Image source: Rent-A-Center.
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Shares of Rent-A-Center (NASDAQ: RCII), a North American rent-to-own business offering products such as consumer electronics, appliances, and furniture, were down as much as 11% in early Thursday trading, before recovering some losses, after releasing disappointing third-quarter results.
Looking at the top line, which fell short of consensus estimates for the fifth consecutive quarter, consolidated total revenue dropped 12.3% to $693.9 million on the back of an 8.4% decline in same-store sales. The company's EBITDA as a percent of total revenue declined 370 basis points down to 5.4% while its operating margins were down 400 basis points to 2.5% -- ouch. Excluding special items, diluted earnings per share checked in at $0.11, which was ahead of estimates calling for $0.09 per share but down significantly from the prior-year result of $0.47 per share.
CEO Robert Davis tried his best to put a positive spin on the third quarter. "While certainly the third-quarter results were very disappointing and the macro environment continues to provide challenges and headwinds, we successfully rolled out e-commerce in October, and we have made significant progress in readying our organization for piloting with several large national retailers in Acceptance Now."
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This poor performance shouldn't come as much of a surprise after the stock plunged on its second-quarter results and an ensuing guidance reduction. Additionally, the company's unexpected capacity-related system outages following the implementation of its new information management system had a large impact on the bottom line. While the information system woes should be short term, Rent-A-Center has been a poor investment: Its stock is down 73% over the past five years, with much of that happening in the past 12 months. Sure, a lot of the negativity is priced in, but developing a bullish thesis for the company is a tough task -- better investments exist.
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