How’s the economy really doing? Rent-A-Center does well when consumers struggle

A Rent-A-Center store seen in August 2017 in Plattsburgh, Pennsylvania. Rent-A-Center just increased its outlook for the rest of the year and is among the retailers with a stock price that has recovered from March and April lows. (Dreamstime/TNS)
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By Maria Halkias The Dallas Morning News (TNS)

Rent-A-Center can reveal a lot about the U.S. economy. When it does well, that means consumers are hurting.

It’s doing well.

The Plano-based rent-to-own retailer of home furnishings, electronics and major appliances just increased its outlook for the rest of the year and is among the retailers with a stock price that has recovered from March and April lows.

“Our business is continuing to perform very well, driving better-than-expected financial results,” CEO Mitch Fadel said.

Economic uncertainty has left low- and middle-income consumers either unwilling to part with savings or unable to secure credit when their washing machines or refrigerators need to be replaced.

Working and schooling from home has also forced households into the position of temporarily needing a second and maybe a third computer, chief financial officer Maureen Short said.

Unlike retail in general, rent-to-own stores do better when there’s a recession. “In times of uncertainty, we perform better,” Short said.

Besides computers, people are renting more washers and dryers instead of going to a laundromat with children in tow and the threat of COVID-19 spread, she said. Others haven’t lost their jobs but are worried about the prospect and don’t want to get overextended.

Government stimulus checks helped customers pay their bills, and more of them than usual are reaching full ownership of their Rent-A-Center products, Short said.

And like most retailers, Rent-A-Center has gotten a lift from e-commerce sales. Its online business increased 60% from a year ago in the second quarter, Short said. E-commerce so far represents 19% of total revenue, up from 12% last year.

Both of the company’s businesses are showing stronger results. The Rent-A-Center retail chain is made up of 2,100 company-owned stores and 370 franchised locations. Separately, the company is the lender to subprime borrowers at big furniture retailers including Rooms To Go and Ashley Furniture. While those furniture stores have their own financing, Rent-A-Center buys the furniture and then rents it to customers who are subprime borrowers.

Rent-A-Center said its same-store sales are forecast to be up 10% to 12% in the third quarter. Invoice volumes through furniture stores are expected to be up 35% from a year ago and up 25% from the second quarter.

For the full year, the company forecast revenue of between $2.78 billion and $2.83 billion and free cash flow of $155 million to $180 million. Last year, it reported a profit of $173.5 million, or $3.10 a share, on revenue of $2.67 billion, but that included a couple of large one-time gains from the sale of its headquarters building and a merger termination settlement it received.

Rent-A-Center said its stores represented 67% of total revenue, and about 80% of that business is from repeat customers.

When a customer loses a job, they can return the product and avoid a big debt situation, she said. “Then they can pick up the payments again when they’re back on their feet.”

The $8.5 billion a year rent-to-own industry has regularly come under scrutiny and been criticized for strong-arm tactics. The National Consumer Law Center said last year the industry pushed for laws allowing the companies to pursue criminal charges against their customers, leading to “rental theft laws” in most states.

“We provide full transparency to our customers regarding the rental transaction,” Short said. “We take great pride in providing outstanding customer service.”

Since the pandemic started and with the customer shift to online, Rent-A-Center offered “alternative payment methods and modified account management practices,” Short said.

The Federal Trade Commission found evidence that the three major rent-to-own companies, Aaron’s, Buddy’s Newco and Rent-A-Center, engaged in market allocation schemes to close down stores that suppressed competition from June 2015 to May 2018.

In February, the three companies settled charges and entered into agreements barring them from doing it again. They had entered into reciprocal agreements to close stores and swap customers.

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