Why Rent-A-Center, Inc. Stock Tumbled Today

By Jeremy Bowman Markets Fool.com

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Image source: The Motley Fool.

What happened

Shares of rent-to-own retailerRent-A-Center, Inc.(NASDAQ: RCII) were getting hammered again today after the company issued a disappointing preliminary earnings report. As of 11:31 a.m. EST, the stock was down 14.7%.

So what

Rent-A-Center said comparable sales at its Core U.S. business, which makes approximately half of its store count, fell 14.2%, while comps at its Acceptance Now stores, its more promising segment, increased 1%-2%. It also said it expected to post a loss of $0.20-$0.30 per share, much worse than expectations of a per-share profit of $0.10. In the quarter a year ago, Rent-A-Center made a profit of $0.54 per share.

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Interim CEO Mark Speese said, "The fourth quarter proved to be more challenging than expected.In our Core Rent-A-Center stores, recovery from the POS (point-of-sale) system issues in recapturing the rental portfolio lost during prior periods and account management improvement did not happen as quickly as planned."

Now what

The fourth-quarter report is only the latest problem for Rent-A-Center, whose shares fell 25% last year leading to the firing of former CEO Robert Davis earlier this month. Its POS problems began last quarter, and it said it would take several quarters to fully eliminate the problems caused by the switch to a new POS system. That switch seemed to be the major cause for the comparable-sales drop, and the stock fell to a 10-year low on the news.

If those challenges prove to be temporary, the drop could set up a buying opportunity, but at this point, it looks like Rent-A-Center has a few more tough quarters ahead of it.

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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. The Motley Fool has a disclosure policy.