Rent-A-Center Slammed as Rising Prices, End of Stimulus Cut Low-End Spending
Shares of Rent-A-Center fell nearly 40% after hours Wednesday (Feb. 23) after the Plano, Texas-based operator of 2,400 furniture, appliance and electronics rental stores reported lower than expected Q4 results and weak guidance.
The company blamed macroeconomic headwinds for the shortfalls, saying the rise in inflation and the end of government stimulus checks had delivered an outsized impact on its core, low-income demographic, or what the company calls “the financially underserved.”
“The combined effect of significantly reduced government pandemic relief, decades-high rates of inflation, and supply chain disruptions impacted our target customers’ ability to access and afford durable goods,” CEO Mitch Fadel said in the company’s earnings release and accompanying presentation.
Although Rent-A-Center is slated to host a webcast with analysts at 9:30 a.m. ET Thursday (Feb. 24) investors wasted no time reacting to the disappointing results, and pushed the stock price to a 20-month low in after-hours trading, extending a six-month slide that had already cut its valuation in half. With the latest decline, Rent-A-Center’s market value has fallen to about $1.5 billion, versus roughly $5 billion last August.
‘A Dynamic Year’
For the three months ending Dec. 31, Rent-A-Center said its revenues and same-store-sales both rose about 10.5%, while its newly acquired Acima financing unit saw a 5% increase in the value of transactions processed and a 200% increase in revenue.
In calling 2021 “a dynamic year” with “significant progress and some challenges,” the company cautioned investors that there was no quick fix in sight to the problems that crimped demand in Q4.
“We anticipate these external headwinds will continue for the foreseeable future, resulting in year-over-year declines in revenue and earnings for 2022,” Fadel said, predicting that its unique market position and mission “will be even more important” as financially underserved consumers continue to adapt to a post-pandemic environment without additional government assistance.
At the same time, Rent-A-Center is betting that its acquisition and ensuing transformation into a Fintech running a digital consumer lending platform will drive future earnings growth, by expanding its business model beyond its core store-based rental to a broader omnichannel leasing platform.
Income and Spending
To be sure, Rent-A-Center is not alone in facing changes in consumer behavior and discretionary spending especially among consumers with below average income.
In fact, recent PYMNTS data show that, as of December, 61% of U.S. households are now living paycheck-to-paycheck, up from the 53% of consumers facing little to no slack in their personal budgets that was reported in June.
In addition, as much as 70% of younger Generation Z and millennial consumers were found to be financially strapped with little to no savings, even though 42% have annual income of more than $100,000.
Rent-A-Center’s results also come just ahead of Friday’s (Feb 25) latest government report on income and spending growth for January, which saw an unexpected 0.6% decline in consumer purchasing in December alongside slower than anticipated growth in wages.
In acknowledging the likelihood that the economic constraints will persist, Rent-A-Center is projecting essentially flat full year revenue guidance compared to the $4.5 billion posted on 2021.