Rent-A-Center's Q4 earnings fell to US$13.1M from US$47.2M a year ago as revenues rose 1.5% to US$769.6M, same-store sales fell 1.1%; US rent-to-own business suffering because of potential customers' 'severe economic pressure,' says CEO
Cindy Allen
PLANO, Texas
,
January 28, 2014
(press release)
–
Total Revenues Increased 1.5% for Quarter and 0.7% for Year 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 , 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. , 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. 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 "" 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. SELECTED BALANCE SHEET HIGHLIGHTS - UNAUDITED 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.
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
, 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
, 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
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
, 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
, 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
, 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
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