Back in February, when I last reviewed furniture and electronics lessor Rent-A-Center (NASDAQ:RCII), I summed up my thoughts as follows: "With a bargain-basement price, decent prospects for future growth, and management whose ownership stakes in the company align their interests with those of outside shareholders, Rent-A-Center makes the grade -- as a possible hidden gem."
That emphasis on "possible" was in the original. But looking at Rent-A-Center eight months and $10 less per share later, I think I should have also underlined and bolded "possible" for good measure. In short, it would have been hard for me to be more wrong on the company back then, so take today's prognostication with a shaker full of salt. For today, I'll consider what Monday's earnings release might hold in store for Foolish investors.
Feelings on this subject are pretty mixed. Back in July, Rent-A-Center predicted that the third quarter of 2005 would serve up $572 million to $580 million in revenues and turn that number into $0.38 to $0.42 per diluted share in profits. Analysts are taking a more subdued view. They expect to see the company produce, at most, $575 million in sales -- and they all agree that it will probably be less than that -- and about $0.39 in per-share profits.
I'd have to lay my money on the analysts being proved right. After all, over the past four quarters, analysts' consensus earnings estimates have been right on the money three times in a row for this company. The one time the analysts goofed, it was Rent-A-Center that underperformed, not the analysts who waxed overly optimistic.
But although Monday's report will almost certainly show a decline from last year's $0.47 in per-share profits, there is hope on the horizon. As fellow Fool Stephen Simpson observed last month, Rent-A-Center is planning to close many of its least profitable stores, with a likely resulting boost to margins. What's more, although the company did not escape damage from last month's two major hurricanes and will likely incur costs for repairs and lost sales, there is a silver lining to the storms. Thousands of people who were displaced by Katrina and are now living in temporary housing will need a convenient way to temporarily furnish their interim abodes. Like peers Aaron Rents (NYSE:RNT) and Rent-Way (NYSE:RWY), Rent-A-Center should be right there to provide this needed service. If it helps to revive the company's fiscal fortunes, then that's all the better.
For a less rosy yet accurate view of Rent-A-Center, turn to:
The Motley Fool has kicked off its ninth annual Foolanthropy campaign! Nominate your favorite charities on our Foolanthropy discussion board through Nov. 1. For guidelines on what makes a charity Foolish, visit www.foolanthropy.com .
Fool contributor Rich Smithhas no position in any of the companies mentioned in this article.
