What You Need To Know From Rent-A-Center's Guidance

Rent-A-Center Inc RCII, a retailer that offers customers the ability to rent-to-own furniture and electronics, announced Monday a first quarter business update and outlook.

What Happened

Rent-A-Center said its preliminary same-store sales growth in its core U.S. business for the first quarter of 2018 rose by 0.3 percent, but March's same-store sales rose 1.6 percent. The company said its sequential improvement from the prior quarter was due to lower promotional activity, a higher portfolio balance versus last year, an increase in the average ticket per customer, and a 3.3 percent same-store sales growth at Acceptance Now.

The company also said the cost savings program it introduced earlier this year is already exceeding management's expectations. Since the start of 2017, the company has lowered its debt load by more than $75 million.

Why It's Important

Rent-A-Center's improved performance in 2018 prompted the company to revise its full year free cash flow guidance higher from at least $130 million to at least $170 million.

"Our value proposition changes being implemented in the Core U.S. business are already starting to make an impact, even in their early stages. Specifically, the targeted pricing approach with less promotional dollars being used in the Core is already providing better revenue results," said CEO Mitch Fadel.

What's Next

Rent-A-Center's update prompted Loop Capital Markets to upgrade the stock from Sell to Hold with a price target lifted from $6 to $9.

The upgrade was also justified amid ongoing reports the company has received acquisition offers. Although there are some "serious doubts" the company will sell itself, Loop Capital said Rent-A-Center "could turn out to be a highly profitable investment" with the right management team.

The stock hit an intra-day high of $10.28 and traded around $9.65 at time of publication, up 1.5 percent.

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Photo courtesy of Rent-A-Center.