Rent-A-Center, Inc. Reports Second Quarter 2008 Results

Rent-A-Center, Inc. (the "Company”) (NASDAQ/NGS:RCII), the nation’s largest rent-to-own operator, today announced revenues and earnings for the quarter ended June 30, 2008. Second Quarter 2008 Results Total revenues for the quarter ended June 30, 2008 were $719.0 million, a decrease of $5.2 million from the total revenues of $724.2 million for the same period in the prior year. This decrease in revenues was primarily the result of approximately 325 fewer stores over the past year principally due to the previously announced restructuring plan, offset by a 0.9% increase in same store sales. Net earnings for the quarter ended June 30, 2008 were $37.7 million, as compared to the net earnings of $41.3 million for the same period in the prior year. Net earnings per diluted share for the quarter ended June 30, 2008 were $0.56, as compared to the net earnings per diluted share of $0.58 for the same period in the prior year. "Our operating team executed well in the second quarter in spite of the difficult economic conditions,” commented Mark E. Speese, the Company’s Chairman and Chief Executive Officer. "We exceeded our guidance for same store sales and were within our guidance for store rental and fee revenue and diluted earnings per share,” Speese continued. "We continue to be cautiously optimistic about the near term. We believe that we are well positioned with our marketing and advertising plans in place and should also benefit from customers attracted to our transaction due to the difficult credit environment. And we will continue to use our account-management skills to maintain a focus on our collections,” Speese concluded. Six Months Ended June 30, 2008 Results Total revenues for the six months ended June 30, 2008 were $1.476 billion, a decrease of $3.0 million from the total revenues of $1.479 billion for the same period in the prior year. This decrease in revenues was primarily the result of approximately 325 fewer stores over the past year principally due to the previously announced restructuring plan, offset by a 2.2% increase in same store sales. Net earnings for the six months ended June 30, 2008 were $74.1 million, as compared to the net earnings of $56.4 million for the same period in the prior year. Net earnings for the six months ended June 30, 2008 were reduced by a $2.9 million pre-tax restructuring expense related to the previously announced restructuring plan, as discussed below. Net earnings for the six months ended June 30, 2007 were reduced by a $51.3 million pre-tax litigation charge related to the Hilda Perez matter, as discussed below. Net earnings per diluted share for the six months ended June 30, 2008 were $1.10, as compared to the net earnings per diluted share of $0.79 for the same period in the prior year. Net earnings per diluted share for the six months ended June 30, 2008 were reduced by approximately $0.03 per share as a result of the restructuring expense related to the previously announced restructuring plan, as discussed below. Net earnings per diluted share for the six months ended June 30, 2007 were reduced by approximately $0.46 per share as a result of the litigation expense related to the Hilda Perez matter, as discussed below. "As a result of our strong operating results, we generated cash flow from operations of approximately $213.1 million for the six month period through June 30, 2008, while ending the quarter with approximately $75.1 million of cash on hand,” commented Robert D. Davis, the Company’s Executive Vice President and Chief Financial Officer. "With our significant cash flow year-to-date, we were able to strengthen our balance sheet by reducing our outstanding indebtedness by approximately $200.9 million,” Davis continued. "Since June 30, 2008, the Company has further reduced its outstanding indebtedness by $24.0 million,” Davis concluded. During the six month period ended June 30, 2008, the Company also repurchased 150,000 shares of its common stock for $3.1 million in cash under its common stock repurchase program. To date, the Company has repurchased a total of 18,610,950 shares and has utilized approximately $447.4 million of the $500.0 million authorized by its Board of Directors since the inception of the plan. Operations Highlights During the second quarter of 2008, the Company opened one new store location, acquired one store as well as accounts from 10 additional locations, consolidated nine stores into existing locations and sold six stores, for a net reduction of 13 stores and an ending balance as of June 30, 2008 of 3,053 company-owned stores. During the second quarter of 2008, the Company added financial services to 26 existing rent-to-own store locations, acquired accounts from one location, and closed two locations, for a net addition of 24 store locations and an ending balance as of June 30, 2008 of 304 store locations providing financial services. Through the six month period ended June 30, 2008, the Company opened three new store locations, acquired one store as well as accounts from 16 additional locations, consolidated 19 stores into existing locations and sold 13 stores, for a net reduction of 28 stores since December 31, 2007. Through the six month period ending June 30, 2008, the Company added financial services to 33 existing rent-to-own store locations, acquired accounts from one location, consolidated two stores with financial services into existing locations, and closed three locations, for a net addition of 28 store locations since December 31, 2007. Since June 30, 2008, the Company has opened one new store location and acquired accounts from one location. The Company has added financial services to 19 existing rent-to-own store locations since June 30, 2008. 2008 Significant Item Restructuring Plan Expenses. During the first quarter of 2008, the Company recorded a pre-tax restructuring expense of approximately $2.9 million in connection with the restructuring plan previously announced on December 3, 2007. This restructuring expense reduced net earnings per diluted share by approximately $0.03 in the first quarter of 2008 and for the six month period ended June 30, 2008. As previously reported, the Company recorded a pre-tax restructuring expense of approximately $38.7 million related to this restructuring plan during the fourth quarter of 2007. The costs with respect to the restructuring plan relate primarily to lease terminations, fixed asset disposals and other miscellaneous items. 2007 Significant Item Hilda Perez. On November 5, 2007, the Company paid an aggregate of $109.3 million, including plaintiffs’ attorneys’ fees and administration costs, pursuant to the court approved settlement of the Hilda Perez v. Rent-A-Center, Inc. matter pending in New Jersey. As previously reported, the Company recorded a pre-tax expense of $58.0 million in connection with the Perez matter during the fourth quarter of 2006, and an additional pre-tax charge of $51.3 million in the first quarter of 2007, to account for the aforementioned costs. The litigation expense with respect to the Perez settlement reduced net earnings per diluted share by approximately $0.46 in the first quarter of 2007 and for the six month period ended June 30, 2007. Rent-A-Center, Inc. will host a conference call to discuss the second quarter results, guidance and other operational matters on Tuesday morning, July 29, 2008, at 10:45 a.m. EDT. For a live webcast of the call, visit http://investor.rentacenter.com. Certain financial and other statistical information that will be discussed during the conference call will also be provided on the same website. Rent-A-Center, Inc., headquartered in Plano, Texas, currently operates approximately 3,054 company-owned stores nationwide and in Canada and Puerto Rico. The stores generally offer high-quality, durable goods such as major consumer electronics, appliances, computers and furniture and accessories under flexible rental purchase agreements that generally allow the customer to obtain ownership of the merchandise at the conclusion of an agreed upon rental period. ColorTyme, Inc., a wholly owned subsidiary of the Company, is a national franchiser of approximately 228 rent-to-own stores operating under the trade name of "ColorTyme." The following statements are based on current expectations. These statements are forward-looking and actual results may differ materially. These statements do not include the potential impact of any repurchases of common stock the Company may make, reduction in outstanding indebtedness, any restructuring expenses related to the restructuring plan announced on December 3, 2007, or the potential impact of acquisitions or dispositions that may be completed after July 28, 2008. THIRD QUARTER 2008 GUIDANCE: Revenues The Company expects total revenues to be in the range of $700 million to $715 million. Store rental and fee revenues are expected to be between $619 million and $631 million. Total store revenues are expected to be in the range of $692 million to $707 million. Same store sales are expected to be in the 3% to 4% range. The Company expects to open approximately 5 new rent-to-own store locations. The Company expects to add financial services to approximately 60 rent-to-own store locations. Expenses The Company expects cost of rental and fees to be between 22.6% and 23.0% of store rental and fee revenue and cost of merchandise sold to be between 75% and 79% of store merchandise sales. Store salaries and other expenses are expected to be in the range of 58.4% to 59.9% of total store revenue. General and administrative expenses are expected to be between 4.3% and 4.5% of total revenue. Net interest expense is expected to be approximately $14 million, depreciation of property assets is expected to be approximately $18 million and amortization of intangibles is expected to be approximately $3.5 million. The effective tax rate is expected to be in the range of 36.0% to 36.5% of pre-tax income. Diluted earnings per share are estimated to be in the range of $0.45 to $0.50. Diluted shares outstanding are estimated to be between 67.0 million and 68.0 million. FISCAL 2008 GUIDANCE: Revenues The Company expects total revenues to be in the range of $2.890 billion and $2.920 billion. Store rental and fee revenues are expected to be between $2.520 billion and $2.550 billion. Total store revenues are expected to be in the range of $2.851 billion and $2.881 billion. Same store sales are expected to be in the 1% to 3% range. The Company expects to open approximately 20 new rent-to-own store locations. The Company expects to add financial services to approximately 150 rent-to-own store locations. Expenses The Company expects cost of rental and fees to be between 22.6% and 23.0% of store rental and fee revenue and cost of merchandise sold to be between 75% and 79% of store merchandise sales. Store salaries and other expenses are expected to be in the range of 56.9% to 58.4% of total store revenue. General and administrative expenses are expected to be between 4.3% and 4.5% of total revenue. Net interest expense is expected to be approximately $62 million, depreciation of property assets is expected to be between $70 million and $75 million and amortization of intangibles is expected to be approximately $14 million. The effective tax rate is expected to be approximately 37% of pre-tax income. Diluted earnings per share are estimated to be in the range of $2.20 to $2.30. Diluted shares outstanding are estimated to be between 67.0 million and 68.0 million. This press release and the guidance above contain forward-looking statements that involve risks and uncertainties. Such forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "could," "estimate," "should," "anticipate," or "believe," or the negative thereof or variations thereon or similar terminology. Although the Company believes that the expectations reflected in such forward-looking statements will prove to be correct, the Company can give no assurance that such expectations will prove to have been correct. The actual future performance of the Company could differ materially from such statements. Factors that could cause or contribute to such differences include, but are not limited to: uncertainties regarding the ability to open new rent-to-own stores; the Company's ability to acquire additional rent-to-own stores or customer accounts on favorable terms; the Company’s ability to successfully add financial services locations within its existing rent-to-own stores; the Company's ability to identify and successfully enter new lines of business offering products and services that appeal to its customer demographic, including its financial services products; the Company's ability to enhance the performance of acquired stores; the Company's ability to control costs; the Company's ability to identify and successfully market products and services that appeal to its customer demographic; the Company's ability to enter into new and collect on its rental purchase agreements; the Company's ability to enter into new and collect on its short term loans; the passage of legislation adversely affecting the rent-to-own or financial services industries; interest rates; economic pressures, such as high fuel and utility costs, affecting the disposable income available to the Company's targeted consumers; changes in the Company's stock price and the number of shares of common stock that it may or may not repurchase; changes in estimates relating to self-insurance liabilities and income tax and litigation reserves; changes in the Company's effective tax rate; the Company's ability to maintain an effective system of internal controls; changes in the number of share-based compensation grants, methods used to value future share-based payments and changes in estimated forfeiture rates with respect to share-based compensation; the resolution of the Company's litigation; a specified percentage of class members timely and validly opt out of the Shafer/Johnson settlement; the court hearing the Shafer/Johnson matter could refuse to approve the settlement or could require changes to the settlement that are unacceptable to the Company or the plaintiffs; and the other risks detailed from time to time in the Company’s SEC reports, including but not limited to, its annual report on Form 10-K for the year ended December 31, 2007, and its quarterly report for the quarter ended March 31, 2008. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Except as required by law, the Company is not obligated to publicly release any revisions to these forward-looking statements to reflect the events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events.   Rent-A-Center, Inc. and SubsidiariesSTATEMENT OF EARNINGS HIGHLIGHTS   (In Thousands of Dollars, except per share data)   Three Months Ended June 30, 2008     2007   Total Revenue $ 719,031 $ 724,158 Operating Profit 74,434 (1) 87,024 Net Earnings 37,741 41,251 Diluted Earnings per Common Share $ 0.56 $ 0.58 Adjusted EBITDA $ 96,271 $ 108,608   Reconciliation to Adjusted EBITDA:   Earnings before Income Taxes $ 59,984 $ 65,066 Add back: Restructuring Expense (15 ) -- Interest Expense, net 14,450 21,958 Depreciation of Property Assets 18,190 17,650 Amortization of Intangibles   3,662       3,934   Adjusted EBITDA $ 96,271 $ 108,608 (In Thousands of Dollars, except per share data) Six Months Ended June 30,   2008     2008       2007     2007   Before Restructuring Expense (Non-GAAP) After Restructuring Expense (GAAP) Before Litigation Expense (Non-GAAP) After Litigation Expense (GAAP)   Total Revenue $ 1,475,667 $ 1,475,667 $ 1,479,457 $ 1,479,457 Operating Profit 154,859 151,974 (2) 184,429 133,179 (3) Net Earnings 75,902 74,099 (2) 88,545 56,354 (3) Diluted Earnings per Common Share $ 1.13 $ 1.10 (2) $ 1.25 $ 0.79 (3) Adjusted EBITDA $ 199,829 $ 199,829 $ 226,978 $ 226,978   Reconciliation to Adjusted EBITDA:   Earnings before Income Taxes $ 121,346 $ 118,461 $ 140,136 $ 88,886 Add back: Litigation Expense -- -- -- 51,250 Restructuring Expense -- 2,885 -- -- Interest Expense, net 33,513 33,513 44,293 44,293 Depreciation of Property Assets 36,378 36,378 34,577 34,577 Amortization of Intangibles   8,592   8,592     7,972   7,972   Adjusted EBITDA $ 199,829 $ 199,829 $ 226,978 $ 226,978 (1) Includes a $0.015 million pre-tax restructuring credit in the second quarter of 2008 related to the December 3, 2007 announced restructuring plan. The restructuring credit had no impact on the diluted earnings per share in the second quarter of 2008. (2) Includes the effects of a $2.9 million pre-tax restructuring expense in the first quarter of 2008 as part of the December 3, 2007 announced restructuring plan. The restructuring expense reduced diluted earnings per share by approximately $0.03 for the six months ended June 30, 2008. (3) Includes the effects of a $51.3 million pre-tax litigation expense in the first quarter of 2007 associated with the settlement in the Perez case. The litigation expense reduced diluted earnings per share by approximately $0.46 for the six months ended June 30, 2007.   SELECTED BALANCE SHEET HIGHLIGHTS   Selected Balance Sheet Data: (in Thousands of Dollars)   June 30, 2008   June 30, 2007   Cash and Cash Equivalents $ 75,100 $ 79,020 Prepaid Expenses and Other Assets 54,411 47,300 Rental Merchandise, net On Rent 676,607 798,285 Held for Rent 204,472 237,876 Total Assets 2,538,780 2,726,243   Senior Debt 788,011 932,974 Subordinated Notes Payable 270,375 300,000 Total Liabilities 1,517,374 1,753,831 Stockholders’ Equity 1,021,406 972,412   Rent-A-Center, Inc. and SubsidiariesCONSOLIDATED STATEMENTS OF EARNINGS   (In Thousands of Dollars, except per share data) Three Months Ended June 30, 2008   2007 Unaudited   Store Revenue Rentals and Fees $ 634,618 $ 662,096 Merchandise Sales 55,703 39,584 Installment Sales 9,246 7,646 Other   10,589     6,570     710,156 715,896   Franchise Revenue Franchisee Merchandise Sales 7,650 6,955 Royalty Income and Fees   1,225     1,307     Total Revenue 719,031 724,158   Operating Expenses Direct Store Expenses Cost of Rentals and Fees 145,511 145,927 Cost of Merchandise Sold 45,167 29,948 Cost of Installment Sales 3,790 3,129 Salaries and Other Expenses 406,572 417,114 Franchise Cost of Merchandise Sold   7,234     6,663     608,274 602,781   General and Administrative Expenses 32,676 30,419 Amortization of Intangibles 3,662 3,934 Restructuring Expense   (15 )   -     Total Operating Expenses   644,597     637,134     Operating Profit 74,434 87,024   Interest Expense 16,739 23,431 Interest Income   (2,289 )   (1,473 )   Earnings before Income Taxes 59,984 65,066   Income Tax Expense   22,243     23,815     NET EARNINGS 37,741 41,251   BASIC WEIGHTED AVERAGE SHARES   66,684     69,822     BASIC EARNINGS PER COMMON SHARE $ 0.57   $ 0.59     DILUTED WEIGHTED AVERAGE SHARES   67,360     70,764     DILUTED EARNINGS PER COMMON SHARE $ 0.56   $ 0.58     Rent-A-Center, Inc. and SubsidiariesCONSOLIDATED STATEMENTS OF EARNINGS   (In Thousands of Dollars, except per share data) Six Months Ended June 30, 2008   2007 Unaudited   Store Revenue Rentals and Fees $ 1,275,304 $ 1,322,209 Merchandise Sales 141,042 107,921 Installment Sales 19,131 16,056 Other   20,208     13,746     1,455,685 1,459,932   Franchise Revenue Franchisee Merchandise Sales 17,417 16,880 Royalty Income and Fees   2,565     2,645     Total Revenue 1,475,667 1,479,457   Operating Expenses Direct Store Expenses Cost of Rentals and Fees 291,673 288,996 Cost of Merchandise Sold 108,492 75,978 Cost of Installment Sales 7,810 6,674 Salaries and Other Expenses 823,986 837,841 Franchise Cost of Merchandise Sold   16,630     16,150     1,248,591 1,225,639   General and Administrative Expenses 63,625 61,417 Amortization of Intangibles 8,592 7,972 Litigation Expense - 51,250 Restructuring Expense   2,885     -     Total Operating Expenses   1,323,693     1,346,278     Operating Profit 151,974 133,179   Interest Expense 37,666 47,527 Interest Income   (4,153 )   (3,234 )   Earnings before Income Taxes 118,461 88,886   Income Tax Expense   44,362     32,532     NET EARNINGS 74,099 56,354   BASIC WEIGHTED AVERAGE SHARES   66,697     70,054     BASIC EARNINGS PER COMMON SHARE $ 1.11   $ 0.80     DILUTED WEIGHTED AVERAGE SHARES   67,267     71,051     DILUTED EARNINGS PER COMMON SHARE $ 1.10   $ 0.79