Rent-A-Center, Inc. reported better-than-expected revenues and earnings in the first quarter of 2022. While the top line increased year over year, the bottom line fell from the year-earlier quarter’s reported number. Solid gains from the Acima buyout drove sales performance in the quarter. The Acima and Mexico business segments recorded year-over-year growth.

A glimpse of this currently Zacks Rank #5 (Strong Sell) stock shows that its shares have declined 40.8% over the past six months compared with the industry’s 21.3% decrease.

Q1 in Detail

Rent-A-Center posted adjusted earnings of 74 cents a share, surpassing the Zacks Consensus Estimate of 71 cents. However, the bottom line decreased significantly from $1.32 earned in the year-ago quarter.

Total revenues of $1,159.7 million came above the Zacks Consensus Estimate of $1,136 million. Also, the metric grew 11.9% year over year, mainly driven by gains from the buyout of Acima Holdings. On a pro-forma basis, revenues fell 5.8% on decreases in merchandise sales and rental and fees revenues.

Adjusted EBITDA came in at $99.5 million, down 42.9% from the year-ago period’s level on a pro-forma basis due to decreased pro-forma revenues, increased loss rates on account of lease vintages underwritten in late 2021 and elevated operating costs. Adjusted EBITDA margin contracted 560 basis points year over year to 8.6%.

Segmental Performance

Revenues at the Rent-A-Center Business segment dipped 1.2% to $518.5 million due to same-store sales decline of 1.1%. Same-store sales fell due to lower merchandise sales and early payout options in the reported quarter from the prior-year corresponding period’s reading. E-commerce accounted for 23.4% of the quarterly revenues compared with 22.3% in the prior-year period. Also, the segment’s lease portfolio value grew 5.6% year over year. As of Mar 31, 2022, the segment had 1,852 company-operated locations.

Revenues at the Acima segment (formerly known as the Preferred Lease segment) surged 31% from the prior-year quarter’s level to $599.4 million, mainly buoyed by gains from the Acima buyout. On a pro-forma basis, revenues dropped 8.1% while a gross merchandise volume (GMV) declined 21.2%, mainly from lower lease conversion rates and other macro-economic factors.

Mexico segment’s revenues totaled $15.7 million, up 8.4% on a constant-currency basis. Also, the segment’s same-store sales rose 7.6%. As of Mar 31, the unit had 122 company-operated locations.

Finally, Franchising revenues tumbled 34.6% to $26.1 million. This can primarily be attributed to lower inventory purchases per store. As of Mar 31, Rent-A-Center had 464 franchise-operated locations.

Other Financial Aspects

Rent-A-Center ended the reported quarter with cash and cash equivalents of $95.7 million, net senior debt of $964.1 million and a stockholders' equity of $523.1 million. RCII had an outstanding debt of $1.4 billion at the quarter end. It ended the quarter with $439 million of liquidity, including $344 million of undrawn revolving credit availability. RCII paid down $170 million on its revolving credit facility.

During the first quarter of 2022, Rent-A-Center generated cash of $205.3 million from operations and a free cash flow, including acquisitions and divestitures of $188.6 million. Capital expenditures totaled $16.4 million in the aforementioned period.
 
In the first quarter of 2022, management returned $21.1 million of cash to its shareholders via dividends.

Outlook

Management issued guidance for the second quarter and reiterated its outlook for the year. Consolidated revenues are still projected in the bracket of $4.450-$4.600 billion for 2022, indicating a rise from $4.583 billion generated in 2021. Adjusted EBITDA is forecast between $515 million and $565 million, indicating a decline from $611 million recorded a year ago. Adjusted earnings per share are still envisioned in the band of $4.50-$5.00, indicating a decline from $5.57 earned last year. Free cash flow is guided in the band of $390-$440 million.

For the second quarter of 2022, management anticipates revenues of $1.045-$1.075 billion. Adjusted EBITDA is projected between $114 million and $127 million while adjusted earnings per share are envisioned between 95 cents and$1.10.

The Zacks Consensus Estimate for earnings is pegged at $1.28 for the second quarter and $4.72 for 2022.

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