Author Topic: RCII - Rent-A-Center  (Read 14518 times)

MrB

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Re: RCII - Rent-A-Center
« Reply #20 on: January 04, 2018, 04:34:15 AM »
I am still thinking about the impact the new tax bill will have. In this case I am not sure how I could quantify the future impact of the immediate expensing provision has to for example a strategic acquirer.
Am I correct in my assumption that in RCIIs case they don't have immediate GAAP profitability so they cannot reduce their taxes further into negative territory with the immediate expensing of for example their inventory?
Any thoughts are appreciated!
Not an expert, but I don't believe "immediate expensing" can be applied to inventory. http://ww2.cfo.com/tax/2017/12/cfos-expect-new-tax-bill/



Bluffy

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Re: RCII - Rent-A-Center
« Reply #21 on: January 04, 2018, 05:04:13 AM »
I am still thinking about the impact the new tax bill will have. In this case I am not sure how I could quantify the future impact of the immediate expensing provision has to for example a strategic acquirer.
Am I correct in my assumption that in RCIIs case they don't have immediate GAAP profitability so they cannot reduce their taxes further into negative territory with the immediate expensing of for example their inventory?
Any thoughts are appreciated!
Not an expert, but I don't believe "immediate expensing" can be applied to inventory. http://ww2.cfo.com/tax/2017/12/cfos-expect-new-tax-bill/
Thank you for your quick response! I started to dig into RCII's story and found https://seekingalpha.com/news/3319204-new-tax-rule-benefit-aarons-rent-center. Still trying to wrap my head around the tax bill and all its implications.

On another note, thank you MrB for all your very well thought out posts and the educational links you provide! Learned a lot already with your help especially by reading your posts in the DVA thread!

MrB

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Re: RCII - Rent-A-Center
« Reply #22 on: January 04, 2018, 09:00:27 AM »
I am still thinking about the impact the new tax bill will have. In this case I am not sure how I could quantify the future impact of the immediate expensing provision has to for example a strategic acquirer.
Am I correct in my assumption that in RCIIs case they don't have immediate GAAP profitability so they cannot reduce their taxes further into negative territory with the immediate expensing of for example their inventory?
Any thoughts are appreciated!
Not an expert, but I don't believe "immediate expensing" can be applied to inventory. http://ww2.cfo.com/tax/2017/12/cfos-expect-new-tax-bill/
Thank you for your quick response! I started to dig into RCII's story and found https://seekingalpha.com/news/3319204-new-tax-rule-benefit-aarons-rent-center. Still trying to wrap my head around the tax bill and all its implications.

On another note, thank you MrB for all your very well thought out posts and the educational links you provide! Learned a lot already with your help especially by reading your posts in the DVA thread!
Thanks Bluffy. I learn from this board with everyone else as I'm now learning from you that my assumption seems to be incorrect that the rule will not affect inventory. It looks like it will.

Foreign Tuffett

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Re: RCII - Rent-A-Center
« Reply #23 on: January 04, 2018, 10:59:46 AM »
Sooo... Apart from buyout speculation (which does seem like the eventual outcome), what do people actually think about the business, the valuation and it's progress during the last year or so? It seems like a lot of the problems were self-inflicted with misaligned incentives and much too high staff turnover. Things that should be fixable.

I think the core Rent-A-Center stores generate strong (if fluctuating) free cash flows. These free cash flows have been obscured by wasteful capital allocation. For example the company bought back over $500 million in stock at an average price of $31 per share, and also spent a ton of money on a proprietary point-of-sale ("POS" is definitely the appropriate acronym in this case) system that has been problematic .

I thing I worry about is the performance of the company further deteriorating as a result of the revolving door that has apparently been installed in the C-Suite. 

kab60

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Re: RCII - Rent-A-Center
« Reply #24 on: January 05, 2018, 04:25:03 AM »
Thanks for the quick and thoughtful responses. It's a pretty proven business model, so it should be fixable, but it's a bit hard to figure out the true economics and how much damage has been done. Still on the sideline even though I think it looks pretty attractive - especially since it should do okay in a recession if there ever is one. Do they need to replace their current POS or has it largely been fixed?

MrB

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Re: RCII - Rent-A-Center
« Reply #25 on: January 05, 2018, 05:26:30 AM »
Sooo... Apart from buyout speculation (which does seem like the eventual outcome), what do people actually think about the business, the valuation and it's progress during the last year or so? It seems like a lot of the problems were self-inflicted with misaligned incentives and much too high staff turnover. Things that should be fixable.

I think the core Rent-A-Center stores generate strong (if fluctuating) free cash flows. These free cash flows have been obscured by wasteful capital allocation. For example the company bought back over $500 million in stock at an average price of $31 per share, and also spent a ton of money on a proprietary point-of-sale ("POS" is definitely the appropriate acronym in this case) system that has been problematic .

I thing I worry about is the performance of the company further deteriorating as a result of the revolving door that has apparently been installed in the C-Suite.

If you look at Aaron's latest presentation http://media.corporate-ir.net/media_files/IROL/10/104698/AAN_3Q17_Investor_Relations_Deck_r.pdf then you will note on p.5 that the core business is declining and the top line is only growing because of Progressive/virtual (Anow equivalent). A good chunk of that is due to strategic shift from physical to online, but I think it is pretty established that the rent-to-own physical footprint is shrinking. It seems like tough nut to crack for a C-suite in disarray.

kab60

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Re: RCII - Rent-A-Center
« Reply #26 on: January 05, 2018, 05:32:46 AM »
Good point. Not really actionable, but it might be worthwhile for you guys to know that there has been a sales process going on in Denmark since autumn 2017 where L'easy - a company much like rent-a-center - has been shopped without success so far.

L'easy is pretty well managed, so it's probably more a question of price since it hasn't been sold, but it means that at least two similar assets are on the sales block ATM. Lonestar has been mentioned as a potential acquirer of both I believe.

MrB

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Re: RCII - Rent-A-Center
« Reply #27 on: January 22, 2018, 07:19:31 AM »

BeerBBQ

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Re: RCII - Rent-A-Center
« Reply #28 on: January 22, 2018, 07:23:47 AM »
Do you think this is because they are the only bidder at table or do you think they have put a potential number on the table that is reasonable enough to have a more serious discussion?

MrB

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Re: RCII - Rent-A-Center
« Reply #29 on: January 22, 2018, 01:35:04 PM »
Do you think this is because they are the only bidder at table or do you think they have put a potential number on the table that is reasonable enough to have a more serious discussion?
Bait or stalker? Not sure what odds I'm putting on that, but 50/50 is a good starting point for me.