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.
