RAC Management Focused on Financial Services and Rentway Integration

Implications: Rent-A-Center management will focus in 2007 on completing the integration of 786 acquired Rentway stores into the Rent-A-Center system and continuing to add financial services in their stores.  These points of emphasis make it clear that the core rent-to-own business of RAC has matured to the point that new store openings are no longer a priority.

Analysis: Rent-A-Center recently made its first earnings announcement since the closing of its acquisition of Rentway in November 2006.  RAC has closed approximately 20% of the 786 Rentway stores, moving the accounts from those stores to nearby RAC stores.  In these situations, a rent-to-own operator will typically lose 50% or more of the acquired accounts over a 6-8 month period.  Management's strategy is to try to keep as many of the transferred accounts as possible, while focusing primarily on rebranding the remaining stores and growing them to a revenue level close to the RAC store average of $70K per month.

RAC plans to add financial services products in 200-250 stores this year, building on the 150 locations with financial services at the end of 2006.  States with the most favorable legislation enabling payday loan transactions will be the first targets for these additions.  RAC has previously stated a goal of 1000 financial services locations by 2010 and appears on track to get there.  Payday loans are a good fit for rent to own stores, and it will be interesting to see whether or not Aaron Rents, the second largest RTO company, follows RAC's lead in this area.