It's another quarter later, and things still don't look much better to me at Rent-A-Center
Revenue for the quarter rose by all of 1% as store-count expansion stayed ahead of the 2.6% decline in same-store sales. Lower margins (12.8%, versus 16.1% for operating margins) again worked their nasty voodoo, with earnings dropping 16% for the quarter.
Once again, management blamed high energy costs for the stagnant same-store sales. Bull cookies, I say. Same-store sales have been weak for about four years now. Aaron Rents
I know these shares look cheap. The P/E is less than 12, the return on equity is close to 20%, and the company typically generates solid cash flow. But how much do you want to pay for a company that isn't growing, when margins are eroding and guidance keeps coming down? For my money, value without real organic growth (or at least stability) isn't value at all.
I've said it before, and I'll say it again -- this is a company with promise, but significant changes are necessary to realize that promise. The stores do not compare favorably with those of the competition, the company has a history of lawsuits, and management seems to want to point the blame on external factors instead of looking within for answers.
Sooner or later, I'll bet, things are going to get more interesting at Rent-A-Center. A strong brand name and an installed base of stores won't just sit around and stagnate forever. An aggressive investor or investor group will try to either take over the company or agitate the board into making management changes. If, or when, that happens, this could become a company worth owning again.
For more on the rent-to-own world:
- Is This the Renter to Own?
- Why Own Rent-A-Center?
- Aaron Rents Reaps Rewards
- Rent-A-Center Needs Change
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).