Buying furniture is always a hassle. It is expensive and finding that right piece is always a problem and cost is always an issue. However, for the blue-collar working class that is less of a problem. They can always go to Rent-A-Center and rent to own and fill their apartment from wall to wall.
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RCII - Rent-A-Center - Company Profile
Rent-A-Center leases household durable goods to customers on a rent to own basis. They offer products including consumer electronics, appliances, computers, tablets, smartphones and furniture. They also offer the products on an installment sale basis.
Their recent earnings of 48 cents fell -7.7% but they did beat estimates of 40 cents. Unfortunately, revenue declined -4.8% to $835.7 million and missed estimates for $851.1 million. Same store sales declined -2.5% overall and U.S. stores fell -3.8%.
The CEO said improving cost controls helped them beat on the top line. Unfortunately, when sales are falling you cannot continue to cut costs indefinitely. Sales have to rise in order to succeed.
The Acceptance Now division saw a zero increase in sales after rising sharply in the prior quarter. That division takes credit application at more than 1,400 kiosks in the U.S. and once approved the customer can shop at a large number of dealers that partner with RCII. The drop in revenue growth is due to higher numbers of credit declines.
Management also said rentals of computers, tablets and smartphones were also declining.
With same store sales declining and credit approvals harder to get, the company could continue to decline until those problems are reversed. I am targeting $10 on this position.
Earnings July 27th.
Sell short RCII shares, currently $12.21, initial stop loss $12.95.
No options recommended because of wide spreads.