Please ensure Javascript is enabled for purposes of website accessibility

Why Rent-to-Own Retailer Stocks Tumbled Today

By Jeremy Bowman – Updated Oct 11, 2016 at 1:49PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Rent-a-Center reported a double-digit comparable sales slide in its preliminary earnings sparking fear in the wider industry.

Image source: The Motley Fool. 

What happened

Investors were dumping shares of Rent-A-Center Inc (RCII 4.57%) Tuesday after the rent-to-own specialist issued downbeat preliminary earnings guidance. As of 12:38 p.m. EDT, the stock was down 29.2%.

So what

For the third quarter, which ended Sept. 30, the company said it expected core U.S. same-store sales to be down 12%, and comparable sales at its Acceptance Now stores to be flat. Adjusted EPS are now expected to be $0.05 to $0.15, down from $0.47 a year ago. Analysts had projected earnings of $0.39 per share for the quarter past.

"Following the implementation of our new point-of-sale system, we experienced system performance issues and outages that resulted in a larger than expected negative impact on Core sales," CEO Robert Davis said. "While we expect it to take several quarters to fully recover from the impact to the Core portfolio, system performance has improved dramatically and we have started to see early indicators of collections improvement."

Now what

From the statement above, it sounds like the plunging comparable sales were the result of a temporary tech hiccup rather than a more fundamental trend. However, the weak report brought down shares of peers like Aaron's (AAN), which fell 10%, and Conns (CONN 4.87%), which dropped was down 4%.

Investors may have to wait until those companies report earnings to learn if this is an industrywide trend. After Tuesday's drop, Rent-A-Center shares sit a P/E of around six, meaning there could be significant upside potential if the company bounces back. We'll learn more when Rent-A-Center deliver its full earnings report on Oct. 26.

Jeremy Bowman 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.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.