Shares of Rent-A-Center Dip After Poor Third-Quarter Report

By Markets Fool.com


Image source: Rent-A-Center.

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What happened

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.

So what

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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Now what

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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Daniel Miller 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.