ 609,912 $ 133,589 $ 17,047 $ 9,063 $ 769,611
Gross profit 444,180 80,781 12,259 1,596 538,816
Operating profit 26,928 14,813 (7,568 ) 209 34,382
Depreciation of property assets 16,533 1,462 1,783 19 19,797
Amortization and write-down of intangibles 7,625 142 1,068 8,835
Capital expenditures 27,282 4,055 3,269 34,606
 
(In thousands of dollars) Three Months Ended December 31, 2012
Core U.S. Acceptance Now International Franchising Total
Revenue $ 638,650 $ 94,657 $ 12,731 $ 12,342 $ 758,380
Gross profit 459,762 57,083 8,706 1,635 527,186
Operating profit 74,769 10,264 (6,864 ) 774 78,943
Depreciation of property assets 16,104 1,011 1,482 20 18,617
Amortization and write-down of intangibles 497 129 626
Capital expenditures 25,591 1,693 2,066 29,350
 
(In thousands of dollars) Year Ended December 31, 2013
Core U.S. Acceptance Now International Franchising Total
Revenue $ 2,507,498 $ 502,043 $ 58,445 $ 36,197 $ 3,104,183
Gross profit 1,810,160 290,741 41,887 6,658 2,149,446
Operating profit 205,928 66,625 (28,237 ) 1,853 246,169
Depreciation of property assets 64,852 5,036 6,484 79 76,451
Amortization and write-down of intangibles 9,892 569 1,068 11,529
Capital expenditures 84,819 11,076 12,472 108,367
Rental merchandise, net
On rent 609,332 284,421 20,865 914,618
Held for rent 194,734 3,837 11,879 210,450
Total assets 2,561,688 375,920 79,257 1,688 3,018,553
 
(In thousands of dollars) Year Ended December 31, 2012
Core U.S. Acceptance Now International Franchising Total
Revenue $ 2,655,411 $ 343,283 $ 40,211 $ 43,741 $ 3,082,646
Gross profit 1,904,586 194,607 27,831 6,893 2,133,917
Operating profit 318,784 25,261 (30,700 ) 2,326 315,671
Depreciation of property assets 63,793 3,631 5,848 89 73,361
Amortization and write-down of intangibles 2,103 2,819 967 5,889
Capital expenditures 84,680 5,275 12,498 102,453
Rental merchandise, net
On rent 589,181 204,640 13,576 807,397
Held for rent 190,703 3,007 6,412 200,122
Total assets 2,504,954 286,774 65,378 2,711 2,859,817
 
 
Rent-A-Center, Inc. and Subsidiaries
LOCATION ACTIVITY - UNAUDITED
 
    Three Months Ended December 31, 2013
Core U.S.     Acceptance Now     International     Franchising     Total
Locations at beginning of period 2,974 1,254 168 213 4,609
New location openings 22 91 1 31 145
Acquired locations remaining open 35 35
Closed locations
Merged with existing locations 7 13 20
Sold or closed with no surviving location 32 7 65 104
Locations at end of period 2,992 1,325 169 179 4,665
Acquired locations closed and accounts merged with existing locations 20 20
 
Three Months Ended December 31, 2012
Core U.S. Acceptance Now International Franchising Total
Locations at beginning of period 2,983 882 114 220 4,199
New location openings 12 103 9 7 131
Acquired locations remaining open 4 4
Closed locations
Merged with existing locations 9 19 28
Sold or closed with no surviving location 15 3 18
Locations at end of period 2,990 966 108 224 4,288
Acquired locations closed and accounts merged with existing locations 6 6
 
Year Ended December 31, 2013
Core U.S. Acceptance Now International Franchising Total
Locations at beginning of period 2,990 966 108 224 4,288
New location openings 37 411 63 40 551
Acquired locations remaining open 47 47
Closed locations
Merged with existing locations 47 44 2 93
Sold or closed with no surviving location 35 8 85 128
Locations at end of period 2,992 1,325 169 179 4,665
Acquired locations closed and accounts merged with existing locations 38 38
 
Year Ended December 31, 2012
Core U.S. Acceptance Now International Franchising Total
Locations at beginning of period 2,994 750 80 216 4,040
New location openings 35 325 45 18 423
Acquired locations remaining open 6 6
Closed locations
Merged with existing locations 40 95 1 136
Sold or closed with no surviving location 5 14 16 10 45
Locations at end of period 2,990 966 108 224 4,288
Acquired locations closed and accounts merged with existing locations 31 31

Contacts

Rent-A-Center, Inc.
David E. Carpenter, 972-801-1214
Vice President of Investor Relations
david.carpenter@rentacenter.com

Sharing

Contacts

Rent-A-Center, Inc.
David E. Carpenter, 972-801-1214
Vice President of Investor Relations
david.carpenter@rentacenter.com