Exhibit 99.1
For Immediate Release:
RENT-A-CENTER, INC. REPORTS
SECOND QUARTER 2007 RESULTS
Same Store Sales Increase 2.7%
Reported Diluted Earnings per Share of $0.58
Board Increases Stock Repurchase Authorization by $100 Million
Plano, Texas, July 30, 2007— Rent-A-Center, Inc. (the “Company”) (NASDAQ/NGS:RCII), the nation’s largest rent-to-own operator, today announced revenues and earnings for the quarter ended June 30, 2007.
Second Quarter 2007 Results
The Company reported total revenues for the quarter ended June 30, 2007 of $724.2 million, a $140.6 million increase from the reported total revenues of $583.6 million for the same period in the prior year. This 24.1% increase in revenues was primarily driven by the Rent-Way acquisition that closed on November 15, 2006, and a 2.7% increase in same store sales.
Reported net earnings for the quarter ended June 30, 2007 were $41.3 million, an increase of $1.5 million, or 3.8% from the reported net earnings of $39.8 million for the same period in the prior year. Reported diluted earnings per share were $0.58, an increase of $0.02, or 3.6% from the reported diluted earnings per share of $0.56 for the same period in the prior year.
“Although our second quarter financial results for revenue and earnings per diluted share were within our guidance range and our same store sales increased 2.7%, the business environment has been very challenging as of late,” commented Mark E. Speese, the Company’s Chairman and Chief Executive Officer. “We believe that the financial challenges facing our customers have increased recently, resulting in a softer outlook for the balance of this year. As a result, we are lowering our guidance for the remainder of 2007,” Speese continued. “We will continue to invest in our core business and carry out initiatives to improve execution at the store level as we work our way through, what we believe, will be a temporarily difficult period,” Speese stated.
Six Months Ended June 30, 2007 Results
Total reported revenues for the six months ended June 30, 2007 increased to $1.479 billion, a 24.2% increase from $1.191 billion for the same period in the prior year. Same store revenues for the six month period ending June 30, 2007 increased 2.8%.
Reported net earnings for the six months ended June 30, 2007 were $56.4 million, when including thePerezlitigation charges discussed below, a decrease of $23.8 million from the reported net earnings of $80.2 million for the same period in the prior year. Reported diluted earnings per share were $0.79, when including thePerezlitigation charges discussed below, a decrease of $0.35 from the reported diluted earnings per share of $1.14 for the same period in the prior year.
Net earnings, when adjusting for the $51.3 millionPerezlitigation charge discussed below, for the six months ended June 30, 2007 were $88.5 million, an increase of $8.3 million, or 10.3% from the reported net earnings of $80.2 million for the same period in the prior year. Diluted earnings per share, when adjusting for the $51.3 millionPerezlitigation charge discussed below, were $1.25, an increase of $0.11, or 9.7% from the reported diluted earnings per share of $1.14 for the same period in the prior year.
The Company also announced today that its Board of Directors has increased the authorization for stock repurchases under the Company’s common stock repurchase plan from $400 million to $500 million. Under the Company’s common stock repurchase plan, shares may be repurchased in the open market or in privately negotiated transactions at times and amounts considered appropriate by the Company. To date, the Company has repurchased a total of 15,928,550 shares for approximately $395.8 million in cash under the plan since inception. Through the six month period ended June 30, 2007, the Company has repurchased a total of 1,299,750 shares for approximately $35.0 million in cash.
Through the six month period ended June 30, 2007, the Company generated cash flow from operations of approximately $143.1 million, while ending the quarter with approximately $79.0 million of cash on hand.
Operations Highlights
During the second quarter of 2007, the Company opened four new store locations, acquired 13 stores as well as accounts from three locations, consolidated 19 stores into existing locations and sold one store, for a net reduction of three stores and an ending balance as of June 30, 2007 of 3,375 company-owned stores. During the second quarter of 2007, the Company added financial services to 58 existing rent-to-own store locations, consolidated five stores with financial services into existing locations, and closed nine locations, ending the quarter with a total of 221 stores providing these services.
Through the six month period ended June 30, 2007, the Company opened 10 new store locations, acquired 13 stores as well as accounts from six additional locations, consolidated 52 stores into existing locations, and sold two stores, for a net reduction of 31 stores since December 31, 2006. Through the six month period ending June 30, 2007, the Company added financial services to 87 existing rent-to-own store locations, consolidated seven stores with financial services into existing locations, and closed nine locations, for a net addition of 71 stores providing these services.
Since June 30, 2007, the Company has opened two new store locations, acquired three stores and consolidated three stores into existing locations. The Company has added financial services to 21 existing rent-to-own store locations since June 30, 2007.
2007 Litigation Expense
Hilda Perez. As previously announced on April 30, 2007, the Company has reached a settlement with the plaintiffs to resolve theHilda Perez v. Rent-A-Centermatter, a putative class action filed in the Superior Court, Law Division, Camden County, New Jersey. Under the terms of the settlement, which has now been documented and preliminarily approved by the court, we anticipate we will pay into the settlement fund an aggregate of approximately $85.8 million in cash, to be distributed to an agreed upon class of our customers who entered into rent-to-own agreements in New Jersey from April 23, 1999 through March 16, 2006. We also anticipate paying the plaintiffs’ attorneys fees and costs to administer the settlement, in the aggregate amount of approximately $23.5 million. Under the terms of the settlement, we are entitled to 50% of any undistributed monies in the settlement fund. In connection with the settlement, we are not admitting liability for our past business practices in New Jersey. The Company recorded a pre-tax expense of $58.0 million in connection with the Perez matter during the fourth quarter of 2006, and an additional pre-tax charge of $51.3 million in the first quarter of 2007, to account for the aforementioned costs. The litigation expense with respect to the Perez settlement reduced diluted earnings per share by approximately $0.45 in the first quarter of 2007 and by approximately $0.46 for the six month period ended June 30, 2007.
The Company expects to fund the settlement with cash flow generated from operations, together with amounts available under its senior credit facilities. The hearing on a motion for final approval of the settlement is scheduled for September 14, 2007, and funding of the settlement is anticipated to occur in the fourth quarter of 2007.
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Rent-A-Center will host a conference call to discuss the second quarter results, guidance and other operational matters on Tuesday morning, July 31, 2007, at 10:45 a.m. EST. For a live webcast of the call, visithttp://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 approximately 3,380 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 approximately 270 rent-to-own stores operating under the trade name of “ColorTyme.”
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, the $51.3 million pre-tax litigation expense in the first quarter of 2007 associated with the settlement in thePerezcase, or the potential impact of acquisitions or dispositions that may be completed after June 30, 2007.
THIRD QUARTER 2007 GUIDANCE:
Revenues
• | | The Company expects total revenues to be in the range of $695 million to $710 million. |
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• | | Store rental and fee revenues are expected to be between $633 million and $645 million. |
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• | | Total store revenues are expected to be in the range of $686 million to $701 million. |
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• | | Same store sales are expected to be flat to (1.5%). |
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• | | The Company expects to open 8 — 12 new rent-to-own store locations. |
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• | | The Company expects to add financial services to 55 – 75 rent-to-own store locations. |
Expenses
• | | The Company expects cost of rental and fees to be between 22.0% and 22.4% of store rental and fee revenue and cost of merchandise sold to be between 74% and 78% of store merchandise sales. |
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• | | Store salaries and other expenses are expected to be in the range of 60.7% to 62.2% of total store revenue. |
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• | | General and administrative expenses are expected to be between 4.3% and 4.5% of total revenue. |
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• | | Net interest expense is expected to be approximately $22 million, depreciation of property assets is expected to be approximately $18 million and amortization of intangibles is expected to be approximately $4 million. |
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• | | The effective tax rate is expected to be approximately 36.5% of pre-tax income. |
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• | | Diluted earnings per share are estimated to be in the range of $0.30 to $0.36. |
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• | | Diluted shares outstanding are estimated to be between 70.6 million and 71.6 million. |
FISCAL 2007 GUIDANCE:
Revenues
• | | The Company expects total revenues to be in the range of $2.905 billion and $2.935 billion. |
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• | | Store rental and fee revenues are expected to be between $2.610 billion and $2.640 billion. |
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• | | Total store revenues are expected to be in the range of $2.864 billion and $2.894 billion. |
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• | | Same store sales are expected to be in the 1.0% to 2.0% range. |
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• | | The Company expects to open approximately 30 new rent-to-own store locations. |
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• | | The Company expects to add financial services to approximately 200 rent-to-own store locations. |
Expenses
• | | The Company expects cost of rental and fees to be between 21.8% and 22.2% of store rental and fee revenue and cost of merchandise sold to be between 70% and 75% of store merchandise sales. |
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• | | Store salaries and other expenses are expected to be in the range of 58.0% to 59.5% of total store revenue. |
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• | | General and administrative expenses are expected to be between 4.1% and 4.3% of total revenue. |
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• | | Net interest expense is expected to be between $85 million and $89 million, depreciation of property assets is expected to be between $68 million and $73 million and amortization of intangibles is expected to be approximately $16 million. |
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• | | The effective tax rate is expected to be approximately 36.5% of pre-tax income. |
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• | | Diluted earnings per share are estimated to be in the range of $2.06 to $2.14. |
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• | | Diluted shares outstanding are estimated to be between 70.6 million and 71.6 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 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 identify and successfully enter new lines of business offering products and services that appeal to its customer demographic, including its financial services products; the Company’s ability to enhance the performance of acquired stores, including the Rent-Way stores acquired in November 2006; the Company’s ability to control costs; the Company’s ability to identify and successfully market products and services that appeal to its customer demographic; the Company’s ability to enter into new and collect on its rental purchase agreements; the Company’s ability to enter into new and collect on its short term loans; the passage of legislation adversely affecting the rent-to-own or financial services industries; interest rates; economic pressures affecting the disposable income available to the Company’s targeted consumers, such as high fuel and utility costs; changes in the Company’s stock price and the number of shares of common stock that it may or may not repurchase; changes in estimates relating to self-insurance liabilities and income tax and litigation reserves; changes in the Company’s effective tax rate; the Company’s ability to maintain an effective system of internal controls; changes in the number of share-based compensation grants, methods used to value future share-based payments and changes in estimated forfeiture rates with respect to share-based compensation; the resolution of the Company’s litigation; the court hearing the Perez case could refuse to approve the settlement or could require changes to the settlement that are unacceptable to the Company or the plaintiffs; one or more parties filing an objection to the settlement of the Perez case; and the other risks detailed from time to time in our SEC reports, including but not limited to, the Company’s annual report onForm 10-K for the year ended December 31, 2006, and its quarterly report for the quarter ended March 31, 2007. 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.
Contact for Rent-A-Center, Inc.:
David E. Carpenter
Vice President of Investor Relations
(972) 801-1214
dcarpenter@racenter.com
Rent-A-Center, Inc. and Subsidiaries
STATEMENT OF EARNINGS HIGHLIGHTS
| | | | | | | | |
| | Three Months Ended June 30, |
(In Thousands of Dollars, except per share data) | | 2007 | | 2006 |
| | |
|
Total Revenue | | $ | 724,158 | | | $ | 583,623 | |
Operating Profit | | | 87,024 | | | | 75,193 | |
Net Earnings | | | 41,251 | | | | 39,843 | |
Diluted Earnings per Common Share | | $ | 0.58 | | | $ | 0.56 | |
Adjusted EBITDA | | $ | 108,608 | | | $ | 89,670 | |
| | | | | | | | |
Reconciliation to Adjusted EBITDA: | | | | | | | | |
| | | | | | | | |
Earnings before income taxes | | | 65,066 | | | | 63,291 | |
Add back: | | | | | | | | |
Interest expense, net | | | 21,958 | | | | 11,902 | |
Depreciation of property assets | | | 17,650 | | | | 13,527 | |
Amortization of intangibles | | | 3,934 | | | | 950 | |
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| | | | | | | | |
Adjusted EBITDA | | $ | 108,608 | | | $ | 89,670 | |
| | | | | | | | | | | | |
| | Six Months Ended June 30, |
(In Thousands of Dollars, except per share data) | | 2007 | | 2007 | | 2006 |
| | |
| | Before | | After | | | | |
| | Litigation | | Litigation | | | | |
| | |
Total Revenue | | $ | 1,479,457 | | | $ | 1,479,457 | | | $ | 1,190,598 | |
Operating Profit | | | 184,429 | | | | 133,179 | (1) | | | 150,677 | |
Net Earnings | | | 88,545 | | | | 56,354 | (1) | | | 80,171 | |
Diluted Earnings per Common Share | | $ | 1.25 | | | $ | 0.79 | (1) | | $ | 1.14 | |
Adjusted EBITDA | | $ | 226,978 | | | $ | 226,978 | | | $ | 179,507 | |
| | | | | | | | | | | | |
Reconciliation to Adjusted EBITDA: | | | | | | | | | | | | |
| | | | | | | | | | | | |
Earnings before income taxes | | | 140,136 | | | | 88,886 | | | | 127,212 | |
Add back: | | | | | | | | | | | | |
Litigation expense | | | — | | | | 51,250 | | | | — | |
Interest expense, net | | | 44,293 | | | | 44,293 | | | | 23,465 | |
Depreciation of property assets | | | 34,577 | | | | 34,577 | | | | 26,994 | |
Amortization of intangibles | | | 7,972 | | | | 7,972 | | | | 1,836 | |
| | |
| | | | | | | | | | | | |
Adjusted EBITDA | | $ | 226,978 | | | $ | 226,978 | | | $ | 179,507 | |
| | |
(1) | | Includes the effects of a $51.3 million pre-tax litigation expense in the first quarter of 2007 associated with the prospective settlement in thePerezcase. The expense decreased diluted earnings per share by $0.46 for the six months ended June 30, 2007. |
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Selected Balance Sheet Data:(in Thousands of Dollars) | | June 30, 2007 | | | June 30, 2006 | |
Cash and cash equivalents | | $ | 79,020 | | | $ | 41,174 | |
Prepaid expenses and other assets | | | 47,300 | | | | 34,133 | |
| | | | | | | | |
Rental merchandise, net | | | | | | | | |
On rent | | | 798,285 | | | | 633,749 | |
Held for rent | | | 237,876 | | | | 178,667 | |
Total Assets | | | 2,726,243 | | | | 2,006,846 | |
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Senior debt | | | 932,974 | | | | 417,155 | |
Subordinated notes payable | | | 300,000 | | | | 300,000 | |
Total Liabilities | | | 1,753,831 | | | | 1,091,096 | |
Stockholders’ Equity | | | 972,412 | | | | 915,750 | |
Rent-A-Center, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
| | | | | | | | |
| | Three Months Ended June 30, | |
(In Thousands of Dollars, except per share data) | | 2007 | | | 2006 | |
| | Unaudited | |
Store Revenue | | | | | | | | |
Rentals and Fees | | $ | 662,096 | | | $ | 527,076 | |
Merchandise Sales | | | 39,584 | | | | 38,428 | |
Installment Sales | | | 7,646 | | | | 5,728 | |
Other | | | 6,570 | | | | 3,254 | |
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| | | | | | | | |
| | | 715,896 | | | | 574,486 | |
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Franchise Revenue | | | | | | | | |
Franchise Merchandise Sales | | | 6,955 | | | | 7,892 | |
Royalty Income and Fees | | | 1,307 | | | | 1,245 | |
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Total Revenue | | | 724,158 | | | | 583,623 | |
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Operating Expenses | | | | | | | | |
Direct Store Expenses | | | | | | | | |
Cost of Rentals and Fees | | | 145,927 | | | | 114,733 | |
Cost of Merchandise Sold | | | 29,948 | | | | 28,403 | |
Cost of Installment Sales | | | 3,129 | | | | 2,398 | |
Salaries and Other Expenses | | | 417,114 | | | | 333,113 | |
Franchise Cost of Merchandise Sold | | | 6,663 | | | | 7,580 | |
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| | | | | | | | |
| | | 602,781 | | | | 486,227 | |
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General and Administrative Expenses | | | 30,419 | | | | 21,253 | |
Amortization of Intangibles | | | 3,934 | | | | 950 | |
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| | | | | | | | |
Total Operating Expenses | | | 637,134 | | | | 508,430 | |
| | | | | | |
| | | | | | | | |
Operating Profit | | | 87,024 | | | | 75,193 | |
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Interest Expense | | | 23,431 | | | | 13,301 | |
Interest Income | | | (1,473 | ) | | | (1,399 | ) |
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Earnings before Income Taxes | | | 65,066 | | | | 63,291 | |
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Income Tax Expense | | | 23,815 | | | | 23,448 | |
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NET EARNINGS | | | 41,251 | | | | 39,843 | |
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BASIC WEIGHTED AVERAGE SHARES | | | 69,822 | | | | 69,545 | |
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BASIC EARNINGS PER COMMON SHARE | | $ | 0.59 | | | $ | 0.57 | |
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DILUTED WEIGHTED AVERAGE SHARES | | | 70,764 | | | | 70,640 | |
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DILUTED EARNINGS PER COMMON SHARE | | $ | 0.58 | | | $ | 0.56 | |
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Rent-A-Center, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
| | | | | | | | |
| | Six Months Ended June 30, | |
(In Thousands of Dollars, except per share data) | | 2007 | | | 2006 | |
| | Unaudited | |
Store Revenue | | | | | | | | |
Rentals and Fees | | $ | 1,322,209 | | | $ | 1,047,459 | |
Merchandise Sales | | | 107,921 | | | | 102,591 | |
Installment Sales | | | 16,056 | | | | 11,579 | |
Other | | | 13,746 | | | | 6,540 | |
| | | | | | |
| | | | | | | | |
| | | 1,459,932 | | | | 1,168,169 | |
| | | | | | | | |
Franchise Revenue | | | | | | | | |
Franchise Merchandise Sales | | | 16,880 | | | | 19,973 | |
Royalty Income and Fees | | | 2,645 | | | | 2,456 | |
| | | | | | |
| | | | | | | | |
Total Revenue | | | 1,479,457 | | | | 1,190,598 | |
| | | | | | | | |
Operating Expenses | | | | | | | | |
Direct Store Expenses | | | | | | | | |
Cost of Rentals and Fees | | | 288,996 | | | | 227,500 | |
Cost of Merchandise Sold | | | 75,978 | | | | 72,533 | |
Cost of Installment Sales | | | 6,674 | | | | 4,821 | |
Salaries and Other Expenses | | | 837,841 | | | | 671,884 | |
Franchise Cost of Merchandise Sold | | | 16,150 | | | | 19,136 | |
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| | | | | | | | |
| | | 1,225,639 | | | | 995,874 | |
| | | | | | | | |
General and Administrative Expenses | | | 61,417 | | | | 42,211 | |
Amortization of Intangibles | | | 7,972 | | | | 1,836 | |
Litigation settlement/(reversion) | | | 51,250 | | | | — | |
| | | | | | |
| | | | | | | | |
Total Operating Expenses | | | 1,346,278 | | | | 1,039,921 | |
| | | | | | |
| | | | | | | | |
Operating Profit | | | 133,179 | | | | 150,677 | |
| | | | | | | | |
Interest Expense | | | 47,527 | | | | 26,324 | |
Interest Income | | | (3,234 | ) | | | (2,859 | ) |
| | | | | | |
| | | | | | | | |
Earnings before Income Taxes | | | 88,886 | | | | 127,212 | |
| | | | | | | | |
Income Tax Expense | | | 32,532 | | | | 47,041 | |
| | | | | | |
| | | | | | | | |
NET EARNINGS | | | 56,354 | | | | 80,171 | |
| | | | | | | | |
BASIC WEIGHTED AVERAGE SHARES | | | 70,054 | | | | 69,401 | |
| | | | | | |
| | | | | | | | |
BASIC EARNINGS PER COMMON SHARE | | $ | 0.80 | | | $ | 1.16 | |
| | | | | | |
| | | | | | | | |
DILUTED WEIGHTED AVERAGE SHARES | | | 71,051 | | | | 70,445 | |
| | | | | | |
| | | | | | | | |
DILUTED EARNINGS PER COMMON SHARE | | $ | 0.79 | | | $ | 1.14 | |
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