Rent a Center stock plunged 14% in early trading following yesterday's earnings release. By noon, 2 million shares had traded hands and RCII had gained back a few points but was still down 9%. At press time (3:15 Eastern) RCII was trading at $31.40, down $2.97 or 8.64% on volume of 2.4 million shares; 3 times average volume.

Even though the company reported an 11% increase in revenues for Q3, investors were spooked by the modest 3.4% same store growth and an estimate of only 1% to 3% growth for Q4. Company executives also reported a 1.5% decline in Rent a Center's customer count, the first such decline in recent memory.

Mark Speese, Rent a Center CEO, blamed the decrease in part on President Bush's child tax credit refunds. Because of the refunds, the company experienced more payouts than normal. High payouts are not a problem so long as the customers re-rent. A larger than normal percentage of Rent a Center's payouts did not re-rent, reducing the companies customer count for stores in the comp.

Company President Mitch Fadel stressed the fact that this was uncharted territory. He stated that a tax refund of this size, and particularly at this time of year, had never been experienced before. He added that the high payouts might be normal under the circumstances.

Customer count actually increased overall due to acquisitions, but Rent a Center does not count acquisitions in the comp for 5 quarters.

Guidance for 2004 was also weaker than expected. Rent a Center is projecting a mere 1% to 3% growth in same store sales for fiscal 2004.

Conference call highlights

Fox gave Rent a Center a spot during the baseball playoffs.....gave.....for free....during the most watched playoff in history. The spiff was in return for the large amount of advertising RAC does on the Fox network.

Officials insist that, even after the frenzy of recent acquisitions, the environment remains target rich. Multiples paid by RAC vary between 6 and 10 times revenue.

Rent a Center stopped buying analog TVs in April. Since then, HDTV has been the mainstay. The company has also successfully tested their first 15" LCD TV. The unit will enter the lineup November 1st.

Rent a Center announced a "strategic partnership" with McDonalds and Jackson Hewitt. McDonalds will issue Employee Gold Cards that will provide discounts at participating retailers. Rent a Center will give a free week on any new agreement to any McDonalds employee with a gold card. The burger giant will distribute 250,000 cards to company employees, with the potential for 655,000 discount cards if all franchisees participate. One analysts, unfamiliar with the common practice, expressed concern over the potential for lost revenue as a result of giving away so many free weeks...Mark Speese quipped "hopefully 100,000 of them will come in and get that free week on a new agreement".

Jackson Hewitt will test market kiosks in 200 Rent a Center locations for filing tax returns and processing rapid refunds. If the test is successful, the company plans to expand the service to more locations.

Ford Tough...Be all you can be!
In a surprising twist, Rent a Center is actively seeking similar strategic partnerships with Ford and the United States Air Force. Details are unclear, but it doesn't take a brain surgeon to calculate the potential of such an alliance.

Agreement count is flat compared to last year, but agreements per customer is up. Average rate per agreement continues to increase as consumers choose higher quality over lower payment.

The company met its goal of 18-22% idle inventory (160+/- units per location)

Rent a Center rented air conditioners for the first time this summer. The units were rented on very short terms to avoid the typical high return rate of ACs. President Mitch Fadel stated that the strategy seems to be working. Over 50% of the ACs are paid out, with the majority remaining out on rent.

Mitch Fadel reported that all new locations, including acquisitions, are running "ahead of plan". Rent a Center opened 25 new stores in Q3, 65 year to date, with an additional 25 - 30 to open by year end. The company expects to open 80 - 100 stores in 2004. It is RAC's stated goal to increase square footage by 10% per year.

Rent a Center total debt is $699 million for a leverage ratio of 1.53 x

Projected revenue for 2004 will top $2.3 billion