Why Rent-A-Center Shares Crashed Tuesday

What: Shares of household goods leasing company Rent-A-Center were down 28% at just before noon Tuesday after its quarterly results and outlook disappointed Wall Street.

So what: Rent-A-Center shares have slumped over the past year on a string of disappointing quarters, and today's Q3 results -- loss of $4.1 million on a revenue increase of just 3.6% -- coupled with downbeat guidance suggests that things aren't picking up anytime soon. While the company's Acceptance Now division -- which operates rent-to-own kiosks within third-party retail outlets -- continues to gain traction, gross margins and core same-store sales remain under heavy pressure, reinforcing concerns over Rent-A-Center's financial and competitive position.

Now what: Management now expects EPS of $0.52-$0.62 in Q4, well below the consensus estimate of $0.68. "The third quarter again reinforces our focus on improving returns on our existing assets, in order to fund higher return growth initiatives," said CEO Robert Davis. "The Acceptance Now location count increased 15 percent this quarter driven primarily by adding direct locations. While we believe the staffed model will continue to be the gold standard for the industry, given its superior ability to drive volume and profit dollars, our direct channel enables the expansion of our offering to lower volume locations and broadens our scope of potential retailers." With the stock now off about 50% from its 52-week highs and trading at a paltry forward P/E of 7, value-hounds might even want to use today's big pullback to buy into that bullishness.

The article Why Rent-A-Center Shares Crashed Tuesday originally appeared on Fool.com.

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