...we believe the current severity of the financial crisis and its effect on the economy has resulted in a softening in our business and as a result we have reduced our outlook for the fourth quarter.
Mark Speese, Chairman and CEO, Rent-A-Center

Total revenue was down slightly, primarily due to the restructuring plan announced in December, 2007 (see story). The plan called for closing nearly 280 locations in the first 90 days of 2008. With additional store closures, Rent-A-Center had 315 fewer locations in Q3, 2008 versus the same quarter in 2007.

"While we believe the economic environment creates opportunities for potential customers whose available credit is diminished or eliminated, it is creating challenges for our existing customers," said Mark E. Speese, Rent-A-Center's Chairman and CEO. "Therefore, we believe the current severity of the financial crisis and its effect on the economy has resulted in a softening in our business and as a result we have reduced our outlook for the fourth quarter."

Speese said that, assuming a continued weak economy in 2009, Rent-A-Center's will delay some planned new store openings. "...we believe it is prudent to delay adding any financial services locations until a later date," Speese said.

Rent-A-Center stock closed at $15.49 today, down $1.65%. Rent-A-Center will broadcast its quarterly earnings conference call tomorrow Tuesday, October 28, 2008 at 10:45 AM ET over the Internet to discuss these results. A link to the live webcast is available from My RTO Portfolio.

Q3, 2008 Details:

Rent-A-Center's total revenues for the quarter were $708.8 million, a decrease of $0.9 million from the total revenues of $709.7 million for the same period in 2007. This decrease in revenues was primarily the result of 315 fewer stores offset by a 3.4% increase in same store sales.

Net earnings for the quarter ended September 30, 2008 were $29.4 million, an increase of $4.1 million, or 16.2% from the net earnings of $25.3 million for the same period in the prior year. As a result of Hurricanes Gustav and Ike, Rent-A-Center estimates that net earnings per diluted share were negatively impacted by approximately $0.02 for the quarter ended September 30, 2008.

"We met our guidance for same store sales, revenues and, when giving consideration for the impact of the hurricanes, diluted earnings per share," commented Mark E. Speese, Rent-A-Center's Chairman and Chief Executive Officer. "While we believe the economic environment creates opportunities for potential customers whose available credit is diminished or eliminated, it is creating challenges for our existing customers," Speese continued. "Therefore, we believe the current severity of the financial crisis and its effect on the economy has resulted in a softening in our business and as a result we have reduced our outlook for the fourth quarter. Assuming a continued weak economy in 2009, our focus will be on improving our rent-to-own and financial services operations and as such, we believe it is prudent to delay adding any financial services locations until a later date," Speese added. "We believe that even in this environment our business will continue to generate sufficient cash flow to not only meet our operating requirements but also maintain a solid balance sheet," Speese concluded.

"As a result of our solid operating results, and despite the challenging market environment, we have generated positive cash flow from operations of approximately $315 million for the nine month period through September 30, 2008, while ending the quarter with approximately $99.2 million of cash on hand," commented Robert D. Davis, Rent-A-Center's Executive Vice President and Chief Financial Officer. "This significant cash flow enabled us to enhance our capital structure by reducing our outstanding indebtedness by approximately $265 million year to date, while internally funding our operations," Davis concluded.

2008 Significant Item

Restructuring Plan Expenses. During the first quarter of 2008, Rent-A-Center recorded a pre-tax restructuring expense of approximately $2.9 million in connection with the restructuring plan previously announced on December 3, 2007. This restructuring expense reduced net earnings per diluted share by approximately $0.03 in the first quarter of 2008. The Company recorded additional pre-tax restructuring expense in the third quarter of 2008 of approximately $0.2 million. Through the nine month period ended September 30, 2008, the total pre-tax restructuring expense of approximately $3.1 million reduced net earnings per diluted share by approximately $0.03. As previously reported, Rent-A-Center recorded a pre-tax restructuring expense of approximately $38.7 million related to this restructuring plan during the fourth quarter of 2007. The costs with respect to the restructuring plan relate primarily to lease terminations, fixed asset disposals and other miscellaneous items.

2007 Significant Items

Settlement with ColorTyme Franchisees. On July 31, 2007, ColorTyme entered into a settlement agreement with five affiliated ColorTyme franchisees pursuant to which the franchise agreements with respect to approximately 65 ColorTyme stores were terminated. ColorTyme received a cash payment in satisfaction of the contractually required, future royalties owed to ColorTyme pursuant to the franchise agreements. This settlement payment increased diluted earnings per share by approximately $0.04 in both the third quarter of 2007 and for the nine month period ended September 30, 2007.

Hilda Perez. On November 5, 2007, Rent-A-Center paid an aggregate of $109.3 million, including plaintiffs' attorneys' fees and administration costs, pursuant to the court approved settlement of the Hilda Perez v. Rent-A-Center, Inc. matter pending in New Jersey. As previously reported, the Company recorded a pre-tax expense of $58.0 million in connection with the Perez matter during the fourth quarter of 2006, and an additional pre-tax charge of $51.3 million in the first quarter of 2007, to account for the aforementioned costs. The litigation expense with respect to the Perez settlement reduced net earnings per diluted share by approximately $0.47 for the nine month period ended September 30, 2007.

FOURTH QUARTER 2008 GUIDANCE:

Revenues

-- Rent-A-Center expects total revenues to be in the range of $698 million to $713 million.

-- Store rental and fee revenues are expected to be between $610 million and $622 million.

-- Total store revenues are expected to be in the range of $687 million to $702 million.

-- Same store sales are expected to be in the flat to 1% range.

Expenses

-- Rent-A-Center expects cost of rental and fees to be between 22.6% and 23.0% of store rental and fee revenue and cost of merchandise sold to be between 75% and 79% of store merchandise sales.

-- Store salaries and other expenses are expected to be in the range of 58.4% to 59.9% of total store revenue.

-- General and administrative expenses are expected to be between 4.3% and 4.5% of total revenue.

-- Net interest expense is expected to be approximately $14 million, depreciation of property assets is expected to be approximately $18 million and amortization of intangibles is expected to be approximately $2 million.

-- The effective tax rate is expected to be approximately 37% of pre-tax income.

-- Diluted earnings per share are estimated to be in the range of $0.44 to $0.49.

-- Diluted shares outstanding are estimated to be between 67.0 million and 68.0 million.

FISCAL 2009 GUIDANCE:

Revenues

Rent-A-Center expects total revenues to be in the range of $2.830 billion and $2.890 billion.

-- Store rental and fee revenues are expected to be between $2.435 billion and $2.485 billion.

-- Total store revenues are expected to be in the range of $2.790 billion and $2.850 billion.

-- Same store sales are expected to be flat.

Rent-A-Center expects to open 30 to 40 new company-owned store locations.

Expenses

Rent-A-Center expects cost of rental and fees to be between 22.4% and 23.0% of store rental and fee revenue and cost of merchandise sold to be between 74% and 78% of store merchandise sales.

-- Store salaries and other expenses are expected to be in the range of 57.7% to 59.2% of total store revenue.

-- General and administrative expenses are expected to be between 4.5% and 4.7% of total revenue.

-- Net interest expense is expected to be approximately $55 million, depreciation of property assets is expected to be between $70 million and $75 million and amortization of intangibles is expected to be approximately $1 million.

-- The effective tax rate is expected to be approximately 38% of pre-tax income.

-- Diluted earnings per share are estimated to be in the range of $2.10 to $2.30.

-- Diluted shares outstanding are estimated to be between 67.3 million and 68.3 million.