August 5, 2020 | 2:45 PM by Jaguar | avo@jaguaranalytics.com

Rent-A-Center (RCII) – 2Q Preview

Rent-A-Center (RCII) – The rent-to-own operator will be reporting tonight after the close: yesterday there were buyers of August 31 and 35 calls, over 1,000 contracts each reflected in open interest today, and more volume in August 31, 32, 33 and 35 calls at this time.

Back in May the company reported 1Q EPS of $0.67 vs $0.58 estimates and revenue was $701.9M vs $702.82M consensus. Same-store-sales were up 1.7% in a challenging period that had seen many of its stores being shut down: March revenue alone was down 5% YoY.

A bullish note from Stifel in early-June summarized management’s expectations and commentary where they said Rent-A-Center would be able to “outperform other retailers” during recessions due to the fact that while traditional lenders tend to pull back on credit, Rent-A-Center does not as its business is lease-to-own – this was said to actually push more clients to their stores, especially since rented appliances, furniture and other household devices can be returned if affordability is an issue.

Management also noted that in the early stages of lockdowns, product mix had shifted “heavily” into appliances and electronics based on demand. Later on furniture demand took over the top category spot, with “pent-up demand” which apparently was unexpected – we have seen similar results from the bedding industry as well as the home appliance market.

At the start of June all showrooms had been re-opened and there haven’t been any new closures to note, based on lack of press releases. Retail partners were also expected to be fully back in operation back in late-June.

In late-June Rent-A-Center announced a partnership with ChargeAfter, a market-leading platform that connects retailers and lenders to offer consumers personalized financing options at checkout from multiple lenders. The company states that, through their growing network of global lenders, up to 85% of applications can be approved “in real-time”. Rent-A-Center’s own “Preferred Lease” option can be added to ChargeAfter’s point of sale setup, giving clients another option for financing or buying outright. This could increase revenue from this stream which experienced 4.2% growth QoQ to $547M.

Most recently, on June 29th Rent-A-Center announced a $0.29 quarterly dividend for 3Q2020, paid out on July 28th. At the same time they mentioned that sales trends and recurring revenue portfolio performance remained “stronger than [we] expected” when business disruptions began, adding that “tremendous growth” has transpired in their eCommerce business while confirming that (at the time) all retail locations were still open, including partners’. They also were able to fully repay their revolver credit and had approximately $195M at the end of 2Q.

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