bearcasenyc

Aaron Rents Can Benefit from This Credit Environment

After listening to the RNT and RCII earnings call I am very surprised
from the the divergence in stock price performance. Excluding
furniture manufacturing for RNT and payday lending for RCII, these two
businesses are quite similar.

RCII stated they are experiencing customer count declines (even though
some higher income consumers are trading down) and projecting flat
same-store-sales ("SSS") for 2009 (I actually think they know there
will be SSS declines in 2009 b/c they are over-forecasting the price
of gasoline in their model). Additionally, they are experiencing
items rented per customer declining (1.59 units to 1.50 units) and
average rental price down $1. Charge-offs have also picked up. The
stock has traded down significantly as a result.

RNT is saying that they are experiencing customer increases and pick-
ups in SSS. Mgmt said for company owned stores, they experienced SSS
up 5.7% for stores open more than 15 months and SSS up for stores open
more than 24 months. Why is there such variability between store
ages? Also, franchisee SSS are up more than 18% - how is that
possible to have such a divergence from company owned stores and the
broader retail market? Mgmt said that average rental prices are down
8%, so to hit these high SSS they must have experienced a massive
increase in customer count. On the last call when asked what the same
store customer count was, Robin Loudermilk quickly said that he didn't
have that data available, even though Charlie said that is a metric he
looks at every day. Robin and the CFO were very quick to rattle off a
number of other very positive stats through out the call, however.
RNT is forecasting 2009 EPS of $1.65 to $1.80 - a pick-up to 2008. I
am really not sure what is going on here, but my feeling is that they
are engaging in some fuzzy accounting and hiding real performance with
asset sales and purchases. Their franchisee lender, SunTrust,
increased the guarantee requirement from 50% of the loan to 100% of
the loan, which would imply that they are seeing some issues with the
business. The Loudermilks have been selling shares (~450k this year)
regularly in 2008, too.

If someone can explain how the store operating metrics for Q3 and
expectations for 2009 can be so different I would be all ears. At the
end of the day, I think that RNT is trying to obscure actual
performance results for long enough for the economy to strengthen. I
think that if the economy doesn't turn by 2Q-09 the "lipstick on the
pig" will be washed clean.