Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Rent-A-Center (RCII -0.85%) were up 12.6% as of 12 p.m. Tuesday after the company released better-than-expected first-quarter results.
So what: Consolidated quarterly revenue climbed 5.9% year over year to $877.6 million, helped by impressive same-store sales growth of 8%. Within that, core U.S. revenue fell 1.1% year over year to $629.2 million, albeit mostly due to Rent-A-Center's consolidation of 150 stores completed in last year's second quarter. Meanwhile, core U.S. same-store sales swung to a positive with modest growth of 1%. That translated to a 7.1% decline in adjusted earnings per share to $0.52.
Analysts, on average, were only expecting adjusted earnings of $0.50 per share on sales of $864 million.
Now what: Rent-A-Center CEO Robert Davis explained, "Our multi-year plan to improve the profitability and performance of our Core business continues to build momentum on a number of fronts."
Specifically, Rent-A-Center's newer smartphone category comprised over 8% of core U.S. sales during the quarter, while its flexible labor initiative began rolling out in 150 stores with general deployment expected across the network starting in June. In addition, Rent-A-Center has completed system integration with its third-party logistics provider, and should enjoy new cost efficiencies from its new supply chain and the first of five U.S. distribution centers this month. Finally, Rent-A-Center launched its first 10 Acceptance Now Direct locations and began online approvals of additional third-party retail partners, and is enjoying a fully operational new POS system in 34 stores so far.
In the end, it also helps that Rent-A-Center currently looks cheap trading at just 16.7 times trailing-12-month earnings, and 12 times next year's estimates. And yes, that could be a well-deserved discount given its modest top-line growth and recent earnings decline. But given Rent-A-Center's success so far, I won't be the least bit surprised if the stock continues to reward patient investors who are willing to wait as these new initiatives continue to gain steam.
