Rent-A-Center: Earnings Preview

| About: Rent-A-Center Inc. (RCII)

Rent-A-Center Inc. (RCII) is scheduled to report its third-quarter 2010 financial results after the market close on Monday, October 25, 2010. The current Zacks Consensus Estimate for the quarter is 55 cents a share. For the quarter, revenues are $665 million, according to the Zacks Consensus Estimate.

Second-Quarter 2010, a Synopsis
On July 26, 2010, Rent-A-Center delivered better-than-expected second-quarter 2010 results. The quarterly earnings of 72 cents a share, outpaced the Zacks Consensus Estimate of 67 cents, and soared 18% from 61 cents registered in the prior-year quarter.

Rent-A-Center’s total revenue, which comprises store and franchise revenues, dropped 1.2% to $671.5 million, compared with the year-ago quarter, and also fell short of the Zacks Consensus Revenue Estimate of $680 million.

Despite a low-single digit decline in the top-line, the company posted a double-digit growth in the bottom line on the heels of effective cost and inventory management.

Third-Quarter 2010 Guidance
Rent-A-Center guided third-quarter 2010 earnings in the range of 52 cents to 58 cents a share. Total revenue is expected to be in the range of $648 million to $663 million for the quarter. The current Zacks Consensus Estimate of 55 cents dovetails with the company’s earnings guidance range. However, the Zacks Revenue Estimate of $665 million remains ahead of the company’s projected revenue.

Third-Quarter 2010 Consensus
Analysts considered by Zacks, expect Rent-A-Center to post third-quarter 2010 earnings of 55 cents a share. The current Zacks Consensus Estimate remains in line with the company’s prior-year quarter earnings. The current Zacks Consensus Estimates for the quarter range from a low of 53 cents to a high of 57 cents.

The current Zacks Consensus Estimate has remained stagnant over the last 30 days with none of the 9 analysts covering the stock revising their estimates. In the last 7 days too, no analysts have revisited their estimates keeping the consensus unchanged.

With respect to earnings surprises, Rent-A-Center has outperformed the Zacks Consensus Estimate over the last four quarters in the range of 7.5% to 16.7%, with an average of 12.5%. This suggests that Rent-A-Center has a history of positive surprises.

Rent-A-Center - Zacks #3 Rank
Currently, we have a Neutral recommendation on the stock. Moreover, Rent-A-Center holds a Zacks #3 Rank, which translates into a short-term Hold rating and correlates with our long-term view.

Rent-A-Center is one of the largest rent-to-own operators in the U.S. and leverages an extensive network of about 3,000 stores to effectively penetrate its target markets, and gain a competitive advantage over its competitors, such as Aaron’s Inc. (AAN), and Advance America.

Rent-A-Center offers consumer electronics, appliances and furniture products under rental purchase schemes that allow the customer to own the merchandise on the completion of the rental period. Due to the continued tightening of the credit market, customers see rent-to-own as a more flexible and viable option compared to credit. However, the sluggish recovery and a fragile job market may make customers reluctant to even enter new rental purchase deals.