07-30-02
RTO Online
Rent A Center held its quarterly conference call at 10:45 today. The call
began with an opening statement by CEO Mark Speese.
"...the initiatives we began putting in place late last fall and earlier this
year are taking hold and we are seeing the results in higher revenues, reduced
costs and higher earnings"
This was in reference to the broad ranging cost control measures put in place
last year, including a 'regional pay plan' that based store level salaries on
cost of living by region. Prior to this change, starting salaries were the same
for all locations. Under the new plan, starting salaries have an annual spread
of $4,000 depending on the region. Existing employees were not affected by the
change. Mr. Speese also reported that the "headwind" the company was facing
due to the ill conceived
discounting program of the prior administration...was effectively over. The
discounted merchandise has been moved through the system, and employees were
very successful in converting these discounted agreements to new agreements upon
payout.
The company reports a good start to the 3rd quarter. Rent A Center began
running a "Free Till..." promo in early July. The promo was for selected
merchandise 'free till August 3rd'.
Mark Speese
CEO
"We delivered quite a few more than we anticipated, so we are quite encouraged
by that. ...the real measurement of success will be over the next several
weeks as we see how many of those units stay on rent and begin generating
revenue".
Rent A Center has already begun its 'scratch and win' August Promo where a
customer can win up to 3 free weeks or merchandise.
The company has begin buying back its own stock. 240,000 shares have been
re-purchased over the last 10 days alone. The Board had previously authorized up
to $25 million in stock re-purchase. Company President Mitch Fadel reported
plans to increase the store count by 5% - 10% per year ongoing, with an emphasis
on acquiring existing locations.
Mitch Fadel
President
"Acquisitions are coming at very attractive multiples. Depending on the revenue
of the store we're buying, we've been paying anywhere from 6 - 9 times the month
{revenue} for the store"
"...honestly, the only problem we've had with new stores is finding them fast
enough"
To put this in perspective, 12 times revenue was not uncommon just 5 years
ago...Rent to Owns answer to "irrational exuberance". Companies are beginning to
pay closer attention to the cost benefit ratio of acquiring vs. opening a new
location. A multiple of 6 is a bargain, at 9 or 10 times revenue the long term
cost may outweigh the short term benefit of instant cash flow. The word most
often used to describe Rent A Center's business model is "disciplined". This is
born out by the fact that company executives track, on a daily basis, the
delinquency numbers. Mitch Fadel commented that delinquency on this past
Saturday close was 6.3%. Such attention to the basic rent-and-collect principles
is uncommon in small chains...much less a 2,338 store giant. end
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