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Shares of Rent-A-Center Plunged After Q2 Miss and Updated Guidance

By Daniel Miller – Jul 28, 2016 at 12:56PM

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Rent-A-Center posted a weak second quarter which missed estimates on both the top and bottom lines, as well as reducing full-year guidance.

Image source: Rent-A-Center.

What: Shares of Rent-A-Center, Inc. (RCII -0.25%), one of the largest rent-to-own operators in the U.S. with 2,600 stores nationwide, were hammered 16% Thursday morning after a weak second quarter forced management to revise its full-year outlook.

So what: Starting on the top line, consolidated total revenue dropped 8.1% to $749.6 million during the second quarter, compared to the prior year. Comparable-store sales for the quarter also moved 4.9% lower. This marks the fourth consecutive sales miss, according to consensus estimates by Zacks, and that poor performance filtered down to disappoint on the bottom line.

Rent-A-Center's earnings per share checked in at $0.19, which was a far cry from last year's $0.43 per share. The company's adjusted earnings were $0.41 per share, which fell 18% short of Zacks' consensus estimates; the result was also below the year-ago figure of $0.50.

Now what: Robert D. Davis, CEO of Rent-A-Center, said in a press release:

Although I am pleased with the progress made in several areas of our transformation, I am disappointed in our top line performance. The point of sale implementation negatively impacted Core revenue in the second quarter and reduced our portfolio making it necessary to revise our outlook for the year.

That revised outlook calls for core U.S. revenue to decline between 8.5% to 11.5%, which is roughly double what the company previously expected, and earnings per share to fall between $1.65 and $1.85, which is below Zacks' previous estimate of $2.05.

While the company's performance on the top and bottom lines disappointed investors and fell short of expectations, it wasn't all bad. Rent-A-Center did improve gross margins, productivity, and Mexico profitability. But if the company can't reinvigorate its core U.S. revenue, perhaps through e-commerce initiatives, expect a trend of disappointing financial results. 

Daniel Miller has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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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Rent-A-Center Stock Quote
$23.59 (-0.25%) $0.06

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