Why Shares of Rent-A-Center, Inc. Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Rent-A-Center  (NASDAQ: RCII  ) were moving higher today, up as much as 16% after turning in a better-than expected earnings report last night.

So what: The rent-to-own retailer delivered a per-share profit of $0.57 in the quarter, above estimates at $0.54, while revenue ticked up 1.8% to $833.7 million, short of expectations at $840.3 million on a same-store sales decline of 0.8%. CEO Robert Davis called the results "generally pleasing," but noted "continuing challenges" in the macroeconomic environment as comps at core U.S. stores, which excludes Acceptance Now, fell 6.1%. Still, performance in the Acceptance Now division, its kiosks that provide partner customers with other retailers, was strong as revenue improved 37%, and sales at its Mexican outlets jumped 67%, though Mexico contributes a small fraction of revenue currently.

Now what: Profits still fell from a year ago, and the company said it would close 150 U.S. stores to counter waning demand. Still, full-year guidance was solid as the company sees revenue growth of 3% to 6% on a same-store sales increase of 3% to 5.5% as it adds 100 Acceptance Now kiosks and 30 new stores in Mexico. Analysts had projected a sales increase of 4.8%. This was by no means a perfect report, but after two quarters of badly missing EPS estimates, the bottom-line beat was a positive sign and rising same-store sales should ensure improving profitability. The rent-to-own sector is always volatile, but for now, Rent-A-Center looks like it's on the right track.  

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