Our third quarter financial results for total revenue and earnings per diluted share were within our guidance range; however, the business environment was very challenging throughout the quarter.
Mark Speese, Chairman and CEO, Rent-A-Center

Rent-A-Center (RCII) total revenues for the quarter ended September 30, 2007 were $709.7 million, up 20.9% from 2006. The increase in revenues was primarily driven by the Rent-Way acquisition that closed on November 15, 2006 (see June 3, 2007 story - Rent-A-Center Acquires Rent Way For $567 Million). Same store revenues for the quarter ended September 30, 2007 decreased 1.8%.

Rent-A-Center stock closed up 1.9% today at $16.30.

Reported net earnings for the quarter were essentially flat - $25.3 million, an increase of $0.1 million or 0.4% from the reported net earnings of $25.2 million for the same period in 2006.

“Our third quarter financial results for total revenue and earnings per diluted share were within our guidance range; however, the business environment was very challenging throughout the quarter,” commented Mark E. Speese, the Company's Chairman and Chief Executive Officer. “Although we believe that our customer continues to face financial challenges, we have been encouraged by the positive results from our operational initiatives, as well as an increase in demand in October,” Speese continued. “As we prepare to enter 2008, we intend to focus on enhancing store level operations, improving operational efficiencies, and further investing in our financial services business, while maintaining a solid balance sheet,” Speese stated.

Rent-A-Center will broadcast its quarterly earnings conference call on Tuesday, October 30, 2007 at 10:45 AM ET over the Internet. Audio of the call will be broadcast live. A link to the live webcast will be available from My RTO Portfolio.

Rent-A-Center also announced today that it has reached a prospective settlement with the plaintiffs to resolve Terry Walker, et al. v. Rent-A-Center, Inc., et al., a putative class action filed in federal court in Texarkana, Texas, alleging that the Company and certain of its current and former officers and directors violated various federal securities laws. Under the terms contemplated, the Company anticipates its insurance carrier will pay an aggregate of approximately $3.6 million in cash, which will be distributed to an agreed upon class of claimants who purchased the Company’s common stock from April 25, 2001 through October 8, 2001, as well as used to pay costs of notice and settlement administration, and attorneys’ fees and expenses. In connection with the settlement, neither the Company nor any officer and director defendants are admitting liability for any securities laws violations.

The terms of the prospective settlement are subject to the parties entering into a definitive settlement agreement and obtaining court approval. While Rent-A-Center believes that the terms of this prospective settlement are fair, there can be no assurance that the settlement, if completed, will be approved by the court in its present form. Rent-A-Center expects its insurance carrier to fund the prospective settlement and related costs.

Operations Highlights

During the third quarter of 2007, Rent-A-Center opened 10 new store locations, acquired one store as well as accounts from 24 additional locations, consolidated 24 stores into existing locations, and sold one store, for a net reduction of 14 stores and an ending balance as of September 30, 2007 of 3,361 company-owned stores. During the third quarter of 2007, the Company added financial services to 61 existing rent-to-own store locations, ending the quarter with a total of 282 stores providing these services.

Through the nine month period ended September 30, 2007, Rent-A-Center opened 20 new store locations, acquired 14 stores as well as accounts from 30 additional locations, consolidated 76 stores into existing locations, and sold three stores, for a net reduction of 45 stores since December 31, 2006. Through the nine month period ending September 30, 2007, the Company added financial services to 148 existing rent-to-own store locations, consolidated seven stores with financial services into existing locations, and closed nine locations, for a net addition of 132 stores providing these services.

Since September 30, 2007, Rent-A-Center has opened three new store locations and acquired accounts from one location. The Company has added financial services to four existing rent-to-own store locations since September 30, 2007.

2007 Significant Items

Settlement with ColorTyme Franchisees. On July 31, 2007, ColorTyme entered into a settlement agreement with five affiliated ColorTyme franchisees pursuant to which the franchise agreements with respect to approximately 65 ColorTyme stores were terminated. ColorTyme received a cash payment in satisfaction of the contractually required, future royalties owed to ColorTyme pursuant to the franchise agreements. This settlement payment increased diluted earnings per share by approximately $0.04 in both the third quarter of 2007 and for the nine month period ended September 30, 2007.

Hilda Perez. On September 14, 2007, the settlement of the Hilda Perez v. Rent-A-Center matter pending in New Jersey received final approval from the court. Under the terms of the settlement approved by the court, the Company agreed to pay an aggregate of approximately $85.8 million in cash, to be distributed to an agreed-upon class of its customers from April 23, 1999 through March 16, 2006. Rent-A-Center also agreed to pay the plaintiffs' attorneys fees and costs to administer the settlement, in the aggregate amount of approximately $23.5 million. Under the terms of the settlement, the Company is entitled to 50% of any undistributed monies in the settlement. In connection with the settlement, the Company is not admitting liability for its past business practices in New Jersey. As previously reported, the Company recorded a pre-tax expense of $58.0 million in connection with the Perez matter during the fourth quarter of 2006, and an additional pre-tax charge of $51.3 million in the first quarter of 2007, to account for the aforementioned costs. The litigation expense with respect to the Perez settlement reduced diluted earnings per share by approximately $0.47 for the nine month period ended September 30, 2007.

Rent-A-Center expects to fund the settlement with cash flow generated from operations, together with amounts available under its senior credit facilities, in the fourth quarter of 2007.

Rent-A-Center, Inc. currently operates approximately 3,360 company-owned stores nationwide and in Canada and Puerto Rico.

FOURTH QUARTER 2007 GUIDANCE:

Revenues

• Rent-A-Center expects total revenues to be in the range of $708 million to $723 million.
• Store rental and fee revenues are expected to be between $638 million and $650 million.
• Total store revenues are expected to be in the range of $700 million to $715 million.
• Same store sales are expected to be flat.
• Rent-A-Center expects to open 5 - 10 new rent-to-own store locations.
• Rent-A-Center expects to add financial services to approximately 5 rent-to-own store locations.

Expenses

• Rent-A-Center expects cost of rental and fees to be between 22.1% and 22.5% of store rental and fee revenue and cost of merchandise sold to be between 76% and 80% of store merchandise sales.
• Store salaries and other expenses are expected to be in the range of 59.5% to 61.0% of total store revenue.
• General and administrative expenses are expected to be between 4.3% and 4.5% of total revenue.
• Net interest expense is expected to be approximately $21 million, depreciation of property assets is expected to be approximately $18 million and amortization of intangibles is expected to be approximately $4 million.
• The effective tax rate is expected to be approximately 36.0% of pre-tax income.
• Diluted earnings per share are estimated to be in the range of $0.38 to $0.44.
• Diluted shares outstanding are estimated to be between 67.2 million and 68.2 million.

FISCAL 2008 GUIDANCE:

Revenues

• Rent-A-Center expects total revenues to be in the range of $2.920 billion and $2.960 billion.
• Store rental and fee revenues are expected to be between $2.585 billion and $2.625 billion.
• Total store revenues are expected to be in the range of $2.890 billion and $2.930 billion.
• Same store sales are expected to be in the flat to 2% range.
• Rent-A-Center expects to open approximately 40 new rent-to-own store locations.
• Rent-A-Center expects to add financial services to approximately 200 rent-to-own store locations.

Expenses

• Rent-A-Center expects cost of rental and fees to be between 22.1% and 22.5% of store rental and fee revenue and cost of merchandise sold to be between 72% and 76% of store merchandise sales.
• Store salaries and other expenses are expected to be in the range of 58.5% to 60.0% of total store revenue.
• General and administrative expenses are expected to be between 4.3% and 4.5% of total revenue.
• Net interest expense is expected to be between $80 million and $85 million, depreciation of property assets is expected to be between $68 million and $73 million and amortization of intangibles is expected to be approximately $12 million.
• The effective tax rate is expected to be approximately 37.0% of pre-tax income.
• Diluted earnings per share are estimated to be in the range of $1.95 to $2.10.
• Diluted shares outstanding are estimated to be between 67.5 million and 68.5 million.