Rent-A-Center, Inc. Reports Third Quarter 2005 Results; Cash Flow From Operations of $87.5 Million; Repurchased 3.9 Million Shares of Common Stock
PLANO, Texas--(BUSINESS WIRE)--Oct. 24, 2005--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 September 30, 2005.
The Company reported total revenues for the quarter ended September 30, 2005 of $573.5 million, a $3.9 million increase from $569.6 million for the same period in the prior year. This increase of 0.7% in revenues was primarily driven by incremental revenues generated in new and acquired stores, offset by a decrease in same store sales of 0.4%.
Net earnings for the quarter ended September 30, 2005 were $26.0 million, or $0.35 per diluted share, when excluding the expenses for restructuring and the impact of the hurricanes discussed below, representing a decrease of 25.5% from the $0.47 per diluted share, or net earnings of $37.6 million for the same period in the prior year, when excluding the litigation and finance charges discussed below. The decrease in earnings per diluted share is primarily attributable to the decrease in same store sales as well as increases in operating expenses related to new store openings, acquisitions and normal operating costs such as utility and fuel costs, offset by a reduction in the number of the Company's outstanding shares.
Reported net earnings for the quarter ended September 30, 2005 were $11.3 million, or $0.15 per diluted share, when including the $0.20 effect of restructuring expenses and the impact of the hurricanes. Also, as a result of the hurricanes impact, the Company estimates that revenue in the third quarter was lower by approximately $1.7 million.
Total reported revenues for the nine months ended September 30, 2005 increased to $1.756 billion, a 1.6% increase from $1.728 billion for the same period in the prior year. Same store revenues for the nine month period ending September 30, 2005 decreased 2.8%. Net earnings for the nine months ended September 30, 2005 were $108.3 million, or $1.44 per diluted share, when excluding the restructuring expenses, the impact of the hurricanes and the credits for the litigation reversion and tax audit reserve discussed below, representing a decrease of 16.8% from the $1.73 per diluted share, or net earnings of $141.0 million for the same period in the prior year, when excluding the litigation and finance charges discussed below. Reported net earnings for the nine months ended September 30, 2005 were $100.7 million, or $1.34 per diluted share, when including the $0.10 effect of restructuring expenses and the impact of the hurricanes as well as the credits for the tax audit reserve and litigation.
"This quarter, as well as the past year and a half, have been challenging for our customer and for our company due, we believe, to the macroeconomic environment, and more specifically the higher energy prices," commented Mark E. Speese, the Company's Chairman and Chief Executive Officer. "Despite the challenges in the quarter, we saw an improvement in our same store sales trend, generated cash flow from operations of more than $87 million and made significant progress on our store consolidation plan, having closed 100 of the identified stores," Speese continued. "As we prepare to enter 2006, our strategic objectives will continue to be to enhance store level operations, open new stores, pursue opportunistic acquisitions in rent-to-own and other businesses that serve our customer demographic, and enhance stockholder value by repurchasing additional shares of our common stock, while maintaining a solid balance sheet," Speese stated.
During the third quarter of 2005, the Company opened 17 new store locations, acquired two stores as well as accounts from 15 additional locations, consolidated 114 stores into existing locations, sold two stores and closed eight stores. Since September 30, 2005, the Company has opened three new stores, acquired accounts from one location, consolidated seven stores into existing locations, sold 15 stores and closed five stores. For the fourth quarter ending December 31, 2005, the Company intends to open between 20 and 25 new store locations as well as pursue opportunistic acquisitions.
Through the nine month period ended September 30, 2005, the Company generated cash flow from operations of approximately $143.7 million, while ending the quarter with $52.8 million of cash on hand. On August 22, 2005, the Company announced that its Board of Directors increased the authorization for stock repurchases under the Company's common stock repurchase program to $400 million. Through the nine month period ended September 30, 2005, the Company repurchased 4,084,600 shares for $84.1 million in cash under the program and has utilized a total of $321.6 million of the total amount authorized by its Board of Directors since the inception of the plan.
During the third quarter of 2005, the Company recorded a pre-tax restructuring expense of approximately $13.0 million as part of the store consolidation plan announced on September 6, 2005. The costs with respect to these store closings relate primarily to lease terminations of approximately $6.5 million, goodwill impairment of approximately $4.5 million and fixed asset disposals of approximately $1.8 million. This restructuring expense reduced diluted earnings per share in the third quarter of 2005 by $0.12 and for the nine month period ended September 30, 2005 by $0.12.
Also, during the third quarter of 2005, the Company recorded a pre-tax expense of approximately $7.7 million related to the damage caused by Hurricanes Katrina and Rita. These costs relate primarily to goodwill impairment of approximately $3.7 million and inventory losses of approximately $3.6 million. The hurricanes affected approximately 180 stores in Louisiana, Texas, Mississippi and Alabama, of which 14 stores in Louisiana and one store in Mississippi have been permanently closed. These expenses reduced diluted earnings per share in the third quarter of 2005 by $0.08 and for the nine month period ended September 30, 2005 by $0.08.
In addition, during 2005, the Company recorded a $2.0 million tax audit reserve credit in the second quarter associated with the examination and favorable resolution of the Company's 1998 and 1999 federal tax returns. Also in 2005, the Company recorded an $8.0 million pre-tax credit in the first quarter associated with the settlement of the Griego/Carrillo litigation. The litigation reversion credit in the first quarter, combined with the $2.0 million tax audit reserve credit in the second quarter, increased diluted earnings per share for the nine month period ended September 30, 2005 by $0.10.
During the third quarter of 2004, the Company recorded $47.0 million in pre-tax charges associated with the aforementioned Griego/Carrillo litigation and $4.2 million in pre-tax charges associated with the refinancing of its senior credit facility. These charges reduced diluted earnings per share in the third quarter of 2004 by $0.40, $0.37 for the litigation charge and $0.03 for the refinancing charge, from $0.47 per diluted earnings per share to the reported diluted earnings per share of $0.07. Additionally, these charges reduced diluted earnings per share for the nine month period ended September 30, 2004 by $0.39 to the reported diluted earnings per share of $1.34.
Rent-A-Center will host a conference call to discuss the third quarter financial results on Tuesday morning, October 25, 2005, at 10:45 a.m. EST. For a live web cast 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 2,763 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 288 rent-to-own stores, 276 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 any repurchases of common stock the Company may make, expenses to be incurred in connection with the store consolidation plan, expenses to be incurred relating to the damage caused by Hurricanes Katrina or Rita, or the potential impact of acquisitions that may be completed after October 24, 2005.
FOURTH QUARTER 2005 GUIDANCE:
Revenues
-- The Company expects total revenues to be in the range of $575
million to $583 million.
-- Store rental and fee revenues are expected to be between $521
million and $526 million.
-- Total store revenues are expected to be in the range of $565
million to $573 million.
-- Same store sales are expected to be in the (1.0%) to (2.0%)
range.
-- The Company expects to open 20-25 new 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
goods merchandise sales to be between 75% and 80% of store
merchandise sales.
-- Store salaries and other expenses are expected to be in the
range of 59.5% to 61.0% of total store revenue.
-- General and administrative expenses are expected to be between
3.5% and 3.7% of total revenue.
-- Net interest expense is expected to be approximately $11.5
million, depreciation of property assets to be approximately
$13.5 million and amortization of intangibles is expected to
be approximately $1.3 million.
-- The effective tax rate is expected to be in the range of 37.0%
to 37.5% of pre-tax income.
-- Diluted earnings per share are estimated to be in the range of
$0.43 to $0.47.
-- Diluted shares outstanding are estimated to be between 71.3
million and 72.3 million.
FISCAL 2006 GUIDANCE:
Revenues
-- The Company expects total revenues to be in the range of $2.37
billion and $2.40 billion.
-- Store rental and fee revenues are expected to be between
$2.105 billion and $2.130 billion.
-- Total store revenues are expected to be in the range of $2.332
billion and $2.362 billion.
-- Same store sales are expected to be flat.
-- The Company expects to open 60-80 new 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
goods merchandise sales to be between 70% and 75% of store
merchandise sales.
-- Store salaries and other expenses are expected to be in the
range of 58.0% to 59.5% of total store revenue.
-- General and administrative expenses are expected to be between
3.5% and 3.7% of total revenue.
-- Net interest expense is expected to be between $42.0 million
and $47.0 million, depreciation of property assets is expected
to be between $53.0 million and $58.0 million and amortization
of intangibles is expected to be approximately $3.3 million.
-- The effective tax rate is expected to be in the range of
36.75% to 37.25% of pre-tax income.
-- Diluted earnings per share, when including stock option
expense, are estimated to be in the range of $2.00 to $2.10,
and $2.04 to $2.14, excluding stock option expense.
-- Diluted shares outstanding are estimated to be between 72.0
million and 73.5 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 additional costs and expenses that could be incurred in connection with the store consolidation plan, uncertainties regarding the 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 our customer demographic; the Company's ability to identify and successfully enter new lines of business offering products and services that appeal to our customer demographic; 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 enter into new rental purchase agreements; economic pressures affecting the disposable income available to our targeted consumers, such as high fuel and utility costs; changes in the Company's effective tax rate; changes in the Company's stock price and the number of shares of common stock that the Company may or may not repurchase; 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, 2004 and its quarterly reports on Form 10-Q for the quarter ended March 31, 2005 and the Form 10-Q for the six month period ended June 30, 2005. 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, except per share data)
Three Months Ended September 30,
---------------------------------
2005 2005
------------------ --------------
After
Before Restructuring
Restructuring and and
Hurricanes Hurricanes
Expense Expense
------------------ --------------
Total Revenue $573,507 $573,507
Operating Profit 51,750 30,980
Net Earnings 25,985 11,277(1)
Diluted Earnings per Common Share $0.35 $0.15(1)
Adjusted EBITDA $67,493 $67,493
Reconciliation to Adjusted EBITDA:
Earnings before income taxes 41,279 20,509
Add back:
Restructuring expense -- 13,028
Hurricanes expense -- 4,075
Litigation settlement -- --
Finance charge from
recapitalization -- --
Interest expense, net 10,471 10,471
Depreciation of property assets 13,484 13,484
Amortization of intangibles 2,259 5,926(4)
------------------ --------------
Adjusted EBITDA $67,493 $67,493
(In Thousands of Dollars, except per share data)
Three Months Ended September 30,
--------------------------------
2004 2004
-------------- ----------------
Before
Litigation & After Litigation
Finance & Finance
Charges Charges
-------------- ----------------
Total Revenue $569,607 $569,607
Operating Profit 71,344 24,344
Net Earnings 37,552 5,573(2)
Diluted Earnings per Common Share $0.47 $0.07(2)
Adjusted EBITDA $86,608 $86,608
Reconciliation to Adjusted EBITDA:
Earnings before income taxes 62,821 11,648
Add back:
Restructuring expense -- --
Hurricanes expense -- --
Litigation settlement -- 47,000
Finance charge from
recapitalization -- 4,173
Interest expense, net 8,523 8,523
Depreciation of property assets 12,508 12,508
Amortization of intangibles 2,756 2,756
-------------- ----------------
Adjusted EBITDA $86,608 $86,608
Nine Months Ended September 30,
-------------------------------
2005 2005
---------------- --------------
After
Restructuring
Before and
Restructuring Hurricanes
and Hurricanes Expense & Tax
Expense & Tax Audit Reserve
Audit Reserve and
and Litigation Litigation
Credits Credits
---------------- --------------
Total Revenue $1,755,894 $1,755,894
Operating Profit 202,730 189,960
Net Earnings 108,290 100,688(1,3)
Diluted Earnings per Common Share $1.44 $1.34(1,3)
Adjusted EBITDA $249,459 $249,459
Reconciliation to Adjusted EBITDA:
Earnings before income taxes 173,358 160,588
Add back:
Restructuring expense -- 13,028
Hurricanes expense impact -- 4,075
Litigation credit & settlement -- (8,000)
Finance charge from
recapitalization -- --
Interest expense, net 29,372 29,372
Depreciation of property assets 40,018 40,018
Amortization of intangibles 6,711 10,378(4)
------------- --------------
Adjusted EBITDA $249,459 $249,459
Nine Months Ended September 30,
--------------------------------
2004 2004
-------------- ----------------
Before
Litigation & After Litigation
Finance & Finance
Charges Charges
-------------- ----------------
Total Revenue $1,727,972 $1,727,972
Operating Profit 254,226 207,226
Net Earnings 140,955 108,976(2)
Diluted Earnings per Common Share $1.73 $1.34(2)
Adjusted EBITDA $298,219 $298,219
Reconciliation to Adjusted EBITDA:
Earnings before income taxes 228,083 176,910
Add back:
Restructuring expense -- --
Hurricanes expense impact -- --
Litigation credit & settlement -- 47,000
Finance charge from
recapitalization -- 4,173
Interest expense, net 26,143 26,143
Depreciation of property assets 35,591 35,591
Amortization of intangibles 8,402 8,402
-------------- ----------------
Adjusted EBITDA $298,219 $298,219
(1) Including the effects of a $13.0 million pre-tax restructuring
expense as part of the store consolidation plan announced
September 6, 2005 and $7.7 million in pre-tax expenses related
to the damage caused by Hurricanes Katrina and Rita. The
expenses reduced diluted earnings per share in the third
quarter of 2005 and the nine month period ending September 30,
2005, by $0.12 and $0.12 respectively for the restructuring
expense and by $0.08 and $0.08 respectively for the hurricanes
expense.
(2) Including the effects of $47.0 million in pre-tax charges
associated with the Griego/Carrillo litigation and $4.2
million in pre-tax charges associated with refinancing of the
Company's senior credit facility. These charges reduced
diluted earnings per share in the third quarter of 2004 by
$0.40, $0.37 for the litigation charge and $0.03 for the
refinancing charge, to the reported diluted earnings per share
of $0.07. Additionally, these charges reduced diluted earnings
per share for the nine month period ended September 30, 2004
by $0.39 to the reported diluted earnings per share of $1.34.
(3) 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, and 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 in the second quarter of 2005. These credits
increased diluted earnings per share for the nine month period
ended September 30, 2005 by $0.10.
(4) Includes $3.667 million of goodwill impairment related to
Hurricanes Katrina and Rita.
Selected Balance Sheet Data: (in Thousands of Dollars)
September 30, 2005 September 30, 2004
------------------ ------------------
Cash and cash equivalents $ 52,790 $ 64,521
Prepaid expenses and other
assets 42,067 47,387
Rental merchandise, net
On rent 572,224 555,024
Held for rent 178,825 162,489
Total Assets 1,939,384 1,906,164
Senior debt 406,625 399,125
Subordinated notes payable 300,000 300,000
Total Liabilities 1,117,385 1,128,919
Stockholders' Equity 821,999 777,245
Rent-A-Center, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands of Dollars, except per
share data) Three Months Ended September 30,
--------------------------------
2005 2004
--------------- ----------------
Unaudited
Store Revenue
Rentals and Fees $516,433 $516,576
Merchandise Sales 39,212 36,265
Installment Sales 6,372 5,469
Other 2,938 919
--------------- ----------------
564,955 559,229
Franchise Revenue
Franchise Merchandise Sales 7,245 8,967
Royalty Income and Fees 1,307 1,411
--------------- ----------------
Total Revenue 573,507 569,607
Operating Expenses
Direct Store Expenses
Cost of Rentals and Fees 112,174 112,582
Cost of Merchandise Sold 30,314 26,978
Cost of Installment Sales 2,556 2,180
Salaries and Other Expenses 350,389 326,410
Franchise Operation Expenses
Cost of Franchise Merchandise
Sales 6,964 8,585
--------------- ----------------
502,397 476,735
General and Administrative
Expenses 21,176 18,772
Amortization of Intangibles 5,926 2,756
Restructuring charge 13,028 --
Class Action Litigation
Settlement -- 47,000
--------------- ----------------
Total Operating Expenses 542,527 545,263
--------------- ----------------
Operating Profit 30,980 24,344
Finance Charge from Recapitalization -- 4,173
Interest Income (1,331) (1,391)
Interest Expense 11,802 9,914
--------------- ----------------
Earnings before Income Taxes 20,509 11,648
Income Tax Expense 9,232 6,075
--------------- ----------------
NET EARNINGS 11,277 5,573
Preferred Dividends -- --
--------------- ----------------
Net earnings allocable to common
stockholders $11,277 $5,573
=============== ================
BASIC WEIGHTED AVERAGE SHARES 72,826 77,989
=============== ================
BASIC EARNINGS PER COMMON SHARE $0.15 $0.07
=============== ================
DILUTED WEIGHTED AVERAGE SHARES 73,713 79,928
=============== ================
DILUTED EARNINGS PER COMMON SHARE $0.15 $0.07
=============== ================
Rent-A-Center, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands of Dollars, except per
share data) Nine Months Ended September 30,
-------------------------------
2005 2004
-------------- ----------------
Unaudited
Store Revenue
Rentals and Fees $1,561,694 $1,541,459
Merchandise Sales 139,480 130,287
Installment Sales 19,574 17,968
Other 5,013 2,966
-------------- ----------------
1,725,761 1,692,680
Franchise Revenue
Franchise Merchandise Sales 26,032 31,099
Royalty Income and Fees 4,101 4,193
-------------- ----------------
Total Revenue 1,755,894 1,727,972
Operating Expenses
Direct Store Expenses
Cost of Rentals and Fees 338,710 333,868
Cost of Merchandise Sold 100,606 91,081
Cost of Installment Sales 8,169 7,802
Salaries and Other Expenses 1,017,369 946,552
Franchise Operation Expenses
Cost of Franchise Merchandise
Sales 24,993 29,691
-------------- ----------------
1,489,847 1,408,994
General and Administrative Expenses 60,681 56,350
Amortization of Intangibles 10,378 8,402
Restructuring charge 13,028 --
Class Action Litigation Settlement
(Reversion) (8,000) 47,000
-------------- ----------------
Total Operating Expenses 1,565,934 1,520,746
-------------- ----------------
Operating Profit 189,960 207,226
Finance Charge from Recapitalization -- 4,173
Interest Income (4,084) (4,382)
Interest Expense 33,456 30,525
-------------- ----------------
Earnings before Income Taxes 160,588 176,910
Income Tax Expense 59,900 67,934
-------------- ----------------
NET EARNINGS 100,688 108,976
Preferred Dividends -- --
-------------- ----------------
Net earnings allocable to common
stockholders $100,688 $108,976
============== ================
BASIC WEIGHTED AVERAGE SHARES 74,044 79,246
============== ================
BASIC EARNINGS PER COMMON SHARE $1.36 $1.38
============== ================
DILUTED WEIGHTED AVERAGE SHARES 75,262 81,598
============== ================
DILUTED EARNINGS PER COMMON SHARE $1.34 $1.34
============== ================
CONTACT: Rent-A-Center, Inc., Plano
David E. Carpenter, 972-801-1214
dcarpenter@racenter.com
SOURCE: Rent-A-Center, Inc.