Rent-A-Center, Inc. Reports Third Quarter 2002 Results; Diluted Earnings Per Share Rise 70.1%; Same Store Sales Increase 6.9%
The Company, the nation's largest rent-to-own operator, had net earnings for the quarter ended September 30, 2002 of $41.4 million, or $1.14 per diluted share. After adjusting reported results for the third quarter of 2001 to exclude the effects of goodwill amortization and a non-recurring charge of $16.0 million relating to the settlement of its class action gender discrimination lawsuits, net earnings and diluted earnings per common share increased $16.1 million and $0.47, respectively. On a comparable basis, this represents an increase in diluted earnings per common share of 70.1%. Total revenues for the quarter ended September 30, 2002 increased to $494.6 million as compared to $447.1 million for the same quarter of the prior year. Incremental revenues generated in new and acquired stores, as well as growth in same store revenues primarily drove this 10.6% increase. Same store revenues (revenues earned in stores operated for the entirety of both periods) during the third quarter of 2002 increased 6.9% above the comparable quarter of 2001. The Company's quarterly growth in net earnings resulted primarily from better than expected same store sales and the benefits from the Company's ongoing strict cost control programs.
Net earnings for the nine months ended September 30, 2002 were $127.0 million, or $3.48 per diluted share. When excluding the non-recurring charge in 2001 referred to above, this represents an increase of 77.6% over the net earnings of $71.5 million, or $1.93 per diluted share for the same period in the prior year. Total revenues for the nine months ended September 30, 2002 increased to $1.488 billion from $1.330 billion in 2001, representing an increase of 11.9%. Same store revenues for the nine-month period ending September 30, 2002 increased 6.6%.
"We are pleased to announce another quarter of outstanding results for our company," commented Mark E. Speese, the Company's Chairman and Chief Executive Officer. "Our achievements over the course of the past twelve months have been extraordinary," continued Mr. Speese, "particularly in light of the continued weakness of the economy as a whole and the retail sector in particular."
During the third quarter of 2002, the Company opened 17 new store locations and acquired 23 stores as well as accounts from 25 additional locations. Through the nine month period ending September 30, 2002, the Company has opened 39 new stores, acquired a total of 64 others as well as accounts from 84 additional locations while consolidating 19 stores into existing locations and selling three. To date through the fourth quarter, the Company has opened seven new store locations, acquired 10 stores and accounts from nine additional locations while consolidating one store into an existing location and selling one. "Since we began opening new stores in October of 2000 we have opened 153 new stores," stated Mitchell E. Fadel, the Company's President. "I am pleased to announce that these stores are tracking ahead of our new store model at this point in their life cycle." Mr. Fadel added, "Since new stores have been one of the drivers in our growth initiatives, these results validate our program, which speaks to the continued growth opportunity."
The Company's cash flow from operations was $92.8 million for the third quarter of 2002 and $265.7 million for the nine months ended September 30, 2002. The Company reduced its outstanding indebtedness by $169.3 million for the nine-month period ending September 30, 2002, including $41.3 million during the third quarter of 2002. Since September 30, 2002, the Company has reduced its outstanding indebtedness by an additional $12.0 million. In addition, for all of 2002, the Company has repurchased in excess of $60 million of its common stock, $25.8 million of which was under its open market repurchase program of $50 million. Such stock repurchases and debt reductions for 2002 were effected after funding the cost of the new stores and acquisitions mentioned above.
"Our strong recurring cash flow continues to benefit us in terms of managing the day to day business demands as well as allow us to think and act strategically in managing our capital structure for the benefit of all of our stakeholders," Speese commented. "We continue to believe that the growth potential of this company and the industry as a whole is significant," Speese continued "and we have positioned ourselves well for the fourth quarter of 2002 whereby we expect diluted earnings per share to be between $1.23 to $1.26. As we look to 2003, we expect earnings of $5.30 to $5.45 per diluted share."
Rent-A-Center will host a conference call to discuss the third quarter financial results on Tuesday morning, October 29, 2002, at 10:45 a.m. EST. For a live webcast of the call, visit http://www.rentacenter.com/coinfo_calendar.asp . The webcast will be archived for a period of two weeks.
Rent-A-Center, Inc., headquartered in Plano, Texas, currently operates 2,377 company-owned stores nationwide and in Puerto Rico. The stores generally offer high-quality, durable goods such as home electronics, appliances, computers and furniture and accessories to consumers 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 315 rent-to-own stores, 303 of which operate under the trade name of "ColorTyme," and the remaining 12 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 store acquisitions or changes in our capital structure that may be completed after September 30, 2002.
FOURTH QUARTER 2002 GUIDANCE:
Revenues
-- The Company expects total revenues to be in the range of $500 million
to $505 million.
-- Store rental and fee revenues are expected to be between $462 million
and $467 million.
-- Total store revenues are expected to be in the range of $487 million to
$492 million.
-- Same store sales increases are expected to be in the 2% to 4% range.
-- The Company expects to open 20-25 new store locations.
Expenses
-- The Company expects depreciation of rental merchandise to be between
20.8% and 21.2% of store rental and fee revenue and cost of goods
merchandise sales to be between 72% and 77% of store merchandise sales.
-- Store salaries and other expenses are expected to be in the range of
54.0% to 56.0% of total store revenue.
-- General and administrative expenses are expected to be between 3.0% and
3.2% of total revenue.
-- Interest expense is expected to be approximately $14.0 million and
amortization of intangibles is expected to be approximately
$1.7 million.
-- The effective tax rate is expected to be approximately 40.0% of pre-tax
income.
-- Diluted earnings per share are estimated to be in the range of $1.23 to
$1.26.
-- Diluted shares outstanding are estimated to be between 36.3 million and
36.7 million.
FISCAL 2003 GUIDANCE:
Revenues
-- The Company expects total revenues to be in the range of $2.085 billion
and $2.093 billion.
-- Store rental and fee revenues are expected to be between $1.916 billion
and $1.924 billion.
-- Total store revenues are expected to be in the range of $2.029 billion
and $2.037 billion.
-- Same store sales increases are expected to be in the 2% to 4% range.
-- The Company expects to open approximately 80 to 120 new store
locations.
Expenses
-- The Company expects depreciation of rental merchandise to be between
20.7% and 21.1% of store rental and fee revenue and cost of goods
merchandise sales to be between 72% and 77% of store merchandise sales.
-- Store salaries and other expenses are expected to be in the range of
53.5% to 55.5% of total store revenue.
-- General and administrative expenses are expected to be between 3.0% and
3.2% of total revenue.
-- Interest expense is expected to be between $50.0 million and
$56.0 million and amortization of intangibles is expected to be
approximately $7.0 million.
-- Tax rate is expected to be between 39.0% and 39.5% of pre-tax income.
-- Diluted earnings per share are estimated to be in the range of $5.30 to
$5.45.
-- Diluted shares outstanding are estimated to be between 36.8 million and
37.4 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 ability to open new 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 and implement its margin
enhancement initiatives; the Company's ability to realize benefits from its
margin enhancement initiatives; the results of the Company's litigation; the
passage of legislation adversely affecting the rent-to-own industry; interest
rates; the Company's ability to collect on its rental purchase agreements; the
Company's ability to effectively hedge interest rates on its outstanding debt;
changes in the Company's effective tax rate; and the other risks detailed from
time to time in the Company's SEC filings, including but not limited to, its
annual report on Form 10-K for the year ended December 31, 2001 and its
quarterly reports on Form 10-Q for the quarter ended March 31, 2002 and on Form
10-Q for the quarter ended June 30, 2002. 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.
STATEMENT OF EARNINGS HIGHLIGHTS
(In Thousands of Dollars, except per share data)
Three Months Ended September 30,
2002 2001 2001
Before Non- After Non-
Recurring Legal Recurring Legal
Charge Charge
Unaudited
Total Revenue $ 494,561 $ 447,074 $ 447,074
Operating Profit 84,087 48,372 32,372 (A)
Net Earnings 41,449 18,934 9,974 (A)
Diluted Earnings
Per Common Share $ 1.14 $ 0.50 $ 0.26 (A)
EBITDA $ 95,292 $ 65,904 $ 49,904 (A)
Nine Months Ended September 30,
2002 2002 2001 2001
Before Non- After Non- Before Non- After Non-
Recurring Recurring Recurring Legal Recurring
Charges Charges Charge Legal Charge
Unaudited
Total Revenue $1,487,831 $1,487,831 $1,329,535 $1,329,535
Operating Profit 262,623 260,623 (B) 177,497 161,497 (A)
Net Earnings 129,876 126,955 (B) 71,477 62,517 (A)
Diluted Earnings
Per Common
Share $ 3.56 $ 3.48 (B) $ 1.93 $ 1.68 (A)
EBITDA $ 294,348 $ 292,348 (B) $ 228,005 $ 212,005 (A)
(A) Including the effects of a pre-tax legal charge of $16.0 million
associated with the settlement of class action gender discrimination
lawsuits.
(B) Including the effects of a pre-tax legal charge of $2.0 million
associated with the settlement of class action gender discrimination
lawsuits and $2.9 million associated with the early retirement of
debt.
Diluted Earnings Per Common Share before Goodwill Amortization
(In Thousands of Dollars, Three Months Ended September 30,
except per share data)
2002 2001 2001
Before Non- After Non-
Recurring Recurring
Legal Charge Legal Charge
Unaudited
Net Earnings $ 41,449 $ 18,934 $ 9,974 (A)
Goodwill Amortization
Net of Tax Effects --- 6,380 6,380
Adjusted Net Earnings $ 41,449 $ 25,314 $ 16,354 (A)
Diluted Weighted
Average Shares
Outstanding 36,431 37,779 37,779
Diluted Earnings Per
Common Share Before
Goodwill Amortization $ 1.14 $ 0.67 $ 0.43 (A)
Nine Months Ended September 30,
2002 2002 2001 2001
Before Non- After Non- Before Non- After Non-
Recurring Recurring Recurring Legal Recurring
Charges Charges Charge Legal Charge
Unaudited
Net Earnings $129,876 $126,955 (B) $71,477 $62,517 (A)
Goodwill
Amortization
Net of Tax
Effects --- --- 18,725 18,725
Adjusted Net
Earnings $129,876 $126,955 (B) $90,202 $81,242 (A)
Diluted Weighted
Average Shares
Outstanding 36,489 36,489 37,117 37,117
Diluted Earnings
Per Common Share
Before Goodwill
Amortization $ 3.56 $ 3.48 (B) $ 2.43 $ 2.19 (A)
(A) Including the effects of a pre-tax legal charge of $16.0 million
associated with the settlement of class action gender discrimination
lawsuits.
(B) Including the effects of a pre-tax legal charge of $2.0 million
associated with the settlement of class action gender discrimination
lawsuits and $2.9 million associated with the early retirement of
debt.
Selected Balance Sheet Data: September 30, 2002 December 31, 2001
(in Thousands of Dollars)
Cash and cash equivalents $ 110,261 $ 107,958
Prepaid expenses and
other assets 28,043 29,846
Rental merchandise, net
On rent 505,397 531,627
Held for rent 119,197 122,074
Total Assets 1,611,058 1,619,920
Senior debt 260,000 428,000
Subordinated notes payable 273,312 274,506
Total Liabilities 801,672 922,632
Stockholders' Equity and Redeemable 809,386 697,288
Preferred Stock
CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands of Dollars, Three Months Ended September 30,
except per share data) 2002 2001
Unaudited
Store Revenue
Rentals and Fees $ 456,208 $ 411,241
Merchandise Sales 24,710 21,569
Other 561 640
481,479 433,450
Franchise Revenue
Franchise Merchandise Sales 11,566 12,087
Royalty Income and Fees 1,516 1,537
Total Revenue 494,561 447,074
Operating Expenses
Direct Store Expenses
Depreciation of Rental
Merchandise 95,508 86,198
Cost of Merchandise Sold 18,471 17,176
Salaries and Other Expenses 268,552 261,992
Franchise Operation Expenses
Cost of Franchise
Merchandise Sales 11,061 11,624
393,592 376,990
General and Administrative
Expenses 15,325 13,974
Amortization of Intangibles 1,557 7,738
Non-Recurring Legal Settlements --- 16,000
Total Operating Expenses 410,474 414,702
Operating Profit 84,087 32,372
Interest Expense 15,301 14,837
Interest Income (588) (282)
Earnings Before Income
Taxes 69,374 17,817
Income Tax Expense 27,925 7,843
NET EARNINGS 41,449 9,974
Preferred Dividends 1,321 2,709
Net earnings allocable to
common stockholders $ 40,128 $ 7,265
BASIC WEIGHTED AVERAGE SHARES 32,355 26,666
BASIC EARNINGS PER COMMON SHARE $ 1.24 $ 0.27
DILUTED WEIGHTED AVERAGE SHARES 36,431 37,779
DILUTED EARNINGS PER COMMON
SHARE $ 1.14 $ 0.26
CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands of Dollars, Nine Months Ended September 30,
except per share data) 2002 2001
Unaudited
Store Revenue
Rentals and Fees $1,356,062 $1,213,387
Merchandise Sales 88,309 72,440
Other 1,742 2,878
1,446,113 1,288,705
Franchise Revenue
Franchise Merchandise Sales 37,305 36,346
Royalty Income and Fees 4,413 4,484
Total Revenue 1,487,831 1,329,535
Operating Expenses
Direct Store Expenses
Depreciation of Rental
Merchandise 282,085 251,286
Cost of Merchandise Sold 62,950 54,176
Salaries and Other Expenses 795,649 748,576
Franchise Operation Expenses
Cost of Franchise Merchandise
Sales 35,598 34,821
1,176,282 1,088,859
General and Administrative
Expenses 47,727 40,777
Amortization of Intangibles 3,199 22,402
Non-Recurring Legal Settlements --- 16,000
Total Operating Expenses 1,227,208 1,168,038
Operating Profit 260,623 161,497
Non-Recurring Finance Charge 2,909 ---
Interest Expense 46,656 47,215
Interest Income (2,016) (870)
Earnings Before Income
Taxes 213,074 115,152
Income Tax Expense 86,119 52,635
NET EARNINGS 126,955 62,517
Preferred Dividends 10,211 12,087
Net earnings allocable to
common stockholders $ 116,744 $ 50,430
BASIC WEIGHTED AVERAGE SHARES 27,526 25,766
BASIC EARNINGS PER COMMON SHARE $ 4.24 $ 1.96
DILUTED WEIGHTED AVERAGE SHARES 36,489 37,117
DILUTED EARNINGS PER COMMON
SHARE $ 3.48 $ 1.68
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SOURCE Rent-A-Center, Inc.
CONTACT: David E. Carpenter, Director of Investor Relations,
+1-972-801-1214, or dcarpenter@racenter.com , or Robert D. Davis, Chief
Financial Officer, +1-972-801-1204, or rdavis@racenter.com , or Mitchell E.
Fadel, President, +1-972-801-1114, or mfadel@racenter.com , or Mark E. Speese,
Chairman and CEO, +1-972-801-1199, or mspeese@racenter.com , all of Rent-A-
Center, Inc.
URL: http://www.rentacenter.com/coinfo_calendar.asp
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