Shares of Rent-A-Center, Inc. increased 5% in after-hours trading on Aug 4 following the company’s sturdy second-quarter 2021 results and raised view for the year. Both the top and the bottom line surpassed the Zacks Consensus Estimate and improved on a year-over-year basis.

Management remains impressed with the quarterly performance on higher same-store sales and a solid lease performance across the company’s Rent-A-Center Business segment. Robust gains from the Acima buyout also led to this upside. The company also continues making digital investments and is confident of its omni-channel strategy. Management is on track with the integration of Acima. Buoyed by a sturdy year-to-date performance and positive underlying fundamental trends, management raised outlook for 2021.

Over the past six months, shares of this currently Zacks Rank #3 (Hold) company have gained 8% against the industry’s 10.7% decline.

Q2 in Detail

Rent-A-Center posted adjusted earnings of $1.63 a share that beat the Zacks Consensus Estimate of $1.37. Also, the bottom line rose almost 104% from 80 cents earned in the year-ago quarter.

Consolidated total revenues of $1,194 million surpassed the Zacks Consensus Estimate of $1,125 million and surged 74.6% year over year. Growth was mainly driven by gains from the buyout of Acima Holdings and same-store sales growth in the Rent-A-Center Business segment. On a pro-forma basis, revenues grew 21.6% on solid organic growth in the Acima and Rent-A-Center Business units.

We note that adjusted EBITDA came in at $181.9 million, up 41% from the year-ago period’s level on a pro-forma basis. Adjusted EBITDA margin expanded 210 basis points to 15.2% on strong profits in the Rent-A-Center Business and Acima segments.

Segment Performance

Revenues at the Rent-A-Center Business segment rose 10.2% to $505.8 million owing to same-store sales growth of 16.6%, led by a 19% increase in e-commerce sales, a solid lease portfolio performance and positive customer payment trends. As of Jun 30, 2021, the segment had 1,841 company-operated locations.

Revenues at Acima segment (formerly known as Preferred Lease segment) surged 232.2% from the prior-year quarter’s level to $635.3 million, mainly buoyed by the gains from the Acima buyout. The segment registered gross merchandise volume (GMV) growth of 309.3%. On a pro-forma basis, revenues rose 29.7% and GMV improved 43%, driven by virtual retail partner additions, organic growth in the existing retail partnerships, an increased e-commerce penetration and cycling over soft GMV trends in the year-ago period.

Mexico segment’s revenues totaled $15.3 million, up 23.6% on a constant-currency basis. Also, the segment’s same-store sales rose 9.6%. As of Jun 30, the unit had 121 company-operated locations.

Finally, Franchising revenues jumped 65.7% to $37.6 million. This can primarily be attributed to higher store count from refranchising about 100 California stores in 2020 and a rise in inventory purchases by the franchisees. As of Jun 30, the company had 461 franchise-operated locations.

Other Financial Aspects

Rent-A-Center ended the reported quarter with cash and cash equivalents of $145.1 million, net senior debt of $842 million and a stockholders' equity of $825.2 million. It had an outstanding debt of $1.32 billion at the quarter end. The company ended the quarter with $608 million of liquidity including $463 million of undrawn revolving credit.

Capital expenditures totaled $14 million in the three months ended Jun 30. The company generated cash of $250.5 million from operations and a negative free cash flow including acquisitions and divestitures of $1,048.4 million during the six months ended Jun 30.

The company’s board authorized a new share repurchase program worth nearly $250 million, replacing its previous share buyback plan.

2021 Outlook

Consolidated revenues are now projected in the bracket of $4.550-$4.670 billion for 2021 compared with $4.450-$4.600 billion predicted earlier. Rent-A-Center delivered $2.814 billion in 2020. Adjusted EBITDA is now forecast between $660 million and $700 million compared with the previous projection of $600-$650 million.

Adjusted earnings per share are now envisioned in the band of $5.90-$6.40, up from $5.30-$5.85 expected earlier. The guidance suggests significant growth from $3.53 earned last year. The Zacks Consensus Estimate for 2021 earnings is currently pegged at $5.60, which is likely to witness upward revisions in the coming days. For 2021, free cash flow is predicted in the band of $300-$350 million compared with $250-$300 million estimated previously.

For the Rent-A-Center Business segment, management anticipates revenues of $2.020-$2.060 billion compared with the earlier anticipation of $1.940-$1.990 billion. Adjusted EBITDA is projected between $480 million and $500 million compared with the previous estimate of $405-$425 million.

For the Acima segment, revenues are expected in the band of $2.340-$2.420 billion compared with the earlier guided range of $2.320-$2.420 billion. The segment’s adjusted EBITDA is projected in the range of $330-$350 million compared with the prior forecast of $320-$350 million.

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