Rent-A-Center, Inc. (NASDAQ:RCII) Q1 2018 Earnings Conference Call - Preliminary Transcript

May 01, 2018 • 08:30 am ET

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Rent-A-Center, Inc. (NASDAQ:RCII) Q1 2018 Earnings Conference Call - Preliminary Transcript

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Presentation
Executive
Mitch Fadel

another $27 million top line benefit, minus some merchandise depreciation costs and you got about $20 million benefit to EBITDA; again, if the portfolio of variance holds.

Now, the portfolio can move up or down every month depending on performance. But our Q1 results give us comfort about the positive trajectory of the business and continued positive same-store sales improvements in the Core, and also those positive Q1 results continue to build through April. Pricing was adjusted in both lines of business in the first quarter, which is expected to further increase demand and ownership. In the Core business, pricing on elastic products were lowered and offset by inelastic product pricing changes.

Additionally, the level of free time promotional activity in the Core was also significantly reduced in Q1 contributing to our positive same-store sales as well. In AcceptanceNOW, the value proposition was changed to include shorter terms and a slightly higher average ticket. These changes are expected to increase our conversion rate, drive higher ownership, and allow us to recoup our product investment faster. Additionally, in AcceptanceNOW, we're in the process of making changes to our initial payment programs, and we're seeing a significant increase in demand where we have started that program.

All of these changes have made us more competitive with our pricing, resulting in a better every day offer for our customers and, as I said, are increasing demand for our product in that kiosk space.

Regarding bottom line performance, in the first quarter, the company generated approximately $25 million in adjusted EBITDA and approximately $85 million in free cash flow. This is a significant improvement, and most of our cost savings initiatives were not even implemented until late in the quarter or even into April.

Regarding the progress made on those cost savings initiatives, in early March, corporate overhead was reduced by approximately 250 positions or about 25% of the corporate office, resulting in annual run rate savings of about $28 million with $20 million expected to be realized this year.

In April, leadership in the field has been realigned to reduce by about 60 positions. And these changes are expected to generate $9 million in annualized run rate savings, with about $6 million realized this year. Between the corporate and field reductions, we're on track to meet the $30 million to $40 million of annualized overhead savings outlined in our 2018 guidance.

Other store expense savings primarily include cost rationalization in the Core stores by negotiating better rates and rationalizing levels of service by our procurement department. Targeted savings of about $15 million annually have been identified, with 20% of those savings already realized. These initiatives are not expected to disrupt the business since the opportunities are primarily outside of operations, but that will allow us to be much more efficient as an organization.

Moving onto our supply chain initiatives, during the first quarter, several changes were made to our supply chain. Within AcceptanceNOW, we've historically utilized collection centers to pick up return product