Rent-A-Center, Inc. Reports Second Quarter 2006 Results; Same Store Sales Increase 1.1% Reported Diluted Earnings per Share of $0.56
PLANO, Texas, Jul 24, 2006 (BUSINESS WIRE) -- Rent-A-Center, Inc. (the "Company") (Nasdaq:RCII), the nation's largest rent-to-own operator, today announced revenues and net earnings for the quarter ended June 30, 2006.
Second Quarter 2006 Results
The Company reported total revenues for the quarter ended June 30, 2006 of $583.6 million, a $3.0 million increase from $580.6 million for the same period in the prior year. This increase of 0.5% in revenues was primarily driven by a 1.1% increase in same store sales plus an increase in incremental revenues generated in new and acquired stores, offset by the revenue lost from stores that were closed or sold during the previous twelve months.
Reported net earnings for the quarter ended June 30, 2006 were $39.8 million, or $0.56 per diluted share, representing an increase of 7.7% from the $0.52 per diluted share, or net earnings of $39.6 million for the same period in the prior year, when excluding the benefit of the 2005 tax audit reserve credit discussed below. The increase in reported net earnings per diluted share is primarily attributable to the increase in same store sales, as well as the reduction in the number of the Company's outstanding shares, offset by increases in normal operating costs, such as utility and fuel costs, and expenses related to stock options. When including the 2005 tax audit reserve credit discussed below, reported net earnings per diluted share for the quarter increased 1.8% from the $0.55 per diluted share, or reported net earnings of $41.7 million for the same period in the prior year.
Reported net earnings per diluted share also increased as a result of a $2.0 million insurance reserve credit resulting from the use of certain company specific loss development factors developed by independent actuaries, rather than the general industry loss development factors previously used by the Company. The $2.0 million insurance reserve credit had an approximate $0.02 per diluted share benefit in the quarter ended June 30, 2006.
"Our second quarter same store sales continued a positive trend in 2006," commented Mark E. Speese, the Company's Chairman and Chief Executive Officer. "Our same store sales increased 1.1% for the quarter, which is primarily related to changes in our promotional activities as well as an increase in the number of units on rent," Speese continued. "In addition, we believe our customer has adjusted to the current level of fuel costs. As a result of these factors, we are raising our fiscal 2006 guidance to $2.08 to $2.15 diluted earnings per share from $2.00 to $2.10," Speese stated.
Six Months Ended June 30, 2006 Results
Total reported revenues for the six months ended June 30, 2006 increased to $1.191 billion, a 0.8% increase from $1.182 billion for the same period in the prior year. Same store revenues for the six month period ending June 30, 2006 increased 1.4%.
Reported net earnings for the six months ended June 30, 2006 were $80.2 million, or $1.14 per diluted share, representing an increase of 5.6% from the $1.08 per diluted share, or net earnings of $82.3 million for the same period in the prior year, when excluding the benefit of the 2005 tax audit reserve and litigation reversion credits discussed below. When including these benefits in 2005, reported net earnings per diluted share for the six months ended June 30, 2006 decreased 3.4% from the $1.18 per diluted share, or reported net earnings of $89.4 million for the same period in the prior year.
Through the six month period ended June 30, 2006, the Company generated cash flow from operations of approximately $35.0 million, while ending the quarter with $41.2 million of cash on hand. During the six month period ended June 30, 2006, the Company repurchased 202,800 shares of its common stock for $4.7 million in cash under its common stock repurchase program and has utilized a total of $360.8 million of the $400 million authorized by its Board of Directors since the inception of the plan.
Operations Highlights
During the second quarter of 2006, the Company opened 9 new rent-to-own store locations, acquired 16 stores as well as accounts from 15 additional locations, consolidated 19 stores into existing locations, and sold 12 stores, for a net reduction of six stores and an ending balance of 2,749 stores. During the second quarter of 2006, the Company added financial services to 21 existing rent-to-own store locations and ended the quarter with a total of 77 stores providing these services.
Through the six month period ending June 30, 2006, the Company opened 19 new rent-to-own store locations, acquired 18 stores as well as accounts from 20 additional locations, consolidated 33 stores into existing locations, and sold 15 stores, for a net reduction of 11 stores. Through the six month period ending June 30, 2006, the Company added financial services to 38 existing rent-to-own store locations and consolidated one store with financial services into an existing location, for a net addition of 37 stores providing these services.
Since June 30, 2006, the Company has opened 1 new rent-to-own store location and acquired 1 store, as well as accounts from 4 additional locations. The Company has added financial services to 4 existing rent-to-own store locations since June 30, 2006.
2005 Reserve Adjustment Credits
2005 Tax Audit Reserve Credit. During the second quarter of 2005, the Company recorded a $2.0 million tax audit reserve credit associated with the examination and favorable resolution of the Company's 1998 and 1999 federal tax returns. The tax audit reserve credit increased diluted earnings per share in the second quarter of 2005 by $0.03, from $0.52 per diluted earnings per share to the reported diluted earnings per share of $0.55.
2005 Litigation Reversion Credit. In addition, the Company recorded an $8.0 million pre-tax credit in the first quarter of 2005 associated with the settlement of the Griego/Carrillo litigation. This pre-tax litigation reversion credit increased diluted earnings per share for the six month period ended June 30, 2005 by $0.07. The litigation reversion credit, combined with the tax audit reserve credit in the second quarter of 2005, increased diluted earnings per share for the six month period ended June 30, 2005 by $0.10 to the reported diluted earnings per share of $1.18.
Rent-A-Center will host a conference call to discuss the first quarter results on Tuesday morning, July 25, 2006, at 10:45 a.m. EST. For a live webcast of the call, visit http://investor.rentacenter.com. Certain financial and other statistical information that will be discussed during the conference call will also be provided on the same website.
Rent-A-Center, Inc., headquartered in Plano, Texas, currently operates 2,751 company-owned stores nationwide and in Canada and Puerto Rico. The stores generally offer high-quality, durable goods such as major consumer electronics, appliances, computers and furniture and accessories under flexible rental purchase agreements that generally allow the customer to obtain ownership of the merchandise at the conclusion of an agreed upon rental period. ColorTyme, Inc., a wholly owned subsidiary of the Company, is a national franchiser of 292 rent-to-own stores, 284 of which operate under the trade name of "ColorTyme," and the remaining 8 of which operate under the "Rent-A-Center" name.
The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially. These statements do not include the potential impact of any repurchases of common stock the Company may make, the estimated $2.2 million non-cash charge in the third quarter to write off the remaining unamortized balance of financing costs from our previous credit agreement, or the potential impact of acquisitions or dispositions that may be completed after July 24, 2006.
THIRD QUARTER 2006 GUIDANCE:
Revenues
-- The Company expects total revenues to be in the range of $584 million to $592 million.
-- Store rental and fee revenues are expected to be between $528 million and $534 million.
-- Total store revenues are expected to be in the range of $575 million to $583 million.
-- Same store sales are expected to be in the 2.5% to 3.5% range.
-- The Company expects to open 5-15 new rent-to-own store locations.
-- The Company expects to add financial services to 20-30 rent-to-own store locations.
Expenses
-- The Company expects cost of rental and fees to be between 21.7% and 22.1% of store rental and fee revenue and cost of merchandise sold to be between 73% and 78% of store merchandise sales.
-- Store salaries and other expenses are expected to be in the range of 58.5% to 60.0% of total store revenue.
-- General and administrative expenses are expected to be between 3.6% and 3.8% of total revenue.
-- Net interest expense is expected to be approximately $12.0 million, depreciation of property assets to be approximately $13.5 million and amortization of intangibles is expected to be approximately $1.1 million.
-- The effective tax rate is expected to be approximately 37.0% of pre-tax income.
-- Diluted earnings per share are estimated to be in the range of $0.46 to $0.50.
-- Diluted shares outstanding are estimated to be between 70.5 million and 71.5 million.
FISCAL 2006 GUIDANCE:
Revenues
-- The Company expects total revenues to be in the range of $2.360 billion and $2.380 billion.
-- Store rental and fee revenues are expected to be between $2.100 billion and $2.118 billion.
-- Total store revenues are expected to be in the range of $2.318 billion and $2.338 billion.
-- Same store sales are expected to be in the 1.0% to 2.0% range.
-- The Company expects to open 60-70 new store locations.
-- The Company expects to add financial services to 100-120 rent-to-own store locations.
Expenses
-- The Company expects cost of rental and fees to be between 21.6% and 22.0% of store rental and fee revenue and cost of merchandise sold to be between 70% and 75% of store merchandise sales.
-- Store salaries and other expenses are expected to be in the range of 57.5% to 59.0% of total store revenue.
-- General and administrative expenses are expected to be between 3.6% and 3.8% of total revenue.
-- Net interest expense is expected to be between $43.0 million and $48.0 million, depreciation of property assets is expected to be between $52.0 million and $57.0 million and amortization of intangibles is expected to be approximately $4.0 million.
-- The effective tax rate is expected to be approximately 37.0% of pre-tax income.
-- Diluted earnings per share are estimated to be in the range of $2.08 to $2.15.
-- Diluted shares outstanding are estimated to be between 70.0 million and 71.5 million.
This press release and the guidance above contain forward-looking statements that involve risks and uncertainties. Such forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "could," "estimate," "should," "anticipate," or "believe," or the negative thereof or variations thereon or similar terminology. Although the Company believes that the expectations reflected in such forward-looking statements will prove to be correct, the Company can give no assurance that such expectations will prove to have been correct. The actual future performance of the Company could differ materially from such statements. Factors that could cause or contribute to such differences include, but are not limited to: uncertainties regarding the Company's ability to open new rent-to-own stores; the Company's ability to acquire additional rent-to-own stores on favorable terms; the Company's ability to enhance the performance of these acquired stores; the Company's ability to control store level costs; the Company's ability to identify and successfully market products and services that appeal to the Company's customer demographic; the Company's ability to identify and successfully enter into new lines of business offering products and services that appeal to the Company's customer demographic, including the Company's financial services products; the results of the Company's litigation; the passage of legislation adversely affecting the rent-to-own or financial services industries; interest rates; the Company's ability to enter into new and collect on the Company's rental purchase agreements; the Company's ability to enter into new and collect on the Company's short term loans; economic pressures affecting the disposable income available to the Company's targeted consumers, such as high fuel and utility costs; changes in estimates with respect to self insurance liabilities and income tax reserves; changes in the Company's effective tax rate; the Company's ability to maintain an effective system of internal controls; changes in the number of share-based compensation grants, methods used to value future share-based payments and changes in estimated forfeiture rates with respect to share-based compensation; changes in the Company's stock price and the number of shares of common stock that we may or may not repurchase; and other risks detailed from time to time in the Company's SEC reports, including but not limited to, the Company's annual report on Form 10-K for the year ended December 31, 2005 and its quarterly report on Form 10-Q for the quarter ended March 31, 2006. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Except as required by law, the Company is not obligated to publicly release any revisions to these forward-looking statements to reflect the events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events.
Rent-A-Center, Inc. and Subsidiaries
STATEMENT OF EARNINGS HIGHLIGHTS
(In Thousands of Dollars, Three Months Ended June 30,
except per share data) ------------------------------------
2006 2005 2005
------------------------------------
Before Tax After Tax
Audit Audit
Reserve Reserve
Credit Credit
------------------------------------
Total Revenue $583,623 $580,578 $580,578
Operating Profit 75,193 72,988 72,988
Net Earnings 39,843 39,620 41,742 (1)
Diluted Earnings per Common
Share $0.56 $0.52 $0.55 (1)
EBITDA $89,670 $88,414 $88,414
Reconciliation to EBITDA:
Reported earnings before income
taxes 63,291 63,553 63,553
Add back:
Interest expense, net 11,902 9,435 9,435
Depreciation of property
assets 13,527 13,271 13,271
Amortization of intangibles 950 2,155 2,155
------------------------------------
EBITDA $89,670 $88,414 $88,414
Six Months Ended June 30,
------------------------------------
2006 2005 2005
------------------------------------
Before Tax After Tax
Audit Audit
Reserve Reserve and
and Litigation
Litigation Credits
Credits
------------------------------------
Total Revenue $1,190,598 $1,182,387 $1,182,387
Operating Profit 150,677 150,980 158,980
Net Earnings 80,171 82,305 89,411 (2)
Diluted Earnings per Common
Share $1.14 $1.08 $1.18 (2)
EBITDA $179,507 $181,966 $181,966
Reconciliation to EBITDA:
Reported earnings before income
taxes 127,212 132,079 140,079
Add back:
Litigation Reversion -- -- (8,000)
Interest expense, net 23,465 18,901 18,901
Depreciation of property
assets 26,994 26,534 26,534
Amortization of intangibles 1,836 4,452 4,452
------------------------------------
EBITDA $179,507 $181,966 $181,966
(1) Including the effects of a $2.0 million tax audit reserve
credit associated with the examination and favorable
resolution of the Company's 1998 and 1999 federal tax returns.
This credit increased diluted earnings per share in the second
quarter by $0.03, from $0.52 per diluted earnings per share to
the reported diluted earnings per share of $0.55.
(2) Including the effects of an $8.0 million pre-tax credit in the
first quarter associated with the settlement of the
Griego/Carrillo litigation reversion. This pre-tax credit
increased diluted earnings per share for the six month period
ended June 30, 2005 by $0.07. The litigation reversion credit,
combined with the $2.0 million tax audit reserve credit in the
second quarter of 2005, increased diluted earnings per share
for the six month period ended June 30, 2005 by $0.10 to the
reported diluted earnings per share of $1.18.
Selected Balance Sheet Data: (in Thousands of June 30, June 30,
Dollars) 2006 2005
---------- ----------
Cash and cash equivalents $41,174 $25,119
Prepaid expenses and other assets 34,133 52,566
Rental merchandise, net
On rent 633,749 574,080
Held for rent 178,667 197,639
Total Assets 2,006,846 1,930,793
Senior debt 417,155 364,500
Subordinated notes payable 300,000 300,000
Total Liabilities 1,091,096 1,041,531
Stockholders' Equity 915,750 889,262
Rent-A-Center, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands of Dollars, except per share data) Three Months Ended
June 30,
-------------------
2006 2005
--------- ---------
Unaudited
Store Revenue
Rentals and Fees $527,076 $526,639
Merchandise Sales 38,428 37,498
Installment Sales 5,728 6,618
Other 3,254 997
--------- ---------
574,486 571,752
Franchise Revenue
Franchise Merchandise Sales 7,892 7,443
Royalty Income and Fees 1,245 1,383
--------- ---------
Total Revenue 583,623 580,578
Operating Expenses
Direct Store Expenses
Cost of Rental and Fees 114,733 114,068
Cost of Merchandise Sold 28,403 28,225
Cost of Installment Sales 2,398 2,750
Salaries and Other Expenses 333,113 332,939
Franchise Operation Expenses
Cost of Franchise Merchandise Sales 7,580 7,163
--------- ---------
486,227 485,145
General and Administrative Expenses 21,253 20,290
Amortization of Intangibles 950 2,155
--------- ---------
Total Operating Expenses 508,430 507,590
--------- ---------
Operating Profit 75,193 72,988
Interest Income (1,399) (1,351)
Interest Expense 13,301 10,786
--------- ---------
Earnings before Income Taxes 63,291 63,553
Income Tax Expense 23,448 21,811
--------- ---------
NET EARNINGS 39,843 41,742
========= =========
BASIC WEIGHTED AVERAGE SHARES 69,545 74,747
========= =========
BASIC EARNINGS PER COMMON SHARE $0.57 $0.56
========= =========
DILUTED WEIGHTED AVERAGE SHARES 70,640 76,001
========= =========
DILUTED EARNINGS PER COMMON SHARE $0.56 $0.55
========= =========
Rent-A-Center, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands of Dollars, except per share Six Months Ended
data) June 30,
-----------------------
2006 2005
----------- -----------
Unaudited
Store Revenue
Rentals and Fees $1,047,459 $1,045,261
Merchandise Sales 102,591 100,268
Installment Sales 11,579 13,202
Other 6,540 2,075
----------- -----------
1,168,169 1,160,806
Franchise Revenue
Franchise Merchandise Sales 19,973 18,787
Royalty Income and Fees 2,456 2,794
----------- -----------
Total Revenue 1,190,598 1,182,387
Operating Expenses
Direct Store Expenses
Cost of rental and fees 227,500 226,536
Cost of Merchandise Sold 72,533 70,292
Cost of Installment Sales 4,821 5,613
Salaries and Other Expenses 671,884 666,980
Franchise Operation Expenses
Cost of Franchise Merchandise Sales 19,136 18,029
----------- -----------
995,874 987,450
General and Administrative Expenses 42,211 39,505
Amortization of Intangibles 1,836 4,452
Litigation Reversion -- (8,000)
----------- -----------
Total Operating Expenses 1,039,921 1,023,407
----------- -----------
Operating Profit 150,677 158,980
Interest Income (2,859) (2,753)
Interest Expense 26,324 21,654
----------- -----------
Earnings before Income Taxes 127,212 140,079
Income Tax Expense 47,041 50,668
----------- -----------
NET EARNINGS 80,171 89,411
=========== ===========
BASIC WEIGHTED AVERAGE SHARES 69,401 74,653
=========== ===========
BASIC EARNINGS PER COMMON SHARE $1.16 $1.20
=========== ===========
DILUTED WEIGHTED AVERAGE SHARES 70,445 76,036
=========== ===========
DILUTED EARNINGS PER COMMON SHARE $1.14 $1.18
=========== ===========
SOURCE: Rent-A-Center, Inc.
Rent-A-Center, Inc., Plano
David E. Carpenter, 972-801-1214
dcarpenter@racenter.com