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Rent-A-Center Stock Plummets For A Very Surprising Reason
Rent-A-Center is best known among the lower/middle class segment of the U.S. population as the place one goes to if one can't afford (or doesn't want to) buy furniture or the latest, and not so latest, electronic gadget and would rather rent it out. This morning it is also known as one of the worst performing stocks on the Nasdaq, plunging over 27% to a price not seen since early 2010.
What happened?
First, there was the usual flurry of negative business considerations which accompany every economy that slides into a recession, such as Q4 forecasts below analysts' estimates while cutting its full-year profit forecast as Q3 sales in United States fell due to higher sales of low-margin merchandise and company closed about 100 underperforming stores.
The CFO added some much needed color adding "we are challenged by (sales of) computers which are down double digits, similar to the industry at large, and we have seen some headwinds in oil industry affected markets, such as parts of Texas," CFO Guy Constant says on conference call.
This was just the latest confirmation that the US consumer is struggling, not only with regular purchases, but even discretionary rentals.
But the biggest surprise was the following announcement in the press release:
Smartphone Write-Down:
During the third quarter, we determined that it was necessary to adjust our smartphone inventory primarily through the write-down of older generation phones, and via the acceleration of secondary market dispositions of excess phone inventory. Upon standing up the category a year ago, we purchased inventory to support new and older technology, and older generation phones fell short of our expectations while newer generation phones exceeded our expectations, resulting in excess phones. In connection with this decision, the company has recorded a $34.7 million pre-tax inventory write-down in cost of sales for the third quarter to account for these actions. Management is currently refining its approach to this profitable product category based upon our initial year of experience in this area.
This is very unexpected because lack of interest for "older technology" smartphones was never a reason for trouble, or writedowns, at RCII - or any of its peers - in the past, and while the company's and consumers' focus on the "latest and greatest" is understandable, these account for a sliver of profits in the smartphone segment for RCII.
More importantly, older technology is simply a way to say "cheaper" rentals, which basically targeted an even poorer segment of the lower/middle class.
That there has been such a profound drop off in demand for smartphone rentals begs the following two questions:
- just how really cash-strapped is the U.S. consumer, especially that segment that is not in the upwardly mobile, top decile of incomes, and
- is America's infatuation with smartphone gadgets finally coming to an end?
If the answer is two (or even one), then the world's most valuable stock set to report after the close today, is due for some very difficult times ahead as the magic spell hold of the iPhone on the average consumer may be finally dying. We hope to get some more color on end-demand when Apple reports earnings later today.
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I'm glad to see this business get clobbered. It's just about as exploitative as a paycheck loan storefront.
So customers were not interested in those older phones? No shit. Some of these corporations really are completely out of the reality. Don't they know even the poorest guy want to rent the latest thing?
"CFO Guy Constant" LOL! That is as good as other names I've heard:
A) Justin Case
B) Rustry Fender
C) Fish Head
D) Doir Knob
All crazy names and shows that their parents definitely had senses of humor at their kid's expense...
Don't forget:
Fonda Dix and Hugh Jardon.
"Don't they know even the poorest guy want to rent the latest thing?"
Many are delighted to have an older phone, but this segment gets them free via "Obamaphones." The newest phones will stay in demand (the CFO said the new gen phones are profitable) but must get written off the day the next generation phone is released.
Whether this business model works depends entirely on how often iPhone/Galaxy comes out with a new model.
Wait what happens to Tesla stock, once "investors" "find out" that the cars are actually rented as well ("Tesla buyback program")...
They should merge and then split with Fingerhut, FingerCenter and Rent-A-Hut have a nice ring to them.
Rent a finger might be popular too?
Tesla + Vehicle = Teslicle...
Why would you rent a finger when it is so easy to have others give you theirs?
Sharp stock price drops sometimes are followed by news of a company being investigated for "fixing" their books.
Moar green shoots?
Or.... maybe someone finally did the math, and figured out they were paying four to five times more, for something they could buy outright... ?
Someone educate me. I've never been to a store like this.
I picture it as some place where you supposedly "rent" something, but it's defacto buying at highly inflated prices. People hang onto these things for much longer terms than a week or month.
Another one of those "it's expensive to be poor scams"
It's even more expensive to be stupid.
Pretty much. I think that it is like layaway but you get to pay it off while you get to use it. The price accounts for it.
Basically a way for poor folks to get some bling if they cannot afford to buy or cannot get a loan.
I bet if you miss a payment, they come take it.
pods
So it's a rent to own deal and they get to re-rent the item when they fail to pay?
FWIW no matter if you're poor or well off furniture is ridiculously marked up at retail and often import d particle board. You can get funiture for next to nothing ($30 armoires, $200 dining sets which cost $3000 20+ years ago) if you shop auctions or estate sales.
Only new furniture anyone should buy is a new mattress - and one should haggle that too.
So it's a rent to own deal and they get to re-rent the item when they fail to pay?
Correct. On top of that, the total rent-to-own price is far more than the cash price.
I've actually seen people rent big screen TV's to watch the Superbowl or some Pay Per View event, they only have the TV for a day or two for a party.
There's a legitimate market for this, I guess.
But they also rent stuff like kitchen tables (nothing fancy, just an ordinary kitchen table) why in the world someone would rent such a thing baffles me...but people do.
These types of rental centers have their purposes, like when moving to a new location and the only available living accommodation unit is unfurnished. And it's definitely cheaper than hiring a staging company for an open house; it's surprising how some really nice-looking appliances can be ordered through these rental centers.
"More importantly, older technology is simply a way to say "cheaper" rentals, which basically targeted an even poorer segment of the lower/middle class."
Tyler doesn't understand this market. The "people" who rent these things that you should buy do so almost entirely for the purpose of showing off. They will go down to a note lot and put down the minimum down payment on a big fancy SUV, usually an Escalade, then make a few payments, and then let it go, while also getting kicked out of their apartment because they haven't been paying their rent. I imagine it is the same with the smartphones. They want the newest and fanciest ones with lots of bling on it. The fact that they can't afford it doesn't matter.
These are also the same people who will turn into the feral creatures they are, under the veneer of their street clothes, once the effect of 72 hours of empty shelves and closed fuel stations ensue.
Other than those that pay full price for their blingphones, isn't everybody else essentially renting through a 2-yr contract or a payment plan? And with the new apple plan, you can rent an iphone for life...
"is America's infatuation with smartphone gadgets finally coming to an end?"
God I hope so, you walk in a bar today and every single person is hunched over their screens doing something stupid. Nobody talks to each other any more, it is pathetic.
Rockin a Galaxy S4 that I am getting sick of paying for...
I can top that, a drunk running in front of a car to the bar,while using his
smartphone.Darwins law won in that case.
How are you supposed to get laid?
My Blackberry Z10 has a replaceable battery. I think I will have it for another couple of years at least.
pods
This means I-Phone-5 on clearance sale at the Dollar Store ... the perfect stocking stuffer.
Hmmm... also new signs of a rate hike bullshit memo comming up...
Theyre all jumping on that great iPhone forever plan!
/sarc
Send all the phones to china where they will melt them down for the scrap gold and silver lol
Hope it closes.
Wall Street's smoke and mirror "Economic Recovery " BS time is getting shorter.
Is Buffet an investor in this stock?
He likes companies that prey on the poor and ill-educted (not always their fault).
Profits are profits!
Buffet like Greentree as well.
They preyed on the trailer living crowd.
No wonder Obama and Buffet are buddies.
Maybe it's b/c every new model isn't backwards compatible. And they couldn't download any apps. Like iDrool, and iTard.
ha, thats it
why would the freeshitarmy need to get a rent-a-pos-phone when they now all get obamaphones with their ebt cards?
Why rent when you can own.... an Obama-Phone!
Forward Soviet!!!
Robert D. Davis CEO at Rent-A-Center Age: 43 Total Annual Compensation: $2,815,051 Reported Accumulated Compensation: $10,765,890...
in other words don't worry about davis, or speese, or any of those guys. they got plenty.
great to be able to "defer" income that you own...so that you don't have to pay the little people's tax
image [?] is everything... remember that slogan...?
air jordan sneakers sell for $350-$100
and the iphones are free with contract?
i mean,... how can you miss? the kids are happy and you know their whereabouts.
win win for aapl
disclaimer: this message [k]not endorsed by NSA
Paydays loans, pawn shops, check cashing services, and phone/furniture rental joints. Dayum this economy is thriving! It's like a nationwide rush to live the ghetto lifestyle. Is there a malt liquor pure-play I can invest in?!?
You forgot Rim Shops and Dollar Stores.
If you really are killing it, there might be a Dolla General across the street from a Dollar Tree.
I do have to admit that once, while looking for a rain poncho for surf fishing (down east NC) I found they sold Vienna Sausages in a can. I bought one and ate it. Just because life is good. Well I ate one.
pods
You could have used the rest as bait.
Finally the folks looking for very very cheap low tech phones realized they could go online and find those on ebay/craigslist and the like for Peanuts on the dollar almost new on the used market.
Why pay for new ones when the ones for sale on the used market are 1/5th the price ?
Target almost always has a decent smartphone for Boost or Virgin in the 30-40$ range !!!!!!!!!!!!!!!!
Yeah,but...who has 30-40 bucks. Have to use a maxed out credit card that charges 18-24% on balance?
The increase in pay-as-you-go services is tending to eat into their model I'd think. Further, I suspect that the major carriers (cough, NSA) are all wanting to have better accounting for who has keys to the Internet. It's all about tighter control. Don't want "drunken" poor folks hitting the Internet and causing problems...
Soooo, about two months ago, my son in law (32ish, assistant principal at a high school) was doing one of those "buy the storage contents from some place where someone didn't paid their bill". His bid was highest (300ish). Brings it all home to the garage and sets it all up for the weekend garage sell.
He scored some pretty nice, new, furniture and stuff. He is sure he will make a decent profit. Garage sell starts early Saturday morning and is going pretty good. Sometime Saturday as the afternoon wears on and traffic has slowed down along comes joe blow. Son in law still has a nice recliner and couch, some tables, etc, and joe blow inquires about the recliner.
joe blow, "so how much do you want for this recliner?"
soninlaw, "a fair price"
joe blow, "where did you get this stuff?"
soninlaw, "I bought the storage contents at auction"
joe blow, "the guy who rented the storage unit was "scumdog one", wasn't he?"
soninlaw, "yah, that was the name of the guy, scumdog one. He said he was getting divorced and had no place to keep the furniture, why do you ask?"
joe blow, "well i am from the rental center security division, furniture recovery. This stuff was rented from our rental center, scumdog one is behind on payments."
soninlaw, "whoa, bummer"
This is a true story and took place this past summer.
They got LoJack in the furniture?I live in a small South Park kind of town. Couple of years ago a payday advance check place and a Rent-a-Center opened up. It was a sign that my town is going downhill.
Property recovery. Used car lots. They can get on their puter and shut down your car if you are 10 minutes late with the payment. They know where the car is and will come out and retrieve it. Apparently this has really lowered delinguency rates. I think I read all that here at ZH a year ago.
I just checked Yahoo domains and preyonthepoor.com is available.
You're welcome.
The market is saturated. Most tech markets are saturated -- PCs, tablets, and now phones. China was driving a lot of the extra demand (obviously not for rent-a-center, but for the market overall) and they're tapped out as well.
Those at the bottom of the consumer market don't buy generation-old iPhones for a 30% discount off new, they buy ultra-lower priced androids or second-hand phones via CL/ebay. This was just a boneheaded, uninformed move by RAC to think they could be a dumping ground for older phone generations at RAC prices.
I've recently learned that contrary to my belief that iphones, etc al, were stupid aspirational purchases for the lower classes, having one one becoming almost mandatory to simply function in society at their level. Someone I know just got a new (near minimum wage job) and couldn't clock in, asked his co-workers for help and no one knew how to fix (or use) the PC to start their time care -- it was all done via an app on their phones (that also, via GPS, apparently confirmed their phyiscal presence at the work site.)
Things just get stranger and stranger, I'm glad I'm almost off grid at this point.
I think you raise a major point - people will buy a new tablet or phone or laptop every so often - but will do so less and less at the current price points.
Last time I lost or fucked up a phone I was going to just get a 100 buck htc. All i care about is music and basic browsing.
I did go for the new iphone [may switch back to samsung next time, def some things I like better] but for fuck's sake, the pricing is absurd. It will have to come down because the technology and production cost to make a functional equivalent is arriving at parity outside proprietary bells and whistles few care much about.
facetime def is neat, but how hard is it to just use skype app?
Just wait until we have a national id. Thats the first step. once the frogs are all cozy in their pans, the id would be 'safer' as a chip implanted in your forearm. As outlandish as that sounds to us, even now, it will come to be absolutely normal. Necessary to stop the new ISIS, donchyaknow...
@Raymond_K._Hessel
There are actually some open source options out there. If you're not worried about apps (doesn't sound like you are), then check Salifish, Ubuntu or Firefox OS phones.
Not only is the market saturated, the marginal benefit of the newer devices is descreasing, so there is hardly any reason to upgrade. Probably the best value in PC upgrade in history was the PC XT to PC AT - speed improvement was about a factor of 10x
I was pissed at the college mathematics education my son received. They used calculators for everything (now it would probably be an iPad). When I was in highschool many, many years ago we had these things called "proofs" that we were required to do and understand. One that I recall was the one to prove that Grbriel's Horn had an infinite surface area and finite volume. (then again, we also had slide rules ... and calculators are an improvement)
https://en.wikipedia.org/wiki/Gabriel%27s_Horn
Something that may or may not be useful in the future, but to this point have not found the right application. But it bothers me that people today have very little interest in the questions "why? and how?" and just don't bother with anything that is not right in front of their nose.
So true. My teenage daughter completely lacks curiousity. Low A student, bright,and social, but indiiferent to anything other than some very narrow interests.
Huh! Gettingt clobbered for a non-cash charge to earnings. I am thinking that they did not get Wall Street clearance for the move and instructions on how to report adjusted EBITDA. Maybe the problem is that it will lead to cash generation through the sale to secondary markets and cash generation is banned by Wall Street.
When the charity cases called "tech companies" (dot.com 2.0) report crappy earnings and adjusted EBITDA miracles, their stocks soar. The term "quality of earnings" has been completely banned on Wall Street for matters of security.
So selling to the lower income brackets is geting tougher. Anyone surprised?