Rent-A-Center, Inc. Reports Third Quarter 2004 Results
PLANO, Texas--(BUSINESS WIRE)--Oct. 25, 2004--
Diluted Earnings per Share of $0.47, Excluding Charges;
Cash Flow from Operations of $84.4 Million;
Announces Prospective Settlement of Griego/Carrillo Litigation
Rent-A-Center, Inc. (the "Company") (Nasdaq/NNM:RCII), the nation's largest rent-to-own operator, today announced quarterly revenues and net earnings for the period ended September 30, 2004.
The Company reported total revenues for the quarter ended September 30, 2004 of $569.6 million, a $19.8 million increase from $549.8 million for the same period in the prior year. This increase of 3.6% in revenues was primarily driven by incremental revenues generated in new and acquired stores, offset by a decrease in same store sales of 5.5%.
Net earnings for the quarter ended September 30, 2004 were $37.6 million, or $0.47 per diluted share, when excluding the litigation and finance charges discussed below, representing a decrease of 17.5% from the $0.57 per diluted share, or net earnings of $48.5 million for the same period in the prior year, when excluding the finance charges discussed below. The decrease in earnings per diluted share is attributable to a decrease in same store sales and an increase in operating expenses related to new store openings and acquisitions offset by lower interest expense as well as a reduction in the number of the Company's outstanding shares.
Net earnings for the nine months ended September 30, 2004 were $141.0 million, or $1.73 per diluted share, when excluding the litigation and finance charges discussed below, representing a slight increase compared to $1.72 per diluted share, or net earnings of $151.7 million for the same period in the prior year, when excluding the finance charges discussed below. Total revenues for the nine months ended September 30, 2004 increased to $1.73 billion from $1.67 billion in 2003, representing an increase of 3.6%. Same store revenues for the nine-month period ending September 30, 2004 decreased by 3.4%.
"While we have seen an increase in total revenues, our net earnings have been negatively affected by the weakness in our same store sales, which we believe reflects, among other things, higher fuel and energy costs that disproportionately constrains demand among our customer base," commented Mark E. Speese, the Company's Chairman and Chief Executive Officer. Speese continued, "We are continuing to focus on profitably increasing our same store sales by implementing new marketing and advertising initiatives that incorporate key learnings from our recent testing. We are also testing new initiatives to improve our store operations." Speese added, "We also intend to continue pursuing our long term strategic initiative of increasing our market penetration by adding 5% to 10% annually to our store base."
Through the nine month period ended September 30, 2004, the Company generated cash flow from operations of approximately $284.1 million, while ending the quarter with $64.5 million of cash on hand. On September 28, 2004, the Company announced that its Board of Directors has increased the authorization for stock repurchases under the Company's common stock repurchase program to $300 million. Through the nine month period ended September 30, 2004, the Company repurchased 6,044,000 shares for $169.7 million in cash under the program and has utilized a total of $196.8 million of the total amount authorized by its Board of Directors since the inception of the plan.
During the third quarter of 2004, the Company opened 22 new locations and acquired 3 additional stores while consolidating 11 locations into existing stores. The Company also purchased accounts from 11 additional locations during the third quarter of 2004. Since September 30, 2004, the Company has opened 14 additional new stores.
The Company also announced today that it has reached a prospective settlement with the plaintiffs to resolve the Benjamin Griego, et al. v. Rent-A-Center, Inc., et al/Arthur Carrillo, et al. v. Rent-A-Center, Inc., et al coordinated matters pending in state court in San Diego, California. These matters challenge certain of the Company's business practices in California. Under the terms contemplated, the Company anticipates it will pay an aggregate of $37.5 million in cash, to be distributed to an agreed-upon class of Company customers from February 1999 through October 2004, as well as the plaintiffs' attorneys fees and costs to administer the settlement, in amounts to be determined. In addition, the Company anticipates issuing vouchers to qualified class members for two weeks free rent on a new rental agreement for merchandise of their choice. Under the terms of the prospective settlement, the Company would be entitled to any undistributed monies in the settlement fund up to an aggregate of $8.0 million, with any additional undistributed funds distributed to non-profit organizations to be determined. In connection with the prospective settlement, the Company is not admitting liability for its past business practices in California. To account for the aforementioned costs, as well as the Company's attorneys' fees, the Company recorded a pre-tax charge of $47.0 million in the third quarter of 2004.
The terms of the prospective settlement are subject to the parties entering into a definitive settlement agreement and obtaining court approval. While the Company believes that the terms of this prospective settlement are fair, there can be no assurance that the settlement, if completed, will be approved by the court in its present form.
During the third quarter of 2004, the Company recorded $47.0 million in pre-tax charges associated with the aforementioned Griego/Carrillo litigation and $4.2 million in pre-tax charges associated with the refinancing of its senior credit facility. These charges reduced diluted earnings per share in the third quarter of 2004 by $0.40, $0.37 for the litigation charge and $0.03 for the refinancing charge, from $0.47 per diluted earnings per share to the reported diluted earnings per share of $0.07. Additionally, these charges reduced diluted earnings per share for the nine month period ended September 30, 2004 by $0.39 to the reported diluted earnings per share of $1.34.
Furthermore, during the third quarter of 2003, the Company recorded $7.5 million in pre-tax charges associated with its recapitalization. These charges reduced diluted earnings per share in the third quarter of 2003 by $0.05 to the reported diluted earnings per share of $0.52. In addition to the $7.5 million in pre-tax charges, there were $27.8 million in pre-tax charges for recapitalization in the second quarter of 2003. Combined, these charges reduced diluted earnings per share for the nine month period ended September 30, 2003 by $0.25 to the reported diluted earnings per share of $1.47.
Rent-A-Center, Inc. will host a conference call to discuss the third quarter financial results and other business updates on Tuesday morning, October 26, 2004 at 10:45 a.m. EDT. 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 currently operates 2,874 company-owned stores nationwide and in Canada and 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 franchisor of 316 rent-to-own stores, 304 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 any repurchases of common stock the Company may make or the potential impact of store acquisitions that may be completed after October 25, 2004.
FOURTH QUARTER 2004 GUIDANCE:
Revenues
-- The Company expects total revenues to be in the range of $583
million to $588 million.
-- Store rental and fee revenues are expected to be between $527
million and $532 million.
-- Total store revenues are expected to be in the range of $570
million to $575 million.
-- Same store sales are expected to be in the (2.5%) to (3.5%)
range.
-- The Company expects to open 25-30 new store locations.
Expenses
-- The Company expects cost of rental and fees to be between
21.3% and 21.7% 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 56.5% and 58.0% of total store revenue.
-- General and administrative expenses are expected to be between
3.3% and 3.5% of total revenue.
-- Net interest expense is expected to be approximately $9.0
million and amortization is expected to be approximately $2.5
million.
-- The effective tax rate is expected to be approximately 38.0%
of pre-tax income.
-- Diluted earnings per share are estimated to be in the range of
$0.55 to $0.57.
-- Diluted shares outstanding are estimated to be between 78.0
million and 79.0 million shares.
FISCAL 2005 GUIDANCE:
Revenues
-- The Company expects total revenues to be in the range of $2.40
billion and $2.43 billion.
-- Store rental and fee revenues are expected to be between
$2.157 billion and $2.182 billion.
-- Total store revenues are expected to be in the range of $2.359
billion and $2.384 billion.
-- Same store sales are expected to be in the flat to (2.0%)
range.
-- The Company expects to open approximately 100 new store
locations.
Expenses
-- The Company expects cost of rental and fees to be between
21.2% and 21.6% 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 56.0% and 57.5% of total store revenue.
-- General and administrative expenses are expected to be between
3.3% and 3.5% of total revenue.
-- Net interest expense is expected to be between $35.0 million
and $40.0 million and amortization of intangibles is expected
to be approximately $7.0 million.
-- The effective tax rate is expected to be approximately 38.0%
of pre-tax income.
-- Diluted earnings per share are estimated to be in the range of
$2.30 to $2.40.
-- Diluted shares outstanding are estimated to be between 79.0
million and 80.0 million shares.
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; the Company's ability to control store level costs; 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; 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; changes in fuel prices; the negotiation of the definitive settlement documentation with respect to the prospective settlement; the court hearing the Griego/Carrillo matters could refuse to approve the settlement or could require changes to the settlement that are unacceptable to the Company or the plaintiffs; 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/A for the year ended December 31, 2003, and its quarterly reports on Form 10-Q/A for the three month period ended March 31, 2004 and the Form 10-Q for the six month period ending June 30, 2004. 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
(In Thousands of Dollars, except per share data)
Three Months Ended September 30,
------------------------------------------------
2004 2004 2003 2003
---------- ------------ ----------- -----------
Before After
Litigation Litigation Before After
& Finance & Finance Finance Finance
Charges Charges Charges Charges
---------- ------------ ---------- -----------
Total Revenue $569,607 $569,607 $549,825 $549,825
Operating Profit 71,344 24,344 87,502 87,502
Net Earnings 37,552 5,573(1) 48,469 43,738(2)
Diluted Earnings
per Common Share $0.47 $0.07(1) $0.57 $0.52(2)
EBITDA $86,608 $86,608 $101,801 $101,801
Reconciliation to
EBITDA:
Reported earnings
before income taxes 62,821 11,648 77,242 69,730
Add back:
Litigation
Settlement -- 47,000 -- --
Finance charge
from
recapitalization -- 4,173 -- 7,512
Interest expense,
net 8,523 8,523 10,260 10,260
Depreciation of
property assets 12,508 12,508 11,116 11,116
Amortization of
intangibles 2,756 2,756 3,183 3,183
-------- ------------ ----------- -----------
EBITDA $86,608 $86,608 $101,801 $101,801
Nine Months Ended September 30,
-----------------------------------------------
2004 2004 2003 2003
---------- ------------ ----------- -----------
Before After
Litigation Litigation Before After
& Finance & Finance Finance Finance
Charges Charges Charges Charges
---------- ------------ ----------- -----------
Total Revenue $1,727,972 $1,727,972 $1,669,491 $1,669,491
Operating Profit 254,226 207,226 281,031 281,031
Net Earnings 140,955 108,976(1) 151,721 129,997(3)
Diluted Earnings
per Common Share $1.73 $1.34(1) $1.72 $1.47(3)
EBITDA $298,219 $298,219 $322,451 $322,451
Reconciliation to
EBITDA:
Reported earnings
before income taxes 228,083 176,910 246,157 210,897
Add back:
Litigation
Settlement -- 47,000 -- --
Finance charge
from
recapitalization -- 4,173 -- 35,260
Interest expense,
net 26,143 26,143 34,874 34,874
Depreciation of
property assets 35,591 35,591 32,068 32,068
Amortization of
intangibles 8,402 8,402 9,352 9,352
----------- ------------ ----------- -----------
EBITDA $298,219 $298,219 $322,451 $322,451
(1) Including the effects of $47.0 million in pre-tax charges
associated with the Griego/Carrillo litigation and $4.2
million in pre-tax charges associated with refinancing of the
Company's senior credit facility. These charges reduced
diluted earnings per share in the third quarter of 2004 by
$0.40, $0.37 for the litigation charge and $0.03 for the
refinancing charge, to the reported diluted earnings per share
of $0.07. Additionally, these charges reduced diluted earnings
per share for the nine month period ended September 30, 2004
by $0.39 to the reported diluted earnings per share of $1.34.
(2) Including the effects of a pre-tax finance charge of $7.5
million associated with the recapitalization of the Company.
These charges reduced diluted earnings per share in the third
quarter of 2003 by $0.05 from $0.57 per diluted share to
$0.52.
(3) Including the effects of a pre-tax finance charge of $35.3
million associated with the recapitalization of the Company.
These charges reduced diluted earnings per share for the nine
month period ending September 30, 2003 by $0.25 from $1.72 per
diluted share to $1.47.
Selected Balance Sheet Data: (in Thousands of Dollars)
September 30, 2004 September 30, 2003
------------------ ------------------
Cash and cash equivalents $ 64,521 $ 155,974
Prepaid expenses and other
assets 47,387 29,880
Rental merchandise, net
On rent 555,024 508,183
Held for rent 162,489 133,732
Total Assets 1,906,164 1,748,721
Senior debt 399,125 399,000
Subordinated notes payable 300,000 300,000
Total Liabilities 1,128,919 986,248
Stockholders' Equity 777,245 762,473
Rent-A-Center, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands of Dollars, except per share data) Three Months Ended
September 30,
-------------------
2004 2003
--------- ---------
Unaudited
Store Revenue
Rentals and Fees $516,576 $497,881
Merchandise Sales 36,265 34,453
Installment Sales 5,469 4,633
Other 919 697
--------- ---------
559,229 537,664
Franchise Revenue
Franchise Merchandise Sales 8,967 10,754
Royalty Income and Fees 1,411 1,407
--------- ---------
Total Revenue 569,607 549,825
Operating Expenses
Direct Store Expenses
Cost of Rental and Fees 112,582 107,777
Cost of Merchandise Sold 26,978 25,901
Cost of Installment Sales 2,180 2,120
Salaries and Other Expenses 326,410 296,427
Franchise Operation Expenses
Cost of Franchise Merchandise Sales 8,585 10,298
--------- ---------
476,735 442,523
General and Administrative Expenses 18,772 16,617
Amortization of Intangibles 2,756 3,183
Class Action Litigation Settlement 47,000 --
--------- ---------
Total Operating Expenses 545,263 462,323
--------- ---------
Operating Profit 24,344 87,502
Finance Charge from Recapitalization 4,173 7,512
Interest Income (1,391) (1,305)
Interest Expense 9,914 11,565
--------- ---------
Earnings before Income Taxes 11,648 69,730
Income Tax Expense 6,075 25,992
--------- ---------
NET EARNINGS 5,573 43,738
Preferred Dividends -- --
--------- ---------
Net earnings allocable to common stockholders $5,573 $43,738
========= =========
BASIC WEIGHTED AVERAGE SHARES 77,989 81,253
========= =========
BASIC EARNINGS PER COMMON SHARE $0.07 $0.54
========= =========
DILUTED WEIGHTED AVERAGE SHARES 79,928 84,406
========= =========
DILUTED EARNINGS PER COMMON SHARE $0.07 $0.52
========= =========
Rent-A-Center, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands of Dollars, except per Nine Months Ended
share data) September 30,
-----------------------
2004 2003
----------- -----------
Unaudited
Store Revenue
Rentals and Fees $1,541,459 $1,495,652
Merchandise Sales 130,287 119,645
Installment Sales 17,968 15,423
Other 2,966 2,224
----------- -----------
1,692,680 1,632,944
Franchise Revenue
Franchise Merchandise Sales 31,099 32,087
Royalty Income and Fees 4,193 4,460
----------- -----------
Total Revenue 1,727,972 1,669,491
Operating Expenses
Direct Store Expenses
Cost of Rental and Fees 333,868 323,778
Cost of Merchandise Sold 91,081 86,684
Cost of Installment Sales 7,802 7,441
Salaries and Other Expenses 946,552 880,649
Franchise Operation Expenses
Cost of Franchise Merchandise Sales 29,691 30,795
----------- -----------
1,408,994 1,329,347
General and Administrative Expenses 56,350 49,761
Amortization of Intangibles 8,402 9,352
Class Action Litigation Settlement 47,000 --
----------- -----------
Total Operating Expenses 1,520,746 1,388,460
----------- -----------
Operating Profit 207,226 281,031
Finance Charge from Recapitalization 4,173 35,260
Interest Income (4,382) (3,284)
Interest Expense 30,525 38,158
----------- -----------
Earnings before Income Taxes 176,910 210,897
Income Tax Expense 67,934 80,900
----------- -----------
NET EARNINGS 108,976 129,997
Preferred Dividends -- --
----------- -----------
Net earnings allocable to common stockholders $108,976 $129,997
=========== ===========
BASIC WEIGHTED AVERAGE SHARES 79,246 85,331
=========== ===========
BASIC EARNINGS PER COMMON SHARE $1.38 $1.52
=========== ===========
DILUTED WEIGHTED AVERAGE SHARES 81,598 88,337
=========== ===========
DILUTED EARNINGS PER COMMON SHARE $1.34 $1.47
=========== ===========
CONTACT: Rent-A-Center, Inc., Plano
David E. Carpenter, 972-801-1214
dcarpenter@racenter.com
SOURCE: Rent-A-Center, Inc.