Rent-A-Center's Full Year Guidance Appears To Come Up Short

Small Cap Watch List member Rent-A-Center (RCII) reported earnings:

The Company reported total revenues for the quarter ended March 31, 2007 of $755.3 million, a $148.3 million increase from the reported total revenues of $607.0 million for the same period in the prior year. This 24.4% increase in revenues was primarily driven by the Rent-Way acquisition that closed on November 15, 2006, and a 2.9% increase in same store sales. Reported net earnings for the quarter ended March 31, 2007 were $15.1 million, when including the Perez litigation charges discussed below, a decrease of $25.2 million from the reported net earnings of $40.3 million for the same period in the prior year. Reported diluted earnings per share were $0.21, when including the Perez litigation charges discussed below, a decrease of $0.36 from the reported diluted earnings per share of $0.57 for the same period in the prior year.

Adjusted net earnings for the quarter ended March 31, 2007 were $47.3 million, when excluding the Perez litigation charges discussed below, an increase of $7.0 million, or 17.4% from the reported net earnings of $40.3 million for the same period in the prior year. Adjusted diluted earnings per share were $0.66, when excluding the Perez litigation charges discussed below, an increase of $0.09, or 15.8% from the reported diluted earnings per share of $0.57 for the same period in the prior year.

The Perez litigation charges reflect a settlement for alleged usury. Analysts had been expecting the company to earn $0.65 on $756 million in sales, and the estimates for next quarter averaged $0.58 on $723 million in revenues. The company’s guidance of $719 million to $734 million in revenue and $0.57-$0.63 in EPS would normally seem more than adequate. However, the full year guidance appears to come up short. The company expects EPS of $2.24-$2.32, compared to a consensus estimate of $2.31. The revenue guidance range is also mostly below the consensus target.

It will be interesting to see why the company expects lower revenue and earnings than analysts had, given an in-line first quarter and a likely better than expected second quarter.

RCII 1-yr chart: