Rent-A-Center (RCII) Announces New Strategic Plan; Offers FY18, FY19 Targets

Rent-A-Center, Inc. (NASDAQ/NGS: RCII) today announced a new strategic plan designed to restore growth, improve profitability and maximize value for all Rent-A-Center stockholders. These initiatives are focused on strengthening the Core U.S. business; optimizing and growing the AcceptanceNOW® (“ANow”) business; and leveraging technology investments to expand distribution channels and integrate retail and online offerings.

“Rent-A-Center remains focused on our mission to provide cash- and credit-constrained consumers with affordable and flexible access to durable goods that promote a higher quality of living,” said Mark Speese, Chairman of the Rent-A-Center Board and Chief Executive Officer. “While we have a long history of realizing this vision and are well-positioned to build on our core strengths, we recognize that significant improvement is needed. With the actions announced today, many of which are already underway, we are renewing our focus on what made Rent-A-Center an industry leader – starting with enhancing the value proposition of our offerings to increase customer satisfaction and enable higher rates of ownership.”

“We have also determined a clear path to strengthen the U.S. Core business, build on the recent momentum of AcceptanceNow and leverage our technology capabilities to drive growth in new channels. The Board and management team are prepared to execute the strategic plan expeditiously and are confident that these actions will maximize value for all Rent-A-Center stockholders,” concluded Speese.

Enhancing Customer Value Proposition

Rent-A-Center is in the process of executing on several key initiatives to drive customer satisfaction and increase ownership across both the U.S. Core and ANow businesses:

• U.S. Core: Rent-A-Center is taking steps to enhance its customer value proposition and create a clear path to ownership that better reflects the needs of its customers, retention rates and the natural lifecycle of products.The Company is reestablishing the 2x2 matrix cost-based approach as its foundational pricing strategy, and implementing shorter terms and alternative term strategies with the objective of increasing ownership from approximately 25% to 40%. The Company is also improving early payout options that promote ownership, with the expectation that return on investment will increase from approximately 2.7x to 3.0x. Rent-A-Center anticipates that these initiatives will result in an estimated run-rate EBITDA improvement of approximately $65 million by 2018-2019.Taken together, the implementation of rates, terms and purchase options that are better aligned with customer needs are expected to increase ownership, accelerate inventory turn and improve cash flow in the U.S. Core business.

• ANow: Initiatives underway at ANow include implementing shorter agreement terms, menu-based pricing and early purchase option offers to support retention and incentivize ownership; encouraging lease-to-own transactions across customer segments; and utilizing packaging concepts that maintain affordability.

Restoring Growth and Profitability in the U.S. Core Business

In addition to enhancing the customer value proposition, Rent-A-Center is taking significant actions to drive operational improvements in the U.S. Core business, including:

• Optimizing the product mix to better meet customer demand by shifting the concentration of higher-end, aspirational products across categories from 45% to 65%, increasing the average ticket price and leveraging the Company’s e-commerce platform to enable special-order and extended-aisle offerings. Rent-A-Center anticipates that expanding its selection of “Better / Best” products will result in higher tickets and improved economics. This initiative is expected to result in an estimated run-rate EBITDA improvement of approximately $40 million by 2018-2019.
• Stabilizing and upgrading the workforce to improve customer relationships by increasing the mix of full-time labor and intensifying focus on co-worker development. The Company expects the increase in labor costs will be offset by improved execution in sales, customer service and collections. Additionally, the renewed focus on developing employees is anticipated to increase retention and stabilize the workforce. Since launching the initiative, store-level turnover has improved for five consecutive months. The Company expects that the increase of full-time labor will result in improved customer relationships and deliver an estimated run-rate EBITDA improvement of approximately $20 million by 2018-2019.
• Improving account management practices to lower delinquency rates by focusing on training, tools and incentives to resolve store-level execution issues. The Company anticipates its enhanced account management practices will deliver an estimated run-rate EBITDA improvement of approximately $35 million by 2018-2019, and has already reduced delinquencies over the last three consecutive months.
• Optimizing the existing physical footprint to improve underperforming stores by rightsizing the number of employees across locations, enhancing inventory visibility, moving idle inventory more quickly and testing alternative opening schedules.

Building on Momentum to Optimize and Expand ANow

Rent-A-Center is implementing a number of initiatives across its ANow business to build on recent successes, drive growth and further enhance profitability, including:

• Optimizing key retail partnerships to deliver improved service and profitability by aggressively pursuing opportunities to benefit from the value ANow creates, such as offering multiple relationship options with varying service levels, modifying business-to-business transaction economics and leveraging retail partner exclusivities.
• Focusing and executing on growth-enabling capabilities to optimize existing locations by centralizing account management and building out unstaffed capabilities to more effectively scale operations at a substantially lower cost and with a faster speed-to-market.
• Enhancing decision engine and risk analytics to reduce losses and increase ownership by implementing consistent risk assessment polices and strategies across all ANow locations; translating data and experience to other markets and industry verticals; improving the customer experience through data-driven application and verification processes; leveraging Rent-A-Center’s proprietary scoring model for customer approval; and shaping approval rates and amounts with consistent monitoring and adjustments.

Leveraging Technology Investments to Expand into New Channels

Rent-A-Center is taking actions to accelerate its omni-channel platform by leveraging investments in digital capabilities that will enable a seamless customer experience across channels, markets, retailers, products and brands. Specific initiatives include:

• Rapidly embracing digital channels as vital additional customer touch-points and opportunity to expand the rent-to-own value proposition to a broader group of customers;
• Expanding e-commerce offerings and mobile applications to help customers engage when and how they prefer;
• Simplifying transactions and expanding customer choice through self-service kiosks and assisted selling tools; and
• Leveraging the Company’s newly-implemented, cloud-based point-of-sale platform that helps manage orders and reduce losses and operating costs.

Improving Results and Creating Value for Stockholders

As a result of the new plan announced today, Rent-A-Center expects to achieve the following targets in 2018 and 2019:

The Company is committed to executing on these initiatives to drive improved long-term financial performance and returns for all of its stockholders.

Additional details of the strategic plan can be found at investor.rentacenter.com.

J.P. Morgan is Rent-A-Center’s financial advisor and Winston & Strawn LLP is serving as its legal advisor.

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