Rent-A-Center, Inc. (RCII)

Rent-A-Center operates rent-to-own stores, which offer furniture and accessories, consumer electronics, appliances and computers to customers under flexible rental purchase agreements, thereby allowing ownership to customers at the end of the agreed rental period. The company operates a total of 3,048 stores as on September 2006 of which 297 are franchises. It is the largest player in this highly fragmented industry after acquiring the third largest player Rent-Way in August 2006.

The revenue growth of the company has been quite weak over the past few years; it increased by mere 1.25% during the last 9 months. This poor show can be attributed to the easy availability of credit facilities, which enables the customers to own the appliance, rather go in for a staggered rental owning. On the contrary the costs incurred by the company to generate this revenue is increasing and thus the earnings are getting negatively affected. Of the total revenue furnitures and accessories segment contribute about 38% and consumer electronic 34%.

The acquisition of Rent-Way has given the company complete dominance in the sector, but as part of integration operations they plan to close down about 20% of stores. This action will affect the revenue as comparable store sales contribute a major portion of revenues. The company is introducing initiatives like PayDay Loan, a credit service to attract customers as credit availability is becoming easier. The competition is also becoming intense with the nearest contributor Aaron Rents growing by 19% during the past 9 months suggesting that the company is not able to keep up with changing time. The effect of the new initiatives and acquisition will take some time to reflect in the operational performance of the firm, till then, the stock is likely to under perform.