RTO majors post gains; Rainbow profits drop
By Furniture Today Staff -- Furniture Today, November 3, 2003
Plano, Texas — Rent-A-Center posted an 11.2% increase in third-quarter revenues and a 9% uptick in net earnings. Meanwhile, rent-to-own major Aaron Rents racked up double-digit gains in third-quarter revenues and earnings, while Rainbow Rentals reported a big drop in net income although revenues were up modestly.
Net earnings for Rent-A-Center, the nation's largest RTO operator, grew to $43.7 million in the quarter, up from $41.4 million last year. Revenues rose to $549.8 million, while same-store revenues increased 3.4% over the same quarter last year.
Mark Speese, chairman and chief executive officer of Plano-based RAC, said earnings met expectations, but federal tax refunds sent out this summer led to a greater number of rental-contract payoffs than expected and a lower number of units on rent.
He said Rent-A-Center has seen payoff rates normalize in recent weeks, and demand remains strong, leading him to believe the company is "positioned to have a very solid fourth quarter."
Speese also revealed two new initiatives, with fast-food giant McDonald's and tax service firm Jackson Hewitt. McDonald's employees will be offered two free weeks rent when one week is paid, and Jackson Hewitt will operate kiosks in 150 to 200 RAC stores during tax season.
The latter will advertise that its services, including rapid refunds, are available in the stores, and provide incentives for refund recipients to shop Rent-A-Center. "These programs are examples of our national presence and our ability to partner with other national companies to drive business for both parties," Speese said.
Rent-A-Center remains aggressive on expansion. During the third quarter, it opened 27 stores and acquired 13 units for a total of 2,605 company-owned RAC stores and 327 franchised units, most operating as ColorTyme.
By the end of this year, it will have opened 85 to 95 stores, excluding acquisitions, and plans to open 80 to 120 stores next year. Including acquisitions, its total store count will increase this year by at least 230 to 240 stores.
Rent-A-Center's total selling square footage will grow about 10% this year and is expected to grow 5% to 10% next year.
Meanwhile, acquisitions and a 9.8% gain in same-store revenues carried Atlanta-based Aaron Rents to a 19.4% increase in revenues in the third quarter to $188.4 million. Earnings jumped 28.7% to $8.7 million.
"Our Aaron's Sales & Lease Ownership division continues to drive our performance, growing rapidly in both revenues and earnings from both new and existing stores," said Charlie Loudermilk Sr., chairman and CEO.
Revenues for the division rose 26% from the same quarter last year to $161.8 million. Revenues in the much smaller rent-to-rent unit declined 8% to $27 million, although the company said that division appears to be stabilizing.
Including franchised stores, Aaron's had total revenues of $254.4 million in the quarter, an 18% increase. System revenues for the year to date were up 18% to $756.8 million, putting the company within sight of topping $1 billion for the first time this year.
"Our goal is to increase our combined company-operated and franchise store base over the next several years in excess of 10% per year," said Loudermilk. There are now about 790 Aaron's stores.
At 125-store Rainbow Rentals, based in Canfield, Ohio, third-quarter revenues were up 4.5% to $25.4 million, with same-store revenues up 1.1%. Growth was offset by lower rentals of air conditioners, discontinued rental of accessories and promotional offers, the company said.
Net income fell 35.2% from a year ago to $217,000, held down by higher costs, including those associated with opening six stores.
Wayland J. Russell, chairman and CEO, said Rainbow has made changes to cut expenses and improve service.
| Aaron Rents | |||
|---|---|---|---|
| Earnings per share are fully diluted. | |||
| Quarter ended 9/3020032002Change | |||
| (a) Includes rentals and fees, retail sales, non-retail sales and other revenues. (b) Revenues minus cost of sales, operating expenses and depreciation of rental merchandise. (c) Reflects a 3-for-2 stock split effective Aug. 15. Based on average shares outstanding of 33.4 million in the 2003 quarter, 33 million in the 2002 quarter, 33.2 million in the 2003 nine months and 31.4 million in the 2002 nine months. | |||
| Revenues (a) | $188,406,000 | $157,838,000 | 19.4% |
| Operating income (b) | 15,194,000 | 11,805,000 | 28.7% |
| Net income | 8,651,000 | 6,721,000 | 28.7% |
| Earnings per share (c) | 0.26 | 0.20 | 30.0% |
| 9 months ended 9/30 | 2003 | 2002 | Change |
| Revenues (a) | $557,407,000 | $465,663,000 | 19.7% |
| Operating income (b) | 46,068,000 | 34,164,000 | 34.8% |
| Net income | 26,160,000 | 19,338,000 | 35.3% |
| Earnings per share (c) | 0.79 | 0.61 | 29.5% |
| Rainbow Rentals | |||
|---|---|---|---|
| Earnings per share are fully diluted, and all figures in parentheses are loses or declines. | |||
| Quarter ended 9/3020032002Change | |||
| (a) Includes rental revenue, fees and merchandise sales. (b) Revenues minus merchandise costs, store expenses and general and administrative expenses. (c) Includes net losses from discontinued operations of $26,000 in the 2003 quarter and $76,000 in the 2002 quarter. | |||
| Revenues (a) | $25,437,000 | $24,344,000 | 4.5% |
| Operating income (b) | 598,000 | 805,000 | (25.7%) |
| Net income | 217,000 | (c)335,000 | (35.2%) |
| Earnings per share | 0.04 | 0.06 | (33.3%) |
| 9 months ended 9/30 | 2003 | 2002 | Change |
| Revenues (a) | $76,957,000 | $74,145,000 | 3.8% |
| Operating income (b) | 2,271,000 | 3,127,000 | (27.4%) |
| Net income | 926,000 | (c)1,339,000 | (30.8%) |
| Earnings per share | 0.16 | 0.23 | (30.4%) |
| Rent-A-Center | |||
|---|---|---|---|
| Earnings per share are fully diluted. | |||
| Quarter ended 9/3020032002Change | |||
| (a) Includes store revenue and franchise revenue. (b) Revenues minus direct store expenses, franchise operation expenses and general and administrative expenses. (c) Includes pretax non-recurring finance charges of $7.5 million in the 2003 quarter and $35.3 million in the 2002 quarter. (d) After preferred dividends of $1.3 million in the 2002 quarter and $10.2 million in the 2002 nine months. (e) Based on average shares outstanding of 84.4 million in the 2003 quarter, 91.1 million in the 2002 quarter, 88.3 million in the 2003 nine months and 91.2 million in the 2002 nine months. | |||
| Revenues (a) | $549,825,000 | $494,561,000 | 11.2% |
| Operating income (b) | 90,685,000 | 85,644,000 | 5.9% |
| Net income | (c)43,738,000 | (d)40,128,000 | 9.0% |
| Earnings per share (e) | 0.52 | 0.46 | 13.0% |
| 9 months ended 9/30 | 2003 | 2002 | Change |
| Revenues (a) | $1,669,491,000 | $1,487,831,000 | 12.2% |
| Operating income (b) | 290,383,000 | 263,822,000 | 10.1% |
| Net income | (c)129,997,000 | (d)116,744,000 | 11.4% |
| Earnings per share (e) | 1.47 | 1.39 | 5.8% |
