Rent-A-Center cuts debt by $117.1 million in third quarter

By Lisa Kerner

Charlotte, N.C., Oct. 27 - Rent-A-Center Inc. reduced its debt by $117.1 million in the third quarter alone, said chief financial officer Robert D. Davis during the company's earnings call on Tuesday.

Year-to-date the company has reduced its debt by $288 million and reduced its indebtedness by over $542.2 million in the last 24 months, said Davis.

Rent-A-Center prepaid $10 million of its senior term debt in the quarter, leaving approximately $649 million term debt outstanding.

Also during the third quarter of 2009, Rent-A-Center said it redeemed its outstanding balance of $75.4 million in total principal amount of its 7½% senior subordinated notes as well as repaid approximately $41.7 million of its senior debt.

Davis said operating cash flow was $88 million in the third quarter, and is now at approximately $300 million year-to-date through Sept. 30.

According to Davis, the Plano, Texas-based rent-to-own operator's leverage ratio was down 29% from the prior-year period at 1.84x, from 2.59x, and well below the company's covenant requirement of 3.25x.

Rent-A-Center's net debt to book capitalization ratio improved 24%, said Davis, to 33.1% for the quarter.

"We believe we are well positioned in this continued period of economic uncertainty to manage the business for the long term," said Davis.

"Currently, we feel comfortable with where we are today in regards to our leverage, liquidity, and cash flow," Davis said.

Customers increase, units down

Chairman and chief executive officer Mark E. Speese said customer traffic is up and ahead of previous years, however, customers are renting fewer units, putting some pressure on top line revenue.

Instead of renting a sofa and end tables, for example, customers are renting only the sofa, making add-ons an important focus for the company.

Rent-A-Center, which could open as many as 10 stores in the next quarter and up to 50 stores in 2010, continues to be aggressive in its marketing initiatives and product offerings, according to Speese.

"Given where we were nine months ago and the fact that we are now making some profit shows that we are executing our business model," said Speese.

The company's total revenues for the quarter ended Sept. 30 were down at $671.3 million, compared to total revenues of $708.8 million for the same period in the prior year.

Rent-A-Center attributed the decline to a 6.1% reduction in same store sales and the impact of its 2007 restructuring plan.

Net earnings and net earnings per diluted share for the quarter were $36.8 million and $0.55, respectively, compared to $29.4 million and $0.44, respectively, for the third quarter of 2008.

Guidance for 2010 includes flat to slightly increasing total revenue with net earnings per diluted share in the $2.30 to $2.50 range.

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