Rent-A-Center, Inc. Reports Record Fourth Quarter and Year End 2002 Results

February 10, 2003 at 6:57 PM EST
                    Diluted Earnings Per Share Rise 44.8%;
               Fourth Quarter Same Stores Sales Increase 4.7%;
               Completes Acquisition of 295 Rent-Way Locations

PLANO, Texas, Feb. 10 /PRNewswire-FirstCall/ -- Rent-A-Center, Inc. (Nasdaq: RCII) (the "Company"), the leading rent-to-own operator in the U.S., today announced record revenues and net earnings for the quarter and year ended December 31, 2002.

The Company reported total revenues for the quarter ended December 31, 2002 of $522.2 million as compared to $479.0 million for the same quarter of the prior year, an increase of 9.0%. Net earnings rose to $45.2 million or $1.26 per diluted share in the fourth quarter of 2002, after being reduced by approximately $1.1 million in pre-tax expenses associated with amending the Company's Senior Credit Facilities, otherwise net earnings for the quarter would have been $1.28 per diluted share. The amendment provides for, among other effects, increased flexibility to distribute cash to shareholders through stock repurchases and/or the payment of dividends. After adjusting reported results for the fourth quarter of 2001 to exclude the effects of goodwill amortization and a non-recurring charge of $36.0 million relating to the settlement of its class action gender discrimination lawsuits, net earnings and diluted earnings per share increased $13.0 million and $0.39, respectively. On a comparable basis, this represents an increase in diluted earnings per share of 44.8%. The Company's quarterly growth in revenues and net earnings was primarily driven by higher than expected growth in same store revenues, incremental revenues from new and acquired stores and the continued benefit of the Company's cost control programs instituted in the fall of 2001. Same store revenues (revenues earned in stores operated for the entirety of both periods) during the fourth quarter of 2002 increased 4.7% above the comparable quarter of 2001.

"We are very pleased to report record levels of revenue and profitability this quarter which is the culmination of the collaborative efforts of all of our employees," commented Mark E. Speese, the Company's Chairman and Chief Executive Officer. "We were able to deliver on our expectations, and in many cases exceed those expectations, throughout 2002, consistent with the goals we established in the fourth quarter of 2001," Speese added.

Net earnings for the twelve months ended December 31, 2002 were $175.1 million compared with $122.4 million, on a comparable basis, for the twelve months ended December 31, 2001, representing an increase of 43.1%. Diluted earnings per share rose to $4.82 for the twelve months ended December 31, 2002 compared with earnings of $3.30 per diluted share, on a comparable basis, for the twelve months ended December 31, 2001, an increase of 46.1%. Total revenues for the twelve months ended December 31, 2002 increased to $2.010 billion from $1.809 billion in 2001, representing an increase of 11.1%. Same store revenues for the twelve-month period ended December 31, 2002 increased 6.0%.

In the fourth quarter of 2002, the Company opened 31 new locations, acquired 19 stores and purchased accounts from 42 locations. The Company has opened 10 new stores during the first quarter of 2003 and intends to open 80 to 100 new stores during 2003, as well as continue to pursue opportunistic acquisitions. The Company believes this growth can be funded with internally generated cash flow. During the year ended December 31, 2002, the Company generated $294.5 million in cash flow from operations, enabling the Company to reduce total debt outstanding by $181.3 million, fund the growth of an additional 153 stores and accounts from 126 locations and repurchase $65.6 million in outstanding common stock. The Company ended the year with approximately $85.7 million of cash on hand.

The Company also announced today the completion of the acquisition of 295 stores from Rent-Way, Inc. This acquisition was financed entirely with cash on hand and is expected to add approximately $95.0 million in revenue in 2003, as well as approximately $0.15 in diluted earnings per share. The earnings guidance which follows has been adjusted to reflect the acquisition of the Rent-Way stores. "We are excited about the opportunities inherent in these stores," commented Speese. "While there is a benefit in both revenue and earnings in 2003 from this acquisition, we view the long term potential upside as significant as well."

Rent-A-Center will host a conference call to discuss the fourth quarter financial results and other business updates on Tuesday morning, February 11, 2003, at 10:45 a.m. EST. For a live webcast of the call, visit http://www.rentacenter.com/coinfo_calendar.asp . The webcast will be archived for a period of two weeks.

Rent-A-Center, Inc., headquartered in Plano, Texas, immediately prior to the closing of the Rent-Way acquisition operated approximately 2,415 company- owned stores nationwide and in Puerto Rico. The stores generally offer high- quality, durable goods such as home electronics, appliances, computers and furniture and accessories to consumers under flexible rental purchase agreements that generally allow the customer to obtain ownership of the merchandise at the conclusion of an agreed-upon rental period. ColorTyme, Inc., a wholly owned subsidiary of the Company, is a national franchiser of 318 rent-to-own stores, 306 of which operate under the trade name of "ColorTyme," and the remaining 12 of which operate under the "Rent-A-Center" name.

The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially. These statements do not include the potential impact of store acquisitions or changes in our capital structure that may be completed after February 10, 2003.

FIRST QUARTER 2003 GUIDANCE:

Revenues

  • The Company expects total revenues to be in the range of $550 million to $555 million.

  • Store rental and fee revenues are expected to be between $485 million and $490 million.

  • Total store revenues are expected to be in the range of $536 million to $541 million.

  • Same store sales increases are expected to be in the 2% to 4% range.

  • The Company expects to open 15-20 new store locations.

Expenses

  • The Company expects depreciation of rental merchandise to be between 21.6% and 22.0% of store rental and fee revenue and cost of goods merchandise sales to be between 70% and 75% of store merchandise sales.

  • Store salaries and other expenses are expected to be in the range of 52.5% to 54.0% of total store revenue.

  • General and administrative expenses are expected to be between 3.0% and 3.2% of total revenue.

  • Interest expense is expected to be approximately $14.0 million and amortization of intangibles is expected to be approximately $2.6 million.

  • The effective tax rate is expected to be between 39.0% and 39.5% of pre-tax income.

  • Diluted earnings per share are estimated to be in the range of $1.34 to $1.37.

  • Diluted shares outstanding are estimated to be between 36.0 million and 36.4 million.

FISCAL 2003 GUIDANCE:

Revenues

  • The Company expects total revenues to be in the range of $2.195 billion and $2.230 billion.

  • Store rental and fee revenues are expected to be between $1.990 billion and $2.015 billion.

  • Total store revenues are expected to be in the range of $2.145 billion and $2.175 billion.

  • Same store sales increases are expected to be in the 2% to 4% range.

  • The Company expects to open approximately 80 to 100 new store locations.

Expenses

  • The Company expects depreciation of rental merchandise to be between 21.6% and 22.0% of store rental and fee revenue and cost of goods merchandise sales to be between 73% and 78% of store merchandise sales.

  • Store salaries and other expenses are expected to be in the range of 53.5% to 55.0% of total store revenue.

  • General and administrative expenses are expected to be between 3.0% and 3.2% of total revenue.

  • Interest expense is expected to be between $50.0 million and $56.0 million and amortization of intangibles is expected to be approximately $12.0 million.

  • Tax rate is expected to be between 39.0% and 39.5% of pre-tax income.

  • Diluted earnings per share are estimated to be in the range of $5.45 to $5.60.

  • Diluted shares outstanding are estimated to be between 36.1 million and 36.7 million.

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. Although the Company believes that the expectations reflected in such forward-looking statements will prove to be correct, the Company can give no assurance that such expectations will prove to have been correct. The actual future performance of the Company could differ materially from such statements. Factors that could cause or contribute to such differences include, but are not limited to: uncertainties regarding the ability to open new stores; the Company's ability to acquire additional rent-to-own stores on favorable terms; the Company's ability to enhance the performance of these acquired stores, including the stores acquired in the Rent-Way acquisition; the Company's ability to control store level costs; the Company's ability to realize benefits from its margin enhancement initiatives; the results of the Company's litigation; the passage of legislation adversely affecting the rent-to-own industry; interest rates; the Company's ability to collect on its rental purchase agreements; the Company's ability to effectively hedge interest rates on its outstanding debt; changes in the Company's effective tax rate; changes in the Company's stock price and the number of shares of common stock that the Company may or may not repurchase under its common stock repurchase program; and the other risks detailed from time to time in the Company's SEC filings, including but not limited to, its annual report on Form 10-K for the year ended December 31, 2001 and its quarterly reports on Form 10-Q for the quarter ended March 31, 2002, on Form 10-Q for the quarter ended June 30, 2002 and of Form 10-Q for the quarter ended September 30, 2002. 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

                                      Three Months Ended December 31,
                                      2002         2001           2001
    (In thousands of Dollars,
     except for per share data)
                                                 Before          After
                                              Non-Recurring  Non-Recurring
                                                 Charge          Charge

                                                 Unaudited

    Total Revenues                  $522,213     $478,993     $478,993

    Operating Profit                  89,826       59,089       23,089  (A)

    Net Earnings                      45,218       26,020        3,700  (A)

    Diluted Earnings Per
     Common Share                       1.26         0.70         0.10  (A)

    EBITDA                          $101,506      $76,685      $40,685  (A)


                                Twelve Months Ended December 31,
                       2002           2002           2001            2001
    (In thousands of
     Dollars, except
     per share data)
                      Before          After          Before          After
                   Non-Recurring  Non-Recurring  Non-Recurring  Non-Recurring
                      Charges        Charges        Charges         Charges

                                            Unaudited

    Total Revenues   $2,010,044   $2,010,044      $1,808,528   $1,808,528

    Operating Profit    352,449      350,449 (B)     236,586      184,586  (C)

    Net Earnings        175,094      172,173 (B)      97,497       66,217  (C)

    Diluted Earnings
     Per Common Share      4.82         4.74 (B)        2.63         1.79  (C)

    EBITDA             $395,854     $393,854 (B)    $304,690     $252,690  (C)

(A) Including the effects of a pre-tax, non-recurring legal charge of

        $36.0 million associated with the settlement of class action gender
        discrimination lawsuits.

(B) Including the effects of a pre-tax legal charge of $2.0 million

        associated with the settlement of class action gender discrimination
        lawsuits and $2.9 million associated with the early retirement of
        debt.

(C) Including the effects of a pre-tax, non-recurring legal charge of

        $52.0 million associated with the settlement of class action gender
        discrimination lawsuits.


                     Rent-A-Center, Inc. and Subsidiaries

        Diluted Earnings Per Common Share before Goodwill Amortization

(In Thousands of Dollars,

except per share data)

Three Months Ended December 31,

                                          2002        2001          2001
                                                    Before          After
                                                 Non-Recurring  Non-Recurring
                                                 Legal Charges  Legal Charges

                                                     Unaudited

    Net Earnings                        $45,218      $26,020      $3,700   (A)

    Goodwill Amortization Net of
     Tax Effects                            ---        6,167       6,167

    Adjusted Net Earnings               $45,218      $32,187      $9,867   (A)

    Diluted Weighted Average Shares
     Outstanding                         35,917       36,965      36,965

    Diluted Earnings Per Common Share

    Before Goodwill Amortization          $1.26        $0.87       $0.27   (A)


                                   Twelve Months Ended December 31,

                             2002         2002        2001          2001

                         Before Non-   After Non-  Before Non-    After Non-
                          Recurring    Recurring    Recurring     Recurring
                           Charges      Charges   Legal Charges  Legal Charges

                                               Unaudited

    Net Earnings           $175,094   $172,173 (B)   $97,497    $66,217 (C)

    Goodwill Amortization
     Net of Tax Effects         ---        ---        24,892     24,892

    Adjusted Net Earnings  $175,094   $172,173 (B)  $122,389    $91,109 (C)

    Diluted Weighted
     Average Shares
     Outstanding             36,346     36,346        37,079     37,079

    Diluted Earnings Per
     Common Share Before
     Goodwill Amortization    $4.82      $4.74 (B)     $3.30      $2.46 (C)

(A) Including the effects of a pre-tax, non-recurring legal charge of

         $36.0 million associated with the settlement of class action gender
         discrimination lawsuits.

(B) Including the effects of a pre-tax legal charge of $2.0 million

         associated with the settlement of class action gender discrimination
         lawsuits and $2.9 million associated with the early retirement of
         debt.

(C) Including the effects of a pre-tax, non-recurring legal charge of

         $52.0 million associated with the settlement of class action gender
         discrimination lawsuits.

    Selected Balance Sheet Data:
     (in Thousands of Dollars)         December 31, 2002    December 31, 2001

    Cash and cash equivalent                 $85,723             $107,958
      Prepaid expenses and other assets       42,883               29,846
      Rental merchandise, net
        On rent                              510,184              531,627
        Held for rent                        120,072              122,074
      Total Assets                         1,616,052            1,619,920

      Senior debt                            249,500              428,000
      Subordinated notes payable, net        271,830              274,506
      Total Liabilities                      773,650              922,632
      Stockholders' Equity and Redeemable
        Preferred Stock                      842,402              697,288


                     Rent-A-Center, Inc. and Subsidiaries

                     CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands of Dollars,

expect per share data)

                                              Three Months Ended December 31,
                                                    2002            2001
    Store Revenues
      Rentals and Fees                           $472,472         $437,464
      Merchandise Sales                            27,169           22,293
      Installment Sales                             6,137              ---
      Other                                           847              598
                                                  506,625          460,355
    Franchise Revenues
      Franchise Merchandise Sales                  14,209           17,238
      Royalty Income and Fees                       1,379            1,400

        Total Revenues                            522,213          478,993

    Operating Expenses
      Direct Store Expenses
        Depreciation of Rental Merchandise        101,315           91,911
        Cost of Merchandise Sold                   21,678           18,363
        Cost of Installment Sales                   3,776              ---
        Salaries and Other Expenses               274,616          270,826
      Franchise Operation Expenses
        Cost of Franchise Merchandise Sales        13,587           16,430
                                                  414,972          397,530

      General and Administrative Expenses          15,569           14,582
      Amortization of Intangibles                   1,846            7,792
      Class Action Litigation Settlement              ---           36,000

        Total Operating Expenses                  432,387          455,904

        Operating Profit                           89,826           23,089

      Interest Expense                             15,117           13,659
      Interest Income                                (660)            (224)

        Earnings Before Income Taxes               75,369            9,654

    Income Tax Expense                             30,151            5,954

        NET EARNINGS                               45,218            3,700

      Preferred Dividends                               1            3,321

    NET EARNINGS ALLOCABLE TO COMMON
     STOCKHOLDERS                                 $45,217             $379

    BASIC WEIGHTED AVERAGE SHARES OUTSTANDING      34,955           26,087

    BASIC EARNINGS PER COMMON SHARE                 $1.29            $0.01

    DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING    35,917           36,965

    DILUTED EARNINGS PER COMMON SHARE               $1.26            $0.10


                     Rent-A-Center, Inc. and Subsidiaries

                     CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands of Dollars,

expect per share data)

                                                  Year Ended December 31,
                                                   2002             2001
    Store Revenues
      Rentals and Fees                         $1,828,534       $1,650,851
      Merchandise Sales                           115,478           94,733
      Installment Sales                             6,137              ---
      Other                                         2,589            3,476
                                                1,952,738        1,749,060
    Franchise Revenues
      Franchise Merchandise Sales                  51,514           53,584
      Royalty Income and Fees                       5,792            5,884

    Total Revenues                              2,010,044        1,808,528

    Operating Expenses
      Direct Store Expenses
        Depreciation of Rental Merchandise        383,400          343,197
        Cost of Merchandise Sold                   84,628           72,539
        Cost of Installment Sales                   3,776              ---
        Salaries and Other Expenses             1,070,265        1,019,402
      Franchise Operation Expenses
        Cost of Franchise Merchandise Sales        49,185           51,251

                                                1,591,254        1,486,389

      General and Administrative Expenses          63,296           55,359
      Amortization of Intangibles                   5,045           30,194
      Class Action Litigation Settlement              ---           52,000

        Total Operating Expenses                1,659,595        1,623,942

        Operating Profit                          350,449          184,586

      Interest Expense                             64,682           60,874
      Interest Income                              (2,676)          (1,094)

        Earnings Before Income Taxes              288,443          124,806

    Income Tax Expense                            116,270           58,589

        NET EARNINGS                              172,173           66,217

      Preferred Dividends                          10,212           15,408

    NET EARNINGS ALLOCABLE TO COMMON
     STOCKHOLDERS                                $161,961          $50,809

    BASIC WEIGHTED AVERAGE SHARES OUTSTANDING      29,383           25,846

    BASIC EARNINGS PER COMMON SHARE                 $5.51            $1.97

    DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING    36,346           37,079

    DILUTED EARNINGS PER COMMON SHARE               $4.74            $1.79

SOURCE Rent-A-Center, Inc.

-0- 02/10/2003

/CONTACT: Dave Carpenter, Director of Investor Relations, +1-972-801-1214, or dcarpenter@racenter.com , or Robert D. Davis, Chief Financial Officer, +1-972-801-1204, or rdavis@racenter.com , or Mitchell E. Fadel, President and COO, +1-972-801-1114, or mfadel@racenter.com , or Mark E. Speese, Chairman and CEO, +1-972-801-1199, or mspeese@racenter.com , all of Rent-A-Center, Inc./

/Web site: http://www.rentacenter.com/coinfo_calendar.asp