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Rent-A-Center Issues Upbeat Q3 Outlook, Raises 2020 View

Rent-A-Center, Inc. RCII is among the few stocks with an optimistic view for the year, despite the coronavirus crisis. This popular rent-to-own and leasing services company raised its 2020 outlook and provided an optimistic guidance for the third quarter. Management’s buoyant approach is backed by continued strong business performance, especially in the Rent-A-Center and Preferred Lease segments.

Investors savored the company’s latest move, as shares increased 2.7% in yesterday’s trading session. Well, this Zacks Rank #2 (Buy) stock has gained 12.2% in the past three months against the industry’s 1% drop.

2020 View Raised

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. The Zacks Consensus Estimate for revenues for 2020 is currently pegged at $2.79 billion. Further, the company expects adjusted EBITDA in the range of $295-$320 million, suggesting a rise from the earlier anticipated range of $255-$285 million. In 2019, adjusted EBITDA came in at $254.2 million.

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. The Zacks Consensus Estimate for earnings for 2020 is currently pegged at $2.75. The company now projects free cash flow in the band of $155-$180 million, up from the range of $135-$165 million provided earlier.

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.

Q3 Expectations Upbeat

For the third quarter, Rent-A-Center expects consolidated revenues to be between $695 million and $715 million, reflecting an increase from $649.4 million delivered in the year-ago quarter. The Zacks Consensus Estimate for third-quarter revenues is currently pegged at $685.4 million.

Adjusted EBITDA for the impending quarter is expected between $85 million and $95 million. 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. The Zacks Consensus Estimate for earnings in the third quarter is currently pegged at 61 cents.

The company also provided views on the performance of Rent-A-Center and Preferred Lease segments in the third quarter. In respect of Rent-A-Center business, revenues are expected to be between $465 million and $475 million, while same store sales are expected to be between 10% and 12%. Preferred Lease business is expected to generate revenues in the range of $190-$200 million. Invoice volume for the segment is expected to increase 35% in the third quarter on a year-on-year basis. Additionally, management indicated that Lease portfolio performance and customer payment activity have been sturdy in both businesses, even without additional government stimulus.

Wrapping Up

We expect the company to continue gaining from its well-chalked efforts to maximize value for customers and retail partners. In this context, efforts such as optimizing rental merchandise levels, cost-saving plans and enhancing omni-channel offerings are likely to keep yielding. Markedly, the company has been broadening its e-commerce services and leveraging cloud-based point-of-sale platform to manage orders more efficiently. Also, the implementation of Preferred Lease virtual solution and contributions from the buyout of Merchants Preferred are likely to continue as upsides.

More Solid Consumer Discretionary Bets

Cimpress CMPR has a long-term earnings-growth rate of 20% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Croc CROX, also a Zacks Rank #1 stock, has a long-term earnings-growth rate of 15%.

Prestige Consumer Healthcare PBH has a long-term earnings-growth rate of 4% and a Zacks Rank #2.

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RentACenter, Inc. (RCII): Free Stock Analysis Report
 
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