Why Rent-to-Own Retailer Stocks Tumbled Today

By Markets Fool.com

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What happened

Investors were dumping shares of Rent-A-Center Inc(NASDAQ: RCII) Tuesday after the rent-to-own specialist issued downbeat preliminary earnings guidance. As of 12:38 p.m. EDT, the stock was down 29.2%.

So what

For the third quarter, which ended Sept. 30, the company said it expected core U.S. same-store sales to be down 12%, and comparable sales at its Acceptance Now stores to be flat. Adjusted EPS are now expected to be $0.05 to $0.15, down from $0.47 a year ago. Analysts had projected earnings of $0.39 per share for the quarter past.

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"Following the implementation of our new point-of-sale system, we experienced system performance issues and outages that resulted in a larger than expected negative impact on Core sales," CEO Robert Davis said. "While we expect it to take several quarters to fully recover from the impact to the Core portfolio, system performance has improved dramatically and we have started to see early indicators of collections improvement."

Now what

From the statement above, it sounds like the plunging comparable sales were the result of a temporary tech hiccup rather than a more fundamental trend. However, the weak report brought down shares of peers likeAaron's(NYSE: AAN), which fell 10%, andConns (NASDAQ: CONN), which dropped was down 4%.

Investors may have to wait until those companies report earnings to learn if this is an industrywide trend. After Tuesday's drop, Rent-A-Center shares sit a P/E of around six, meaning there could be significant upside potential if the company bounces back. We'll learn more when Rent-A-Center deliver its full earnings report on Oct. 26.

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Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.