PLANO, Texas – Lease to own specialist Rent-A-Center reported an increase in second quarter consolidated revenues but a drop in net earnings.
For the quarter ended June 30, the company had revenues of $683.7 million, up 4.2% from the $655.9 million reported during the second quarter of 2019.
The company said this was driven by the implementation of its Preferred Lease virtual solution following the acquisition of Merchants Preferred in August 2019 and an increase of same store sales revenues of 7.8% in the Rent-A-Center Business segment.
This was partially offset by the refranchising of about 60 Rent-A-Center locations during the preceding 15 months. Excluding the refranchising efforts, consolidated revenues rose 5.1% in the second quarter.
“Second quarter performance significantly exceeded expectations,” said Mitch Fadel, CEO. ”We called on every part of the organization to meet the immediate challenges brought by the pandemic, and our agility, speed and execution paid off. We are on track to deliver revenue, adjusted EBITDA, and non-GAAP diluted EPS for 2020 within the original guidance ranges we outlined at the beginning of the year prior to the pandemic and are increasing our previous free cash flow guidance.
“The results underscore the critical role we serve for customers, and the strides we’re making to improve their experience should benefit Rent-A-Center for years to come,” he added.
Net earnings totaled $38.5 million, or $.70 per diluted share, compared with $94.5 million, or $1.70 per diluted share, in the second quarter of 2019.
In the Rent-A-Center Business segment, the company reported revenues of $459.2 million, up 1.8% from just over $451 million in the second quarter of 2019, driven by a 7.8% increase in same store sales revenues. This increase, the company said, resulted from government stimulus related to the COVID-19 pandemic , higher early payouts, stronger demand, better collections and higher digital payment penetration. Operating profit was $85.1 million, compared with $64.9 million in the second quarter of 2019.
Excluding the effect on revenues from the refranchising of about 60 locations during the previous 15 months, revenues rose 4% in the second quarter. As of June 30, there were 1,954 company operated locations.
In the Preferred Lease segment, second quarter revenues rose 8.4% to $191.2 million, from $176.4 million in the same period last year. The company noted that despite the temporary pandemic related closure of many retail locations, Preferred Lease invoice volume rose 24.5% to $136.5 million in the second quarter, resulting from organic growth in staffed locations and the addition of the Preferred Lease virtual solution. Segment operating profit was $6.2 million, compared with $22.7 million in the second quarter of last year.
“The Rent-A-Center Business achieved its strongest adjusted EBITDA margin in several years, driven by operating expense control, share gains from a pullback in traditional lending and further adoption of e-commerce and digital payments,” Fadel said. “Same-store sales were positive in each month of the quarter, with furniture and appliance sales back to pre-pandemic trends.
“Preferred Lease generated 25% growth in invoice volume despite extensive store closures in the second quarter, with a strong acceleration in May and June,” he added. “The mix of high-quality customers should continue to drive revenue and portfolio performance, and we’re excited about investments we’ve made to drive national account growth and introduce more verticals to our best-in-class model.”
In the Franchising Segment, the company reported $22.7 million in second quarter revenues, up 52.5% from $14.9 million last year, due to higher inventory levels and higher store count, with some 60 locations having been refranchised. As of June 30, there were 370 franchise operated locations. Operating profit was just over $3 million, compared with $1.8 million in the second quarter of 2019.
In the Mexico Segment, second quarter revenues were $10.6 million, down 4.6% from $13.5 million on a constant currency basis compared to the second quarter of 2019. Segment operating profit was $1.1 million in the second quarter, compared with $1.5 million last year.
As of June 30, the Mexico business had 121 company-operated locations.
For the six months ended June 30, the company said it generated $254.7 million of cash from operations and ended the quarter with $206.4 million in cash and cash equivalents and $198.5 million in outstanding indebtedness. The company reduced its debt by $163.5 million from the end of the first quarter, which included a repayment of $118 million in indebtedness drawn against its revolving credit facility in March 2020 as a precautionary measure in response to COVID-19.
It ended the second quarter with $418 million of liquidity, which includes $211 million of remaining availability of its revolving credit facility.