January 21, 2021

Rent-A-Center’s E-Commerce & Growth Strategies Bode Well

Resilient business model, focus on innovation, and continuous expansion in technology and omni-channel offerings have been driving Rent-A-Center, Inc. RCII’s performance. Strength in the company’s Rent-A-Center Business and Preferred Lease segments, which have been contributing to overall performance, also bodes well. Impressive lease-portfolio performance and customer-payment activity have been driving both businesses, even without additional government stimulus. As a result, management recently issued an upbeat outlook for the third quarter and raised outlook for 2020.

Let’s Delve Deep

Rent-A-Center has been making investments to enhance the omni-channel platform. This is likely to offer customers a seamless approach across channels, markets, products and brands. It has also been leveraging cloud-based point-of-sale platform to manage orders more efficiently, lower losses and cut operating costs. Apparently, e-commerce revenues surged 60% in the second quarter of 2020 and accounted for nearly 19% of the overall Rent-A-Center business revenues. Impressively, the e-commerce business is likely to account for more than 25% of the company’s revenues by this year.

The Acceptance Now, which is now known as the Preferred Lease segment, is benefiting from the implementation of the Preferred Lease virtual solution and contributions from the Merchants Preferred buyout. This wing is expected to keep thriving on gains from credit tightening in the competitive environment. For the third quarter of 2020, Preferred Lease business is expected to generate revenues in the range of $190-$200 million, up from $184.5 million reported in the year-ago period. Invoice volume for the segment is expected to increase 35% in the third quarter on a year-on-year basis.

In addition, the company’s efforts are reflected in the Rent-A-Center Business segment’s performance. Robust demand, better collections and increased digital-payment penetration has been aiding the segment. Encouragingly, revenues at Rent-A-Center Business are expected to be between $465 million and $475 million for third quarter, mirroring growth from $436.5 million recorded in the year-ago quarter. Further, same-store sales are expected to be between 10% and 12%, compared to an increase of 3.7% witnessed in the year-ago period.

Rent-A-Center’s robust e-commerce business, coupled with strength in both the aforesaid segments, is likely to continue driving overall performance. Apparently, consolidated revenues are projected to be between $695 million and $715 million for third quarter, reflecting an increase from $649.4 million delivered in the year-ago quarter. Further, adjusted earnings are anticipated between 95 cents and $1.05 per share, calling for growth from 47 cents reported in the prior-year quarter.

For 2020, Rent-A-Center expects revenues in the band of $2.780-$2.830 billion compared with the earlier view of $2.755-$2.875 billion. This indicates considerable growth from revenues of $2.670 billion recorded in 2019. Adjusted earnings are now expected in the bracket of $3.15-$3.45 per share, compared with the range of $2.45-$2.85 anticipated earlier. The renewed guidance suggests year-over-year growth of 40-54% from $2.24 earned in 2019. Notably, the guidance for the year takes into consideration the performance of all four segments, namely; Rent-A-Center Business, Preferred Lease, Mexico and Franchise. However, it excludes the effects of new franchising transactions.

All in all, Rent-A-Center is poised well for the future based on the aforementioned positive aspects including upbeat views for third quarter and 2020. A few other leading players in the broader Consumer Discretionary sector are Cimpress CMPR, HR Block HRB and BJ’s Wholesale Club BJ.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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