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In the modern world, having a system outage for a single day can wreak havoc on any company. But when you combine weeks of system issues with a double digit decline in same store sales, a company’s top and bottom line are bound to be negatively impacted. These are some of the issues facing our Zacks Bear of the Day, Rent-A-Center Inc. .
This Zacks Rank #5 (Strong Sell) company operates company owned rent-to-own stores which offer high-quality, durable goods such as consumer electronics, appliances, furniture and accessories to consumers under flexible rental purchase arrangements that allow the customer to obtain ownership of the merchandise at the conclusion of an agreed-upon rental period.
Recent Earnings Report
On October 26, RCII posted Q3 earnings where they beat the Zacks consensus earnings estimate but came up short against the Zacks consensus revenue estimate. On a year over year basis the company saw declines in Diluted earnings per share -76.6%, Total revenues -12.3%, Core U.S. revenues -16.3%, Same store sales -12.0%, and EBITDA fell by 370 basis points.
Management’s Take
According to Robert D. Davis, CEO, “As previously announced, our third quarter operating results were negatively impacted by unexpected capacity-related system outages following the full implementation of our new store information management system within our Core U.S. stores. Consequently, I am terribly disappointed in the results for the quarter, both top and bottom line. Toward the end of the third quarter we had seen significant improvement in system availability and a reduction in the frequency of system outages. However, over the past two weeks on a couple of instances we have experienced system slowness and outages similar to but less impactful than what we saw earlier in the third quarter. Despite these recent challenges, over the past 6 weeks, past due percentages have been lower than they were a year ago.”
Price and Consensus Graph
As you can see from the graph below, RCII’s stock price and future estimates have been falling for the majority of 2016.
Due to the poor earnings report, estimates for Q4 16, Q1 17, FY 16 and FY 17 have all seen declines over the past 30 days. Q4 16 fell from $0.46 to $0.32, Q1 17 dropped from $0.54 to $0.39, FY 16 plummeted from $1.74 to $1.12, and FY 17 slipped from $1.74 to $1.40.
Bottom Line
While management is currently working on improving their new store information management system within their Core U.S. stores, it will take a bit of time for all the issues to be ironed out. Therefore, it would be wise to stay on the sidelines till these issues are fully behind them.
If you are inclined to invest in the Consumer Services/Misc. sector, you would be best served to look into Care.com Inc. , Monro Muffler (MNRO - Free Report) , and or China Online Education (COE - Free Report) , all of which currently carry a Zacks Rank #3 (Hold). The remainder of the sector holds either a Zacks Rank #4 (Sell), or a Zacks Rank #5 (Strong Sell).
So Where Are the Profitable Trades?
Be sure to short or avoid this Bear Stock of the Day. Now would you like to see Zacks' recommendations that have the best profit potential? Starting today, for the next month, you can follow all our private buys and sells in real time from value to momentum . . . from stocks under $10 to ETF and option moves . . . from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors. Click here for all Zacks trades >>
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Bear of the Day: Rent-A-Center Inc. (RCII)
In the modern world, having a system outage for a single day can wreak havoc on any company. But when you combine weeks of system issues with a double digit decline in same store sales, a company’s top and bottom line are bound to be negatively impacted. These are some of the issues facing our Zacks Bear of the Day, Rent-A-Center Inc. .
This Zacks Rank #5 (Strong Sell) company operates company owned rent-to-own stores which offer high-quality, durable goods such as consumer electronics, appliances, furniture and accessories to consumers under flexible rental purchase arrangements that allow the customer to obtain ownership of the merchandise at the conclusion of an agreed-upon rental period.
Recent Earnings Report
On October 26, RCII posted Q3 earnings where they beat the Zacks consensus earnings estimate but came up short against the Zacks consensus revenue estimate. On a year over year basis the company saw declines in Diluted earnings per share -76.6%, Total revenues -12.3%, Core U.S. revenues -16.3%, Same store sales -12.0%, and EBITDA fell by 370 basis points.
Management’s Take
According to Robert D. Davis, CEO, “As previously announced, our third quarter operating results were negatively impacted by unexpected capacity-related system outages following the full implementation of our new store information management system within our Core U.S. stores. Consequently, I am terribly disappointed in the results for the quarter, both top and bottom line. Toward the end of the third quarter we had seen significant improvement in system availability and a reduction in the frequency of system outages. However, over the past two weeks on a couple of instances we have experienced system slowness and outages similar to but less impactful than what we saw earlier in the third quarter. Despite these recent challenges, over the past 6 weeks, past due percentages have been lower than they were a year ago.”
Price and Consensus Graph
As you can see from the graph below, RCII’s stock price and future estimates have been falling for the majority of 2016.
RENT-A-CENTER Price and Consensus
RENT-A-CENTER Price and Consensus | RENT-A-CENTER Quote
Declining Estimates
Due to the poor earnings report, estimates for Q4 16, Q1 17, FY 16 and FY 17 have all seen declines over the past 30 days. Q4 16 fell from $0.46 to $0.32, Q1 17 dropped from $0.54 to $0.39, FY 16 plummeted from $1.74 to $1.12, and FY 17 slipped from $1.74 to $1.40.
Bottom Line
While management is currently working on improving their new store information management system within their Core U.S. stores, it will take a bit of time for all the issues to be ironed out. Therefore, it would be wise to stay on the sidelines till these issues are fully behind them.
If you are inclined to invest in the Consumer Services/Misc. sector, you would be best served to look into Care.com Inc. , Monro Muffler (MNRO - Free Report) , and or China Online Education (COE - Free Report) , all of which currently carry a Zacks Rank #3 (Hold). The remainder of the sector holds either a Zacks Rank #4 (Sell), or a Zacks Rank #5 (Strong Sell).
So Where Are the Profitable Trades?
Be sure to short or avoid this Bear Stock of the Day. Now would you like to see Zacks' recommendations that have the best profit potential? Starting today, for the next month, you can follow all our private buys and sells in real time from value to momentum . . . from stocks under $10 to ETF and option moves . . . from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors. Click here for all Zacks trades >>