Rent-A-Center, Inc. Reports First Quarter 2014 Results

April 21, 2014 at 4:32 PM EDT

Total Revenues Increased 1.8%

Revenue Increased 37% in Acceptance Now and Over 67% in Mexico

Diluted Earnings per Share of $0.54, Including a Financing Charge of Approximately $0.03 per Diluted Share Related to Unamortized Financing Costs from a Previous Credit Agreement

PLANO, Texas--(BUSINESS WIRE)--Apr. 21, 2014-- Rent-A-Center, Inc. (the "Company") (NASDAQ/NGS: RCII), the nation's largest rent-to-own operator, today announced revenues and earnings for the quarter ended March 31, 2014.

First Quarter 2014 Results

Total revenues for the quarter ended March 31, 2014, were $833.7 million, an increase of $14.4 million from total revenues of $819.3 million for the same period in the prior year. This 1.8% increase in total revenues was primarily due to increases of approximately $47.0 million in the Acceptance Now segment and approximately $6.4 million in the Mexico segment, partially offset by a decrease of approximately $37.6 million in the Core U.S. segment. For the quarter ended March 31, 2014, same store sales declined 0.8% as compared to the same period in the prior year, primarily attributable to a 6.1% decrease in the Core U.S. segment, partially offset by increases of 26.1% and 20.3% in the Acceptance Now and Mexico segments, respectively. Of the 6.1% decline in the Core U.S. segment same store sales for the quarter ended March 31, 2014, 3.8% was attributable to rentals and fees same store sales revenue, an improvement of approximately 30 basis points compared to the fourth quarter of 2013, and 2.3% was attributable to merchandise sales same store sales revenue, which are non-recurring in nature.

Net earnings and net earnings per diluted share for the quarter ended March 31, 2014, were $28.9 million and $0.54, respectively, as compared to $46.1 million and $0.79, respectively, for the same period in the prior year. Net earnings and net earnings per diluted share for the quarter ended March 31, 2014, were reduced by a $1.9 million pre-tax charge, and approximately $0.03 per diluted share, respectively, due to a write off of unamortized financing costs from the previous credit agreement as discussed below.

Adjusted net earnings per diluted share for the quarter ended March 31, 2014, were $0.57, when excluding the pre-tax financing charge, as compared to net earnings per diluted share of $0.79, for the quarter ended March 31, 2013. These results include dilution related to the Mexico segment of approximately $0.07 per diluted share for the quarter ended March 31, 2014, and $0.05 per diluted share for the same period in the prior year.

"We are generally pleased with our results in the quarter as we reported total revenues of $834 million, an increase of $15 million year-over-year, and our adjusted net earnings per diluted share of $0.57 exceeded expectations," commented Robert D. Davis, the Chief Executive Officer of Rent-A-Center, Inc. "We remain aware of continued challenges in the macro-economic environment but our focus remains on the execution of the strategy communicated in our February investor day to build shareholder value. Customer demand was down in the Core U.S. segment as expected, but operational improvements to focus on the quality of sales by altering our promotional tactics resulted in a ticket increase compared to the fourth quarter of 2013. We are also executing an additional operational initiative as part of our multi-year program to further improve operating and financial performance in our Core U.S. segment by optimizing our store foot print and consolidating approximately 150 stores by merging those accounts into existing Rent-A-Center stores by the end of the second quarter," Mr. Davis stated.

"Our growth initiatives continue to perform very well. Acceptance Now revenues were over $174 million in the quarter, an increase of 37%, and contributed approximately 21% of our total revenues and approximately 36% of our total operating profit. In addition, we have begun our virtual kiosk test which we believe will further unlock growth for us. Mexico grew revenues over 67% and ended the quarter with 173 locations. While it is still very early in the Mexico City urban store test, we are pleased with the results," concluded Mr. Davis.

2014 Guidance

3.0% to 6.0% total revenue growth.
- Approximately $695 million contribution from Acceptance Now.
Approximately 3.0% to 5.5% same store sales growth.
EBITDA in the range of $325 to $345 million.
Annual effective tax rate in the range of 37% to 38%.
Diluted earnings per share in the range of $2.30 to $2.50, including approximately $0.25 per share dilution related to Mexico.
Capital expenditures of approximately $100 million.
The Company expects to open approximately 100 domestic Acceptance Now kiosks.
The Company expects to open approximately 30 rent-to-own store locations in Mexico.
The 2014 guidance does not include the potential impact of any repurchases of common stock the Company may make, changes in future dividends, material changes in outstanding indebtedness, or the potential impact of acquisitions, dispositions or store closures that may be completed or occur after June 30, 2014.

2014 Significant Items

Senior Credit Facility Financing Charge. During the first quarter of 2014, the Company recorded a pre-tax charge of approximately $1.9 million to write off unamortized financing costs from the previous credit agreement closed in July 2011. This financing charge reduced net earnings per diluted share for the quarter ended March 31, 2014, by approximately $0.03.

Store Consolidation Plan Expenses. As part of the Company's multi-year program to improve profitability, the Company evaluated every Core U.S. market in which it operates based on operating results, competitive positioning and growth potential. As a result, the Company will consolidate approximately 150 Core U.S. stores by merging those accounts into existing Rent-A-Center stores by the end of the second quarter.

The store consolidation will result in a pre-tax restructuring expense in the second quarter of approximately $4.0 million related to store fixed assets and other miscellaneous items. The majority of the remaining lease obligations related to the consolidated stores of approximately $8.0 million will be paid out through 2016. Approximately half of the remaining lease obligations will be paid in 2014.

Rent-A-Center, Inc. will host a conference call to discuss the first quarter results, guidance and other operational matters on Tuesday morning, April 22, 2014, at 10:45 a.m. ET. For a live webcast of the call, visit http://investor.rentacenter.com. Certain financial and other statistical information that will be discussed during the conference call will also be provided on the same website.

Rent-A-Center, Inc., headquartered in Plano, Texas, is the largest rent-to-own operator in North America, focused on improving the quality of life for its customers by providing them the opportunity to obtain ownership of high-quality, durable products such as consumer electronics, appliances, computers, furniture and accessories, under flexible rental purchase agreements with no long-term obligation. The Company owns and operates approximately 3,170 stores in the United States, Mexico, Canada and Puerto Rico, and approximately 1,355 Acceptance Now kiosk locations in the United States and Puerto Rico. Rent-A-Center Franchising International, Inc., a wholly owned subsidiary of the Company, is a national franchiser of approximately 180 rent-to-own stores operating under the trade name of "Rent-A-Center," "ColorTyme," or "RimTyme." For additional information about the Company, please visit our website at www.rentacenter.com.

This press release and the guidance above contain forward-looking statements that involve risks and uncertainties. Such forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "could," "estimate," "should," "anticipate," or "believe," or the negative thereof or variations thereon or similar terminology. The Company believes that the expectations reflected in such forward-looking statements are accurate. However, there can be no assurance that such expectations will occur. The Company's actual future performance could differ materially from such statements. Factors that could cause or contribute to such differences include, but are not limited to: the general strength of the economy and other economic conditions affecting consumer preferences and spending; economic pressures, such as high fuel costs, affecting the disposable income available to the Company's current and potential customers; changes in the unemployment rate; difficulties encountered in improving the financial performance of the Core U.S. segment or in executing the Company's growth initiatives; the Company's ability to develop and successfully implement virtual or electronic commerce capabilities; our ability to retain the revenue from customer accounts merged into another store location as a result of the store consolidation plan; uncertainties regarding additional costs and expenses that could be incurred in connection with the store consolidation plan; the Company's ability to execute and the effectiveness of the store consolidation; rapid inflation or deflation in prices of the Company's products; the Company's available cash flow; the Company's ability to identify and successfully market products and services that appeal to its customer demographic; consumer preferences and perceptions of the Company's brand; uncertainties regarding the ability to open new locations; the Company's ability to acquire additional stores or customer accounts on favorable terms; the Company's ability to control costs and increase profitability; the Company's ability to enhance the performance of acquired stores; the Company's ability to retain the revenue associated with acquired customer accounts; the Company's ability to enter into new and collect on its rental or lease purchase agreements; the passage of legislation adversely affecting the rent-to-own industry; the Company's compliance with applicable statutes or regulations governing its transactions; changes in interest rates; adverse changes in the economic conditions of the industries, countries or markets that the Company serves; information technology and data security costs; our ability to protect the integrity and security of individually identifiable data of our customers and employee; the impact of any breaches in data security or other disturbances to our information technology and other networks; changes in the Company's stock price, the number of shares of common stock that it may or may not repurchase, and future dividends, if any; changes in estimates relating to self-insurance liabilities and income tax and litigation reserves; changes in the Company's effective tax rate; fluctuations in foreign currency exchange rates; the Company's ability to maintain an effective system of internal controls; the resolution of the Company's litigation; and the other risks detailed from time to time in the Company's SEC reports, including but not limited to, its annual report on Form 10-K for the year ended December 31, 2013. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Except as required by law, the Company is not obligated to publicly release any revisions to these forward-looking statements to reflect the events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events.



Rent-A-Center, Inc. and Subsidiaries

STATEMENT OF EARNINGS HIGHLIGHTS
(Unaudited)

(In thousands, except per share data)	Three Months Ended March 31,
	2014			2014		2013 ⁽²⁾
	Before			After		After
	Significant Items			Significant Items		Significant Items
	(Non-GAAP			(GAAP		(GAAP
	Earnings)			Earnings)		Earnings)
Total Revenues	$	833,746		$	833,746	$	819,281
Operating Profit		59,763			59,763		78,784
Net Earnings		30,061	⁽¹⁾		28,857		46,133
Diluted Earnings per Common Share	$	0.57	⁽¹⁾	$	0.54	$	0.79
Adjusted EBITDA	$	79,649		$	79,649	$	98,147

Reconciliation to Adjusted EBITDA:

Earnings Before Income Taxes	$	48,598	⁽¹⁾	$	46,652	$	71,076
Add back:
Finance charges from refinancing		—			1,946		—
Interest Expense, net		11,165			11,165		7,708
Depreciation of Property Assets		19,139			19,139		18,473
Amortization and Write-down of Intangibles		747			747		890

Adjusted EBITDA	$	79,649		$	79,649	$	98,147

⁽¹⁾ Excludes the effects of a $1.9 million pre-tax charge to write off unamortized financing costs from the previous credit agreement closed in July 2011. This financing charge reduced net earnings per diluted share for the quarter ended March 31, 2014, by approximately $0.03.

⁽²⁾ As discussed in our Annual Report on Form 10-K for the year ended December 31, 2013, we identified errors in accounting for our estimates for rental merchandise reserves and for the allowance for doubtful accounts, resulting in an immaterial overstatement of on rent merchandise and understatements of held for rent merchandise and receivables which affected periods through December 31, 2013. We increased (decreased) previously reported salaries and other expenses, operating profit, income tax expense and net earnings by $0.5 million, $(0.5) million, $(0.2) million and $(0.3) million in our historical financial statement highlights and financial statements for the three-month period ended March 31, 2013, reported herein. We also increased (decreased) previously reported accounts receivable, on rent rental merchandise inventory, held for rent rental merchandise, total assets, total liabilities and stockholders' equity by $4.0 million, $(15.0) million, $1.2 million, $(9.8) million, $(3.7) million and $(6.1) million, respectively, at March 31, 2013.


(In thousands of dollars)	March 31,
	2014		2013 ⁽²⁾
Cash and Cash Equivalents	$	81,012	$	82,254
Receivables, net		57,871		50,058
Prepaid Expenses and Other Assets		80,739		64,549
Rental Merchandise, net
On Rent		892,341		817,703
Held for Rent		203,272		217,340
Total Assets	$	3,031,063	$	2,898,870

Senior Debt	$	325,000	$	341,285
Senior Notes		550,000		300,000
Total Liabilities		1,668,885		1,410,883
Stockholders' Equity	$	1,362,178	$	1,487,987



Rent-A-Center, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)

(In thousands, except per share data)	Three Months Ended March 31,
	2014			2013 ⁽²⁾
Revenues
Store
Rentals and fees	$	694,168		$	673,604
Merchandise sales		108,061			113,573
Installment sales		18,356			17,127
Other		4,258			4,760
Franchise
Merchandise sales		7,324			8,833
Royalty income and fees		1,579			1,384
		833,746			819,281
Cost of revenues
Store
Cost of rentals and fees		177,870			167,919
Cost of merchandise sold		79,617			86,299
Cost of installment sales		6,382			5,969
Franchise cost of merchandise sold		7,000			8,416
		270,869			268,603
Gross profit		562,877			550,678
Operating expenses
Salaries and other expenses		457,630			432,191
General and administrative expenses		44,737			38,813
Amortization and write-down of intangibles		747			890
		503,114			471,894

Operating profit		59,763			78,784
Finance charges from refinancing		1,946			—
Interest expense		11,401			8,001
Interest income		(236	)		(293	)
Earnings before income taxes		46,652			71,076
Income tax expense		17,795			24,943
NET EARNINGS	$	28,857		$	46,133

Basic weighted average shares		52,795			57,947

Basic earnings per common share	$	0.55		$	0.80

Diluted weighted average shares		53,020			58,335

Diluted earnings per common share	$	0.54		$	0.79

Rent-A-Center, Inc. and Subsidiaries

SEGMENT INFORMATION HIGHLIGHTS
(Unaudited)

On January 1, 2014, the Company realigned its reporting structure to include its 18 Canadian stores in the Core U.S. segment, which were previously reported in the International segment. The accompanying prior-year amounts and store counts have been revised to reflect this change, and we now refer to the segment formerly reported as "International" as "Mexico" since only that country's results are reported therein.


(In thousands of dollars)	Three Months Ended March 31, 2014
	Core U.S.		Acceptance Now		Mexico			Franchising		Total
Revenue	$	634,763	$	174,207	$	15,873		$	8,903	$	833,746
Gross profit		456,589		92,907		11,478			1,903		562,877
Operating profit (loss)		43,857		21,577		(6,277	)		606		59,763
Depreciation of property assets		16,037		1,424		1,643			35		19,139
Amortization and write-down of intangibles		605		142		—			—		747
Capital expenditures		18,036		2,784		2,288			—		23,108
Rental merchandise, net
On rent		580,767		293,048		18,526			—		892,341
Held for rent		185,664		6,852		10,756			—		203,272
Total assets		2,565,076		391,844		71,612			2,531		3,031,063

(In thousands of dollars)	Three Months Ended March 31, 2013
	Core U.S.		Acceptance Now		Mexico			Franchising		Total ⁽²⁾
Revenue	$	672,408	$	127,163	$	9,493		$	10,217	$	819,281
Gross profit		475,072		67,107		6,698			1,801		550,678
Operating profit (loss)		67,078		15,650		(4,647	)		703		78,784
Depreciation of property assets		16,174		1,089		1,190			20		18,473
Amortization and write-down of intangibles		747		143		—			—		890
Capital expenditures		15,052		1,940		2,645			—		19,637
Rental merchandise, net
On rent		581,059		224,231		12,413			—		817,703
Held for rent		207,676		2,920		6,744			—		217,340
Total assets		2,533,845		310,845		52,477			1,703		2,898,870



Rent-A-Center, Inc. and Subsidiaries

LOCATION ACTIVITY
(Unaudited)

	Location Activity - Three Months Ended March 31, 2014
	Core U.S.	Acceptance Now	Mexico	Franchising	Total
Locations at beginning of period	3,010	1,325	151	179	4,665
New location openings	6	60	22	1	89
Acquired locations remaining open	—	—	—	—	—
Closed locations
Merged with existing locations	19	29	—	—	48
Sold or closed with no surviving location	—	1	—	2	3
Locations at end of period	2,997	1,355	173	178	4,703
Acquired locations closed and accounts merged with existing locations	—	—	—	—	—

	Location Activity - Three Months Ended March 31, 2013
	Core U.S.	Acceptance Now	Mexico	Franchising	Total
Locations at beginning of period	3,008	966	90	224	4,288
New location openings	7	98	20	3	128
Acquired locations remaining open	3	—	—	—	3
Closed locations
Merged with existing locations	16	11	—	—	27
Sold or closed with no surviving location	1	—	—	3	4
Locations at end of period	3,001	1,053	110	224	4,388
Acquired locations closed and accounts merged with existing locations	9	—	—	—	9

Source: Rent-A-Center, Inc.

Rent-A-Center, Inc.
David E. Carpenter, 972-801-1214
Vice President of Investor Relations
david.carpenter@rentacenter.com