Shares of Rent-A-Center Inc. (RCII) nosedived 11.4% in aftermarket trading session yesterday, after this rent-to-own operator hinted at soft second-quarter 2014 performance. The company held economic headwinds responsible for sluggish demand in the U.S. business segment. Further, management hinted that revenues and earnings for the quarter would fell short of its expectations.
Rent-A-Center now projects second-quarter 2014 total revenue at $773 million, while comparable-store sales are likely to have registered growth of about 0.6%. Management now expects adjusted net earnings in the band of 36 cents to 38 cents a share. The current Zacks Consensus Estimate of 49 cents for the quarter could witness a downward revision in the coming days.
However, including restructuring charges of 5 cents in connection with the consolidation of about 150 outlets into its existing Core U.S. stores, earnings are expected between 31 cents and 33 cents a share.
Rent-A-Center is not the only company apprehending dismal performance due to economic pressure. Lumber Liquidators Holdings, Inc. (LL) announced mediocre preliminary second-quarter results and lowered its guidance for the year. The company indicated that weaker-than-expected traffic and macroeconomic headwinds pertaining to residential remodeling thwarted its quarterly performance.
For the quarter, Lumber Liquidators’ sales increased 2.3% to $263.1 million year over year but comparable store sales declined 7.1%. The company now foresees comps in low single digits (positive or negative) against the earlier projection of a mid-to-high single-digit increase. Consequently, earnings per share are now expected in the range of $2.65 to $3.00, down from the earlier projection of $3.25 to $3.60.
Apart from coming out with the preliminary results, Rent-A-Center announced its entry into the lucrative smartphone business. The company by the end of this month expects to rollout smartphones across more than 2,800 Core U.S. stores. The company will offer Samsung Galaxy smartphones at its stores and consumers will have an option to choose among leading wireless-service providers comprising NET10 Wireless, SIMPLE Mobile and Telcel America.
The company believes that the new business strategy would draw in cash and credit strapped customers to its stores, as the initial payment to buy a smartphone under the rent-to-own contract is nominal and involves no credit check, deposit or long-term contract.
Currently, Rent-A-Center carries Zacks Rank #3 (Hold).
Other Key Picks
Better-ranked retail stocks worth consideration include AerCap Holdings N.V. (AER) and AeroCentury Corp. (ACY). Both stocks sport a Zacks Rank #1 (Strong Buy).
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