Will Rent-A-Center's Strategic Growth Plan Help Lift Stock?

Shares of Rent-A-Center, Inc. (NASDAQ:RCII) got a much needed boost yesterday, after the company came out with strategic plan to bring itself back on growth trajectory and provided encouraging long-term target. Concurrently, the company also announced the appointment of Mark Speese as the Company’s Chief Executive Officer, effective immediately. The stock advanced 7.2% during the trading session on Apr 10.

Rent-A-Center is concentrating on a new labor model, supply chain initiative and productivity enhancements. Management hinted that these endeavors are directed toward improving the performance of Core U.S. segment, optimizing the AcceptanceNOW business, and enhancing distribution channels as well as integrating retail and online offerings.

We believe that the company’s strategic initiatives will help lift the stock, which otherwise has declined 8.6% so far in the year compared with the Zacks categorized Consumer Services - Miscellaneous industry’s gain of 4.3%. The company’s waning top and bottom lines have been weighing on the stock’s performance.

Let’s Delve Deeper

In an attempt to augment cash flow generation from Core U.S. business, the company is focusing on rates, terms and purchase options that are much more aligned with the customer’s needs. The company is also optimizing product mix, increasing the average ticket price, upgrading workforce, concentrating on lowering delinquency rates and rationalizing existing stores as well as contemplating on new ones.

On the AcceptanceNOW business front, management is focusing on optimizing strategic retail partnerships in order to enhance service and profitability, centralizing account management to tackle operations more effectively and executing risk assessment polices across all locations.

Rent-A-Center is investing in enhancing omni-channel platform so that customers can experience a seamless approach across channels, markets, retailers, products and brands. The company is increasing e-commerce offerings and mobile applications, and leveraging cloud-based point-of-sale platform to manage orders more efficiently, lower losses and cut operating costs.

Long-Term Projection

Management believes that if these strategic growth endeavors are well executed it will help attain revenue growth of low-single digits in 2018 and mid-single digits in 2019. Rent-A-Center expects to achieve EBITDA margin of 7.5–8.5% in 2018 and 9.5–10.5% in 2019. The company projects free cash flow generation of $70–$90 million and $110–$130 million in 2018 and 2019, respectively. The company envisions earnings in the band of $1.20–$1.40 per share for 2018 and between $2.00 and $2.25 for 2019.

Zacks Rank & Stocks to Consider

Rent-A-Center carries a Zacks Rank #3 (Hold). Better-ranked stocks in the consumer discretionary space include American Woodmark Corporation (NASDAQ:AMWD) , Coach, Inc. (NYSE:COH) and Leggett & Platt, Incorporated (NYSE:LEG) all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

American Woodmark delivered an average positive earnings surprise of 10.6% in the trailing four quarters.

Coach delivered an average positive earnings surprise of 6.2% in the trailing four quarters and has a long-term earnings growth rate of 10.6%.

Leggett & Platt delivered an average positive earnings surprise of 3.2% in the trailing four quarters.

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