07-31-02
RTO Online

Rainbow Factoids

Total Revenue $24.8 million

Fee Revenue 714,000 or 3% of revenue

Salaries 23% of revenue

119 stores in 13 states

Rainbow Rentals Website

Executives

Wayland Russell CEO Chairman of the Board and CEO since February 1997

Michael Viveiros President President since February 1997

Michael Pecchia CFO Treasurer and Secretary since 1991, as well as Chief Financial Officer since February 1997

Lawrence Hendricks COO Chief Operating Officer since February 1997. Previously Vice President for Store Operations since the Company's inception in 1986

Other Directors

Brian Burton Director Chief Financial Officer of KST Coatings Manufacturing, Inc., a manufacturer of roofing products

Ivan Winfield Director Associate Professor at Baldwin-Wallace College, Cleveland, Ohio, and business consultant since September 1995

Wayland Russell
CEO
"We are pleased to achieve comparable store sales increase of 3.1%, marking the third straight quarter of comp store increases after four quarters of decline."

"We are not yet where we need to be, but we are making verifiable progress toward our goal of steady 3% to 5% comp store growth as Rainbow has enjoyed in the past"

Rainbow Rentals, the nations 4th largest Rent to Own, held its quarterly conference call today. Call participants included CEO Wayland Russell, President Michael Viveiros, and CFO Michael Pecchia.

Rainbow reported Net income up 15% vs 2001 to $476,000 (2% of revenue). Earnings per share were $.08 per share, up from $.07 for Q2, 2001.

As is the current industry wide trend, Rainbow has increased rental rates over the last several quarters on new and pre-rented merchandise. Rainbow executives acknowledge the increases, but still claim to be priced below competitors.

Wayland Russell
CEO
"...our second quarter continued to benefit from the price increases we implemented in late 2001"

Michael Pecchia
CFO
"Rental rates increased $2.24 in the second quarter, or 3.1%, to $73.37"

Michael Viveiros
President
"I think there is still room to increase our prices significantly and remain the best price in town"

The company reports units on rent (BOR) increased only 1.7% from Q2, 2001, indicating that most of the gains were due to increased rental rates and new store performance. CEO Wayland Russell spoke to Rainbow's lack of significant increase in items on rent...

Wayland Russell
CEO
"A higher average price per unit, and an improved efficiency at our stores, has enabled us to improve performance without a significant increase in deliveries per store. Total deliveries per store have not yet returned to Rainbow Rentals industry high levels. Getting our deliveries back to our historically high levels will be our number one focus over the next several months"

Michael Pecchia
CFO
"Our model is $1 million stores. Until they're averaging a million dollars as a group, there not going to be back up to where we expect them to be...but they're heading there"

Collections are running tighter than last year. Rainbow reports 93.8% (6.2% past due) collection performance. This is up 100 basis points from last year, bringing Rainbow in line with competitors like Rent A Center who recently reported 6.3% past due, or, 93.6% collection performance.

The company posted a 20% decrease in operating income due to, among other items, the settlement of a sexual harassment suit in the Detroit market.

Wayland Russell
CEO
"We had a sexual harassment lawsuit in the Detroit market. We were able to settle that as a one time expense". Mr. Russell added that there were no changes necessary to the company's "business process". He added "It was a one time situation that has been resolved". When asked for the details of the settlement, Mr. Russell declined comment.

Total revenue increased 5.3% for the quarter, to $24.8 million. This was primarily due to new store revenue, and a 3.1% increase in same store sales.

Rainbow plans 6 new stores during Q3 alone. This is in addition to 6 stores opened during Q1 and Q2. This accelerated growth will likely have a significant impact on results in the short term. Rainbow reports operating 119 stores at the end of Q2, 2002.

Rainbow generally does not open new stores during the 4th quarter...

Wayland Russell
CEO
"...we try not to [open new stores in Q4]. You want to have all your troops in place for that very important time of the year so we can focus on customers and gaining units. Not real estate and wallpaper..."

There are no firm plans for any store closures or consolidations for the remainder of the year.

While being aggressive with new store openings, CEO Russell stated that the company's standards are higher for acquisitions than in the past. Rainbow recently passed on more than one potential buyout after an extensive review of the operation.

Wayland Russell
CEO
"We are certainly taking a closer look at {transactions} than we did in the past"

CEO Russell announced the promotion of David Phillips, the companies top performing regional manager, to Regional Vice President.

Wayland Russell
CEO
"This newly formed position is in keeping with our strategy to create an infrastructure capable of supporting a much larger company"

Mr. Phillips main goal will be improving performance in the southern states which are generally newer, acquired stores.

Idle inventory is a hot issue with all Rent to Owns. Rainbow implemented systems to reduce idle inventory and reported a 26% decrease in items "over 100 days idle".

Michael Viveiros
President
"Idle levels [number of units] are exactly the same as they were at the end of the second quarter last year". He added "The only change is, it's considerably newer. We are very comfortable with where those levels are now"
 

Rainbow's net debt is very low as industry averages go. On a per-store basis, net debt is about $57,000. Compared to Rent A Center at well over $200,000 per store.

Follow this link to Listen to the archived call

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