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Rent-A-Center, Inc. Reports First Quarter 2016 Results

PLANO, Texas, Apr 27, 2016 (BUSINESS WIRE) -- Rent-A-Center, Inc. (the "Company") (nasdaq/ngs:RCII) today announced results for the quarter ended March 31, 2016.

Notable Items for the Quarter

Explanations of performance are compared to the prior year unless otherwise noted

GAAP Basis

  • Diluted earnings per share was $0.47 compared to $0.51 for the first quarter of 2015

Excluding Special Items (see non-GAAP reconciliation below)

  • Diluted earnings per share was $0.48 compared to $0.52 for the first quarter of 2015
  • Consolidated total revenues decreased 4.8 percent to $835.7 million and same store sales decreased 2.5 percent
  • Acceptance Now revenue increased by 2.7 percent driven by revenue growth in locations open less than 12 months. Same store sales were flat and were negatively impacted sequentially due to completing the lap of 90 day option pricing changes by the end of the quarter, further deterioration in oil affected markets, and the Company's increased focus on driving profitable sales
  • Core U.S. same store sales decreased by 3.8 percent driven by continued declines in the computer/tablet category, the impact resulting from the ongoing recast of the smartphone category, further deterioration in oil affected markets, and lower merchandise sales revenue
  • The Company’s operating profit as a percent of total revenues decreased to 6.1 percent, a 40 basis point decline over the prior year
  • For the three months ended March 31, the Company generated $226.5 million of cash from operations, capital expenditures totaled $14.4 million, and the Company ended the first quarter with $46.4 million of cash and cash equivalents
  • The Company reduced its outstanding debt balance by $212.1 million in the quarter and the Consolidated Leverage Ratio was at 2.52x as of March 31, 2016
  • The Company declared a quarterly dividend of $0.08 per share in the first quarter of 2016, which was paid April 21, 2016

"We have made significant progress on our profit optimization initiatives and capital allocation strategy. In the Core business, our pricing and supply chain initiatives increased gross profit margin and our flexible labor initiative continues to improve productivity. Additionally, more efficient use of working capital allowed us to improve leverage more swiftly than anticipated, and our path to achieve profitability in Mexico is ahead of plan," said Robert D. Davis, the Chief Executive Officer of Rent-A-Center, Inc.

Mr. Davis continued, "Our first quarter sales results were impacted by macro as well as company-specific headwinds, the latter of which reflect some conscious decisions to improve our profitability. We are also making significant progress with our new Acceptance Now commercial capabilities team which has already translated into a stronger pipeline of new retail partner opportunities," Mr. Davis concluded.

SAME STORE SALES
(Unaudited)
Table 1 2016 2015
Period

Core
U.S.

Acceptance
Now

Mexico Total

Core
U.S.

Acceptance
Now

Mexico Total
Three months ended March 31, (3.8 )% (0.0 )% 9.7 % (2.5 )% 1.0 % 34.1 % 15.1 % 8.0 %

Note: Same store sales are reported on a constant currency basis.

Quarterly Operating Performance

Explanations of performance are excluding special items and compared to the prior year unless otherwise noted.

ACCEPTANCE NOW first quarter revenues of $230.4 million increased 2.7 percent driven by revenue growth in locations open less than 12 months. Gross profit as a percent of total revenue versus prior year improved sequentially by 360 basis points driven by completing the lap of 90 day option pricing changes by the end of the quarter, and the Company's increased focus on driving profitable sales. Labor, as a percent of store revenue, was essentially flat. Other store expenses, as a percent of store revenue, were negatively impacted by higher skip/stolen losses.

CORE U.S. first quarter revenues of $584.4 million decreased 7.1 percent year over year primarily due to lower same store sales and the continued rationalization of our Core U.S. store base. In addition, the new point of sale system was rolled out to fewer locations than expected in the quarter, which allowed for implementation of identified system enhancements. Gross profit as a percent of total revenue increased 40 basis points and was positively impacted by our pricing and supply chain initiatives, and revenue mix. Labor, as a percent of store revenue, was negatively impacted by sales deleverage and higher health care expenses, partially offset by improved labor productivity, the flexible labor initiative, and lower incentive compensation. Other store expenses, as a percent of store revenue, were negatively impacted by sales deleverage, partially offset by a lower store count, initial improvements in fleet productivity, and lower losses.

MEXICO first quarter revenues decreased 23.3 percent driven by currency fluctuations and store closures. Same store sales were up 9.7 percent. Operating losses improved by $2.9 million and EBITDA was positive.

FRANCHISING first quarter revenues increased 14.7 percent and operating profit increased by $0.2 million.

Non-GAAP Reconciliation

To supplement the Company's financial results presented on a GAAP basis, Rent-A-Center uses the non-GAAP measures ("special items”) indicated in Tables 2 and 3 below, which exclude restructuring charges in 2016 for the closure of certain Mexico stores and discrete income tax items. Gains or charges related to sales of stores, store closures, and discrete adjustments to tax reserves will generally recur with the occurrence of these events in the future. The presentation of these financial measures is not in accordance with, or an alternative for, accounting principles generally accepted in the United States and should be read in conjunction with the Company's consolidated financial statements prepared in accordance with GAAP. Rent-A-Center management believes that excluding special items from the GAAP financial results provides investors a clearer perspective of the Company's ongoing operating performance and a more relevant comparison to prior period results.

Reconciliation of net earnings to net earnings excluding special items (in thousands, except per share data):

Table 2 Three Months Ended Three Months Ended
March 31, 2016 March 31, 2015
Amount Per Share Amount Per Share
Net earnings $ 25,061 $ 0.47 $ 27,298 $ 0.51
Special items, net of taxes:
Other charges 1,576 0.03 243 0.01
Discrete income tax items (981 ) (0.02 )
Net earnings excluding special items $ 25,656 $ 0.48 $ 27,541 $ 0.52

Guidance Policy

Rent-A-Center, Inc. provides annual guidance as it relates to diluted earnings per share and will only provide updates if there is a material change versus the original guidance. The Company believes providing diluted earnings per share guidance provides investors the appropriate insight into the Company’s ongoing operating performance...


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