I've been hard on Rent-A-Center (NASDAQ:RCII) as this leading rent-to-own operator continues to struggle with its operations. And don't worry, I'm not going soft -- I still personally wouldn't hire this management team to run a lemonade stand in a drought zone. But I will give credit where credit is due: Management did something right at last.
A couple of days ago, the company announced that it would be closing up to 162 underperforming locations. Of this total, 114 stores already have been identified for closing, with their operations to be merged into nearby stores. An additional 48 stores could be sold, merged with a potential acquisition, or closed outright.
According to management, these 162 stores accounted for about $58 million in year-to-date revenue. That amounts to about 5% of Rent-A-Center's total, which makes sense because the stores represent about 5% of the company's 2,869 stores in operation (5.6% to be precise). In closing these operations, Rent-A-Center expects to incur around $12 million to $25 million in restructuring expenses, of which $9 million to $14 million will require actual cash outlays.
In unrelated news, the company also reported that 45 stores in Louisiana, Mississippi, and Alabama were damaged by Hurricane Katrina. While I suspect that many companies will use the Katrina disaster as a shield for underperformance, I would imagine that in the case of Rent-A-Center, the claim will be valid. That said, the company has not yet forecast what, if any, specific financial impact it expects from the storm.
As I suggested in my opening, I'm not laying off my basic thesis on Rent-A-Center: mainly, that it's a once-great brand that is being poorly run by current management. In my mind, Aaron Rents (NYSE:RNT) is still the better player in this space, though Rent-A-Center is much larger.
Maybe this is the first in what will ultimately be a series of steps that prove that management finally "gets it." I'm not holding my breath on this one, but I'd be remiss if I didn't point out that we are still talking about a company with a nearly single-digit price-to-earnings ratio, a nearly double-digit return on assets, and a generally solid history of producing cash flow. Decide for yourself whether management can deliver the performance needed to convert these positive-sounding fundamental points into long-term operating performance and share-price appreciation.
Help yourself to some more free Takes on rent to own:
- Aaron Rents -- and Keeps Growing
- More of the Same at Rent-A-Center
- Is This the Renter to Own?
- You'll Want to Own, Not Rent, This Prize
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
