THE MARKET MIDDAY
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Rent-A-Center: A Good Owner
After the bell yesterday, Rent-A-Center (Nasdaq: RCII) announced that it expects to exceed analysts' expectations for Q1 EPS of $0.28 by 20% when it reports first quarter results -- and this morning, the largest operator of "rent-to-own" stores shot up $3 9/16 to $28 3/4. In its annual report, released at the end of March, some standard boilerplate language about the ability of the firm to meet debt obligations (after its acquisition of Thorn Plc's rental business) sent the shares adrift. Righting itself this morning, Rent-A-Center -- formerly known as Renters Choice -- reported that the $30 million in synergies that it projected for the deal in 1999 are proceeding apace.
In addition to shutting down Thorn's national warehouse network and implementing Rent-A-Center's own "vendor direct-ship program," a key element of Rent-A-Center's strategy has been so-called stock keeping unit (SKU) "rationalization." Eliminating lower-priced rental merchandise like pagers, mobile phones, and jewelry and shifting toward branded electronics, furniture, and assorted appliances serves to increase the number of units on rent, as well as the average price per unit in stores (two metrics that the firm noted have seen improvement).
Most of all, though, SKU rationalization entails the wholesale dumping of non-core items. Rent-A-Center investors had ample precedent for evaluating the ability of management to realize value in its acquisition program. When RCII made its big Rent-A-Center acquisition (and then took the name) it lowered the SKU count from 1000 to about 150 and promptly brought down delinquencies to the Renters Choice average, at or below 6% from roughly double that amount. Eliminating discounting promotions that lead to big volume, and even bigger collection headaches is key.
Consistent with the RAC acquisition, Rent-A-Center will undoubtedly change the incentive structure for store managers, market managers, and senior management -- aligning compensation with unit level operating performance. With some of its lawsuits now settled (which seem to constantly linger over this business) and over 50% of the $4 billion a year industry still controlled by chains with less than 30 stores, a proven integrator like Rent-A-Center might be worth a closer look.
Database software developer Informix Corp. (Nasdaq: IFMX) jumped $2 to $9 after announcing its i.Sell fixed-price e-commerce software suite for doing business on the Web, which the company says will allow online merchants to leverage database information to provide "true one-to-one marketing" to customers.
Call center management software provider GeoTel Communications (Nasdaq: GEOC) rang up $13 5/16 to $57 9/16 after agreeing to be acquired by networking products giant Cisco Systems (Nasdaq: CSCO) in a stock swap valued at about $2 billion. The move follows the decision of Cisco rival Lucent Technologies (NYSE: LU) to acquire call center technologies firm Mosaix (Nasdaq: MOSX) last week.
Carbonated beverage giant Coca-Cola (NYSE: KO) bubbled up $1 7/8 to $63 3/4 after Merrill Lynch analyst Douglas Lane said Q2 will be the bottom for the company's recent business slide, leading to improved international sales and earnings in the second half of the year. Lane raised his near-term rating on the company to "accumulate" from "neutral."
Internet bank Net.B@nk (Nasdaq: NTBK) booked a $41 3/4 gain to $200 1/4 after announcing a three-for-one stock split effective May 14.
Investment bank and brokerage firm Paine Webber Group (NYSE: PWJ) picked up $3 7/8 to $47 7/16 after posting Q1 EPS of $1.01, up from last year's $0.77 and ahead of the First Call mean estimate of $0.73. Net revenues rose 18% from a year ago to $1.3 billion.
Fiber optic network operator Level 3 Communications (Nasdaq: LVLT) advanced $9 3/8 to $99 3/8 after British telecommunications services provider Cable & Wireless PLC (NYSE: CWP) said it will buy 15,000 route miles of Level 3 dark fiber to build a presence in 50 metropolitan markets as part of its $670 million investment plan in the U.S.
Online streaming media company broadcast.com (Nasdaq: BCST) moved up $6 1/4 to $154 after reporting a Q1 loss of $0.09 per share (excluding acquisition-related charges), flat with last year's loss but not quite as bad as the loss of $0.12 per share expected by analysts surveyed by First Call.
Elsewhere in the streaming media world, RealNetworks (Nasdaq: RNWK) tacked on $11 1/2 to $258 1/2 after agreeing to buy privately held MP3 audio compression software developer Xing Technology Corp. for $75 million in RealNetworks stock.
LongHorn and Bugaboo Creek steakhouses operator RARE Hospitality International (Nasdaq: RARE) sizzled $2 3/16 higher to $15 15/16 after saying it expects Q1 EPS to come in between $0.33 and $0.34 (excluding charges), topping analysts' current estimates of $0.29, thanks to a 5.2% same-store sales rise at its key LongHorn Steakhouse division during the period.
Online direct marketing company Xoom.com (Nasdaq: XMCM) zipped $13 1/8 higher to $90, adding to yesterday's 9% gain, after the company late last week disclosed in a federal filing that it has held discussions recently with an unspecified party regarding a major investment in the company.
Airline catalog retailer SkyMall (Nasdaq: SKYM) dumped $5 9/16 to $17 9/16 after it said it expects Q1 revenues to fall slightly from year-ago levels, dropping to $13 million from $13.2 million. Although merchandise sales, both online and traditional, grew from last year's levels, placement fee revenues were off by about one-third. The company also announced a revamped Internet strategy today; the required investment in the operation is expected to bring about a loss of between $1.00 and $1.20 for the year.
Telecommunications products and services company Westell Technologies (Nasdaq: WSTL), reportedly downgraded to "hold" from "buy" at NationsBanc Montgomery Securities, lost $1 5/16 to $8 5/16 this morning. The company's Conference Plus subsidiary also announced the opening of a European subsidiary based in Dublin.
Computer telephony systems components maker Dialogic Corp. (Nasdaq: DLGC) hung up on $6 3/8 to $28 1/2 after saying last night it expects Q1 EPS of $0.29 or $0.30, missing the First Call $0.37 profit estimate. The company said it won't be able to recognize $5 million in software license revenue as net income until future periods, hurting results in Q1.
Internet-based audio and video communication software developer VocalTec Communications (Nasdaq: VOCLF) shed $2 1/8 to $11 1/2 after announcing last night that it expects to report a Q1 loss of between $0.85 and $0.87 per share, missing analysts' $0.37 to $0.45 loss range. The company blames lower-than-expected sales, a less-favorable sales mix, and higher operating expenses for the shortfall.
Consumer and commercial financing firm Associates First Capital Corp. (NYSE: AFS) fell $1 7/8 to $47 after reporting Q1 EPS of $0.46, ahead of last year's $0.40 mark but flat with market estimates. The company said the integration of Avco Financial Services -- the acquisition closed Jan. 6 -- is "on target."
Online entertainment-related products retailer Big Entertainment (Nasdaq: BIGE) gave back $5 9/16 to $26 13/16 this morning after taking $16 5/8 yesterday on news that CBS Corp. (NYSE: CBS) will exchange $100 million worth of content and promotions for a 35% stake in a joint venture that will own movie and entertainment-themed website hollywood.com.
Internet website co-location services and direct access provider AboveNet Communications (Nasdaq: ABOV), another of yesterday's big risers, slowed $10 1/2 to $139 3/4 after zooming ahead $45 3/8 yesterday after Internet advertising company DoubleClick (Nasdaq: DCLK) chose AboveNet to co-locate its Web servers.
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