RCII - Rent-A-Center

[flesh]

Core sales of rcii are decreasing slower than aaron's. Trying to figure out how much of acceptance now's sales are included in core's top line number (when inventory is repossessed/resold) for each company. Trying to isolate core and answer what's different vs aarons core. Acceptance now's sales increased concurrently with core's declines. For me this is the crux. Help here would be nice.

 

Is it a melting ice cube or a credit cycle play getting cheap. Did mgmt party top of cycle when they should have pondered? I don't believe core goes away, slowly shrinking for decades imo... need to get closer on pace of entropy.

 

 

[MrB]

Rumor mill -- "Rent-A-Center deal expected next week"

 

 

https://seekingalpha.com/news/3348662-rent-center-deal-expected-next-week

[LowIQinvestor]

Earnings Out!

Solid deleveraging & just 2 months until a potential sale:

 

For the three months ended March 31, 2018, the Company generated $84.5 million of cash from operations, ended the first quarter with $81.4 million of cash and cash equivalents, and reduced its outstanding debt balance by $77.6 million. Subsequent to quarter end, debt on the revolver was reduced to a zero balance as of April 30, 2018.

 

https://www.businesswire.com/news/home/20180430006461/en/Rent-A-Center-Reports-Quarter-2018-Results

[LowIQinvestor]

Does any here Allan Mecham's thesis on RCII?

 

It appears to be a very large position for Arlington Value.

 

The last time I followed him into an investment was Cimpress! And I owe him one!

[Foreign Tuffett]

Rumor mill -- "Rent-A-Center deal expected next week"

 

 

https://seekingalpha.com/news/3348662-rent-center-deal-expected-next-week

 

Any idea on who is leaking all the info. And why?

[flesh]

q1 adj ebitda 25m = 100 m run rate plus 75m (low end of run rate savings) gets you to 175m ebitda assuming it doesnt melt and they can hit low end of guidance. 935m end of cy 18 EV at 9.43/share, adding 85m remaining fcf for year to current cash, 81m.

 

175m

-50m capex (high end guided)

-36m interest

= 94m pre tax

-25% tax

=70.5m

fcf/ev end of cy 18 = 13x

fcf + I /ev= 9x

fcf/mkt cap = 7x

 

I'd say it's too cheap IF it doesn't melt or melts very slowly and/or D and A are lower than 50m run rate and/or tax rate is lower than 25% and/or run rate savings are larger than above and closer to high end of guidance. Need to triangulate the variables.

 

If you apply the end of cy 18 cash to debt, lower capex a bit, hit closer to high end of run rate savings, flat line sales, lower tax a bit, you have a double pretty easy.

 

They sold 31 stores for 9.5m claiming they were in the "third quartile" @ 306k per store. On their franchisee link, they claim a minimum startup expense of 350k. 2450 stores x 350k = 857m, or you get ANOW almost for free, including end of cy 18 cash.

 

 

[LowIQinvestor]

q1 adj ebitda 25m = 100 m run rate plus 75m (low end of run rate savings) gets you to 175m ebitda assuming it doesnt melt and they can hit low end of guidance. 935m end of cy 18 EV at 9.43/share, adding 85m remaining fcf for year to current cash, 81m.

 

175m

-50m capex (high end guided)

-36m interest

= 94m pre tax

-25% tax

=70.5m

fcf/ev end of cy 18 = 13x

fcf + I /ev= 9x

fcf/mkt cap = 7x

 

I'd say it's too cheap IF it doesn't melt or melts very slowly and/or D and A are lower than 50m run rate and/or tax rate is lower than 25% and/or run rate savings are larger than above and closer to high end of guidance. Need to triangulate the variables.

 

If you apply the end of cy 18 cash to debt, lower capex a bit, hit closer to high end of run rate savings, flat line sales, lower tax a bit, you have a double pretty easy.

 

 

 

Yes, If things continue to improve (FCF) then I think you are right about it being a double.

 

AND

 

52% SHORT INTEREST could add some extra juice in the short term.

 

 

[given2invest]

Rumor mill -- "Rent-A-Center deal expected next week"

 

 

https://seekingalpha.com/news/3348662-rent-center-deal-expected-next-week

 

Any idea on who is leaking all the info. And why?

 

I can guess who - Engaged Capital.  The Deal/Street.com author writes regularly leaks from companies where Engaged PM is on the board.  In just the last 12 months he has written leaks on HAIN, TIVO, and RCII. 

 

The why is a better question...if deals are going smoothly you don't need to leak.  You leak to try and get interest from other parties/get the price higher so the bids are higher.  It's not a good sign.

[BeerBBQ]

 

 

They sold 31 stores for 9.5m claiming they were in the "third quartile" @ 306k per store. On their franchisee link, they claim a minimum startup expense of 350k. 2450 stores x 350k = 857m, or you get ANOW almost for free, including end of cy 18 cash.

 

Didn't they also say that the royalty keeps Ebitda the same?  Does that mean they could franchise all of their stores for similar proceeds and maintain current level of EBITDA?

[writser]

Rumor mill -- "Rent-A-Center deal expected next week"

 

 

https://seekingalpha.com/news/3348662-rent-center-deal-expected-next-week

 

Any idea on who is leaking all the info. And why?

 

I can guess who - Engaged Capital.  The Deal/Street.com author writes regularly leaks from companies where Engaged PM is on the board.  In just the last 12 months he has written leaks on HAIN, TIVO, and RCII. 

 

The why is a better question...if deals are going smoothly you don't need to leak.  You leak to try and get interest from other parties/get the price higher so the bids are higher.  It's not a good sign.

 

Good stuff, thanks.

[MrB]

Also Fadel reduced 250 positions or 25% of corporate office and in the field they cut 60 positions. Cannot think it makes him popular, but I don't think one can say Fadel is dragging his feet.

 

Overall the numbers impress, but the speed is what was remarkable. They still have a lot of hard work ahead of them, but it is a great start.

[LowIQinvestor]

Anyone have a copy of the recently released SumZero write-up (LONG) on this?

 

I saw the preview :    unlevered 15% FCF yield, Michael Burry "ick stock" , potential sale in Q2.

 

thanks in advance!

[Sunrider]

Anyone have a copy of the recently released SumZero write-up (LONG) on this?

 

I saw the preview :    unlevered 15% FCF yield, Michael Burry "ick stock" , potential sale in Q2.

 

thanks in advance!

 

I would be very interested in this (and grateful) as well. Please send PM.

 

Thank you!

 

[Snorky]

So do I...thanks a lot :)

[LowIQinvestor]

FYI: Arlington Value added a tiny bit to Rent-A-Center

 

http://www.dataroma.com/m/holdings.php?m=AV

[BeerBBQ]

Anyone have any thoughts on why the short interest is so high?  Is there a technical reason, an uniformed view, or is it fundamentally driven (structural, valuation, fraud, etc.)?

 

With the largest holder (Engaged) having significant influence in the Boardroom on the strategic alternatives process to either fix the business themselves or sell it (with that process set to conclude in at most 1.5 months) and at least 1 party that has repeatedly expressed interest in buying the company outright (Vintage - put money where there mouth is with a 5.9% position at $9.96/share and an all cash offer of $13/share), what is the perspective of fundamental shorts here?

 

Is it that they believe the business is fundamentally broken and can't/won't be fixed/sold. If so what is the basis for that rationale?

 

or is it that nobody will buy the company at prices >$10?

 

What else?

 

If it isn't fundamental, what is the technical reason for such a large short position?

 

 

 

 

 

 

[given2invest]

Yes. Levered beast and a terrible business that has not been performing well over the medium term.

 

Engaged has a bad track record and doesn't have a lot of cred so I wouldn't hang your hat w/ them.  I'm in TIVO and they are also involved there but only own 2% of the company there.

[BeerBBQ]

Yes. Levered beast and a terrible business that has not been performing well over the medium term.

 

Engaged has a bad track record and doesn't have a lot of cred so I wouldn't hang your hat w/ them.  I'm in TIVO and they are also involved there but only own 2% of the company there.

 

I am not familiar with EC's track record. Are you referring to investment results, their success in activism, or both?  Any details would be helpful.

 

 

 

[flesh]

Short thesis is that ANOW and Aaron's version of ANOW (progressive) are cannabalizing sales of core RTO. If you can pay a normal price and get anything at any furniture store (plus heinous fees) as opposed to paying a huge markup up front plus heinous fees, why wouldn't you?

 

I'm thinking that these customers aren't often so careful but some are.

 

Also, Anow or progressive can't survive wo being able to resell at core locations.

 

 

[LowIQinvestor]

The company seems to be way ahead in their turn-around strategy: ( if SHORTS are wrong this is a Volkswagon/Porsche type short squeeze in the making)

 

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NjkzODI4fENoaWxkSUQ9NDA1MDc3fFR5cGU9MQ==&t=1

 

Raised 2018 FCF guidance from $120M to $170M

 

For the three months ended March 31, 2018, the Company generated $84.5 million of cash from operations, ended the first quarter with $81.4 million of cash and cash equivalents, and reduced its outstanding debt balance by $77.6 million. Subsequent to quarter end, debt on the revolver was reduced to a zero balance as of April 30, 2018.

[given2invest]

I love when everyone references Volkswagen/Porsche in a crowded name.  There were very specific reasons for that squeeze and it was a pair trade - this has none of those qualities. 

 

I spent some time looking at Engaged portfolio and their investment success.  I was not impressed.  They have had some success in selling companies - and some failures.  But if you look at their core portfolio now, HAIN, RCII, TIVO - they have lost a lot of money on all of them despite market up huge.

 

Re turn-around strategy working - I have no view.  But I do know that consensus is if this ends w/o a sale - the stock will go down - A LOT.  So please keep that in mind as you invest for the coming weeks.

 

I am not short, not long obviously.

[odin]

agreed given2...the business is poor and its a levered pig.  It's only generating cash bc inventory is being liquidated.

 

Note that Marcato bailed.  They were involved with Engaged initially.

 

No position.

[LowIQinvestor]

I love when everyone references Volkswagen/Porsche in a crowded name.  There were very specific reasons for that squeeze and it was a pair trade - this has none of those qualities. 

 

I spent some time looking at Engaged portfolio and their investment success.  I was not impressed.  They have had some success in selling companies - and some failures.  But if you look at their core portfolio now, HAIN, RCII, TIVO - they have lost a lot of money on all of them despite market up huge.

 

Re turn-around strategy working - I have no view.  But I do know that consensus is if this ends w/o a sale - the stock will go down - A LOT.  So please keep that in mind as you invest for the coming weeks.

 

I am not short, not long obviously.

 

Puts seem to be very cheap if what you say is true.

[LowIQinvestor]

For the record:

 

I think something material happens in the next 2 weeks  8)

[given2invest]

I love when everyone references Volkswagen/Porsche in a crowded name.  There were very specific reasons for that squeeze and it was a pair trade - this has none of those qualities. 

 

I spent some time looking at Engaged portfolio and their investment success.  I was not impressed.  They have had some success in selling companies - and some failures.  But if you look at their core portfolio now, HAIN, RCII, TIVO - they have lost a lot of money on all of them despite market up huge.

 

Re turn-around strategy working - I have no view.  But I do know that consensus is if this ends w/o a sale - the stock will go down - A LOT.  So please keep that in mind as you invest for the coming weeks.

 

I am not short, not long obviously.

 

Puts seem to be very cheap if what you say is true.

 

You're right...option prices are odd - very low implied vol given the event is imminent.  Still have no interest but that's odd.  I think the likely outcome is a sale at/near current prices.