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

Is this meaningful or just another movement?

Apr 22, 2014 at 3:11PM

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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Jeremy Bowman has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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