...the business environment has been very challenging as of late. We believe that the financial challenges facing our customers have increased recently, resulting in a softer outlook for the balance of this year.
Mark Speese, CEO, Rent-A-Center

Rent-A-Center (RCII), the world's largest rent-to-own company, reported same store sales for the second quarter of 2007 were up 2.7% from the same period a year ago.

Rent-A-Center's total revenues for the quarter weref $724.2 million, a $140.6 million increase from the reported total revenues of $583.6 million for the same period in the prior year. This 24.1% increase in revenues was primarily driven by the Rent-Way acquisition that closed on November 15, 2006, and a 2.7% increase in same store sales.

Net earnings for the quarter were $41.3 million, an increase of $1.5 million, or 3.8% from the reported net earnings of $39.8 million for the same period in the prior year.

“Although our second quarter financial results for revenue and earnings per diluted share were within our guidance range and our same store sales increased 2.7%, the business environment has been very challenging as of late," commented Mark E. Speese, the Company's Chairman and Chief Executive Officer. “We believe that the financial challenges facing our customers have increased recently, resulting in a softer outlook for the balance of this year. As a result, we are lowering our guidance for the remainder of 2007,” Speese continued. “We will continue to invest in our core business and carry out initiatives to improve execution at the store level as we work our way through, what we believe, will be a temporarily difficult period,” Speese stated.

Operations Highlights

During the second quarter of 2007, the Company opened four new store locations, acquired 13 stores as well as accounts from three locations, consolidated 19 stores into existing locations and sold one store, for a net reduction of three stores and an ending balance as of June 30, 2007 of 3,375 company-owned stores. During the second quarter of 2007, the Company added financial services to 58 existing rent-to-own store locations, consolidated five stores with financial services into existing locations, and closed nine locations, ending the quarter with a total of 221 stores providing these services.

Since June 30, 2007, the Company has opened two new store locations, acquired three stores and consolidated three stores into existing locations. The Company has added financial services to 21 existing rent-to-own store locations since June 30, 2007.

2007 Litigation Expense

Hilda Perez. As previously announced on April 30, 2007, the Company has reached a settlement with the plaintiffs to resolve the Hilda Perez v. Rent-A-Center matter, a putative class action filed in the Superior Court, Law Division, Camden County, New Jersey. Under the terms of the settlement, which has now been documented and preliminarily approved by the court, we anticipate we will pay into the settlement fund an aggregate of approximately $85.8 million in cash, to be distributed to an agreed upon class of our customers who entered into rent-to-own agreements in New Jersey from April 23, 1999 through March 16, 2006. We also anticipate paying 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, we are entitled to 50% of any undistributed monies in the settlement fund. In connection with the settlement, we are not admitting liability for our past business practices in New Jersey. 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 $0.45 in the first quarter of 2007 and by approximately $0.46 for the six month period ended June 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. The hearing on a motion for final approval of the settlement is scheduled for September 14, 2007, and funding of the settlement is anticipated to occur in the fourth quarter of 2007.

THIRD QUARTER 2007 GUIDANCE:

Revenues

• The Company expects total revenues to be in the range of $695 million to $710 million.
• Store rental and fee revenues are expected to be between $633 million and $645 million.
• Total store revenues are expected to be in the range of $686 million to $701 million.
• Same store sales are expected to be flat to (1.5%).
• The Company expects to open 8 - 12 new rent-to-own store locations.
• The Company expects to add financial services to 55 – 75 rent-to-own store locations.

Expenses

• The Company expects cost of rental and fees to be between 22.0% and 22.4% of store rental and fee revenue and cost of merchandise sold to be between 74% and 78% of store merchandise sales.
• Store salaries and other expenses are expected to be in the range of 60.7% to 62.2% 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 $22 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 36.5% of pre-tax income.
• Diluted earnings per share are estimated to be in the range of $0.30 to $0.36.
• Diluted shares outstanding are estimated to be between 70.6 million and 71.6 million.

FISCAL 2007 GUIDANCE:

Revenues

• The Company expects total revenues to be in the range of $2.905 billion and $2.935 billion.
• Store rental and fee revenues are expected to be between $2.610 billion and $2.640 billion.
• Total store revenues are expected to be in the range of $2.864 billion and $2.894 billion.
• Same store sales are expected to be in the 1.0% to 2.0% range.
• The Company expects to open approximately 30 new rent-to-own store locations.
• The Company expects to add financial services to approximately 200 rent-to-own store locations.

Rent-A-Center will broadcast its quarterly earnings conference call tomorrow; Tuesday, July 31, 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.