Can Strategic Efforts Provide Cushion To Rent-A-Center Stock?

Shares of Rent-A-Center, Inc. (NASDAQ:RCII) , which have declined more than 55% in the past one year, have been gaining traction of late. The company’s shares have increased nearly 9% in the past one-month period. Let’s find out whether the stock will keep its recent momentum intact or will fall apart.

Rent-A-Center is taking prudent steps to optimize rental merchandise levels in accordance with sales trends. The company implemented a centralized inventory management system, including automated merchandise replenishment. Moreover, a new centralized purchasing system allows better to manage rental merchandise.

Management is also focusing on a new labor model and supply chain initiative which, it believes, should generate substantial cost savings in 2016. It is also concentrating on value-based pricing strategy and focusing on lowering its debt load.

The company’s business model called Acceptance Now is gaining momentum as it improves consumers’ shopping experience. When the consumer is denied credit financing for a particular product from the retailer, Rent-A-Center, under its Acceptance Now program, acquires the product from the retailer and offers it to the consumer under a rental-purchase transaction. Revenue from the Acceptance Now business grew 2.7% during first-quarter 2016.

The company’s strategic efforts helped it to post fifth straight quarter of positive earnings surprise when it reported first-quarter 2016 results. However, the company’s top-line performance remained a major concern for investors. Total revenue for the first quarter declined year over year and came in below analysts’ expectations for the third consecutive quarter. The decrease in the top line is attributable to a decline witnessed across the Core U.S. and Mexico segments.

Given the pros and cons embedded, the stock current carries a Zacks Rank #3 (Hold).

Other Stocks to Consider

Better-ranked stocks worth considering in the retail sector include ULTA Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) , Five Below, Inc. (NASDAQ:FIVE) and Regis Corp. (NYSE:RGS) . All these stocks hold a Zacks Rank #2 (Buy).