When you think "rent," usually apartments, cars, and movies come to mind, but you can rent furniture and other things for your home too, and that's Rent-A-Center's (NASDAQ:RCII) bread and butter. Due to a range of variables, Rent-A-Center reported some cushy fourth-quarter profits on Monday night, but the coming year may not be quite as comfy.
Fourth-quarter net income increased to $51.5 million, or $0.62 per share, from $45.2 million, or $0.50 per share, in the year-ago period. Revenues rose to $558.7 million from $522.2 million for the same period last year, while same-store sales squeaked 0.2% higher.
The company's higher net income was attributed to acquisitions it has made. Indeed, Rent-A-Center -- which is the No. 1 rent-to-own concern, with a 31% market share based on stores -- has hardly been a couch potato.
Rent-A-Center has been busy buying up competition, a strategy that's getting its footprint in more and more markets. Just last week, the company announced the acquisition of Rainbow Rentals (NASDAQ:RBOW). Its main competition, though, remains Aaron Rents (NYSE:RNT), which will get a cozy payout of $5.5 million when Rent-A-Center buys Rainbow, due to its 8% stake.
If the outlook for Rent-A-Center has been spiffy over the last several years, a positive economic shift may have a negative impact on the space. During a recession, when more people have less money, the company's rent-to-own model looks pretty appealing. (One of its subsidiaries' names pretty much says it all: "Get It Now.")
However, as conditions improve and more families have more disposable income, it stands to reason that many of Rent-A-Center's potential customers will begin to flee to companies where they can get relatively inexpensive furnishings and other goods outright, such as Wal-Mart (NYSE:WMT), Target (NYSE:TGT), and even Ikea.
Rent-A-Center's forward guidance seems to imply the possibility of a slightly threadbare year, with the expectation that same-store sales will remain flat for the first quarter, and flat to 2% higher for the year. Compare this to same-store sales that motored up 12.6%, 8%, and 6% in 2000, 2001, and 2002, respectively, and it's looking like the improving economy may have some impact on Rent-A-Center for a while.
The growth prospect is that the company plans to open 80 to 120 stores in 2004, adding to the 2,600 it already has. However, if you're contemplating "getting it now," rockin' revenue growth may not be on the table until the next economic downturn.
Do you need some tips on getting your home in ship-shape? Talk it out with other Fools on the Interior Design/Decorating discussion board.
Alyce Lomax does not own shares of any of the companies mentioned. She welcomes your feedback via email.
