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Rent-A-Center Up 50% in 3 Months, Is Stock Still Unexhausted

Rent-A-Center, Inc. RCII strategic plan to bring itself back on growth trajectory has been well perceived by investors, evident from the stock’s gain of 48.8% in the last three months. In fact, the stock has outperformed the Zacks categorized Consumer Services – Miscellaneous industry’s increase of 20.1%. Rent-A-Center is concentrating on a new labor model, supply chain initiative and productivity enhancements.

Hidden catalysts

Management has undertaken initiatives to strengthen the performance of its Core U.S. segment. 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 the customer’s needs. 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’s new business model called Acceptance Now is gaining traction. Management is focusing on optimizing strategic retail partnerships in order to enhance service and profitability, centralizing account management to tackle operations more effectively and executing risk assessment polices across all locations.

Rent-A-Center 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.

Hurdles to Overcome

Decline in the top line as well as bottom line in the past five quarters has been a cause of worry for investor. In first-quarter 2017, adjusted earnings of 4 cents per share fell substantially from 48 cents delivered in the year-ago period. Total revenue of $742 million declined 11.2% year over year and also came below the Zacks Consensus Estimate of $744 million, thus marking the seventh straight quarter of sales miss. Total revenue tumbled due to decline witnessed across the Core U.S., Mexico and Franchising segments, partially mitigated by growth registered at Acceptance Now segment.

Further, the Zacks Rank #3 (Hold) company faces intense competition from national chains as well as regional rent-to-own businesses. Furthermore, Rent-A-Center also competes with mass merchandisers and traditional consumer electronics chains such as Wal-Mart and Best Buy. This may dent the company’s sales and margins.


Management believes that if strategic growth endeavors are well executed it will help attain revenue growth of low-single digits in 2018 and mid-single digits in 2019. 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.

Stocks to Consider

Better-ranked stocks worth considering in the retail space include Aaron's, Inc. AAN, Best Buy Co., Inc. BBY and The Children's Place, Inc. PLCE. All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Aaron's has reported better-than-expected earnings in the trailing four quarters, with an average beat of 10.6%.

Best Buy has an impressive long-term earnings growth rate of 11.8% and has also surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average earnings beat of 33.8%.

The Children's Place has reported earnings beat in the trailing four quarters, with an average of 36.6%.

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