Wdesk | 2014 Q4 Earnings Release 8-k
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report:
(Date of earliest event reported)
February 2, 2015
RENT-A-CENTER, INC.
(Exact name of registrant as specified in charter)
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Delaware | 0-25370 | 45-0491516 |
(State or other jurisdiction of incorporation or organization) | (Commission File Number) | (IRS Employer Identification No.) |
5501 Headquarters Drive
Plano, Texas 75024
(Address of principal executive offices and zip code)
(972) 801-1100
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions (see General Instruction A.2. below):
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¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425). |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12). |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)). |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)). |
Item 2.02 Results of Operations and Financial Condition.
Attached hereto as Exhibit 99.1 is the Registrant's press release reflecting earnings information for the quarter and fiscal year ended December 31, 2014.
The press release contains information regarding EBITDA (earnings before interest, taxes, depreciation and amortization), which is a non-GAAP financial measure as defined in Item 10(e) of Regulation S-K. The press release also contains a reconciliation of EBITDA to the Registrant's reported earnings before income taxes. Management of the Registrant believes that presentation of EBITDA is useful to investors, as among other things, this information impacts certain financial covenants under the Registrant's senior credit facilities and the indentures governing its 6.625% senior unsecured notes due November 2020 and its 4.75% senior unsecured notes due May 2021. While management believes this non-GAAP financial measure is useful in evaluating the Registrant, this information should be considered as supplemental in nature and not as a substitute for or superior to the related financial information prepared in accordance with GAAP. Further, the non-GAAP financial measure may differ from similar measures presented by other companies.
Pursuant to General Instruction B.2. of Form 8-K, all of the information contained in this Form 8-K and the accompanying exhibit shall be deemed to be "furnished" and not "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and, therefore, shall not be incorporated by reference in any filing under the Securities Act of 1933, as amended.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
Exhibit 99.1 Press Release, dated February 2, 2015.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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| | | RENT-A-CENTER, INC. |
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Date: | February 2, 2015 | | By: | | /s/ Guy J. Constant |
| | | | | Guy J. Constant |
| | | | | Executive Vice President - Finance, |
| | | | | Chief Financial Officer and Treasurer |
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EXHIBIT INDEX
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Exhibit No. | | Description |
99.1 | | Press release, dated February 2, 2015 |
Wdesk | 2014 Q4 Exhibit 99.1
Exhibit 99.1
For Immediate Release:
RENT-A-CENTER, INC. REPORTS
FOURTH QUARTER AND YEAR END 2014 RESULTS
Rent-A-Center, Inc. Reports Increases in Fourth Quarter 2014 EPS and Consolidated Same Store Sales
______________________________________________
Plano, Texas, February 2, 2015 - Rent-A-Center, Inc. (the "Company") (NASDAQ/NGS: RCII) today announced results for the quarter and year ended December 31, 2014.
Highlights on the quarter include the following:
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• | On a GAAP basis, earnings per diluted share increased to $0.48 compared to $0.25 for the fourth quarter of 2013. For the full year 2014, earnings per diluted share on a GAAP basis decreased to $1.81 compared to $2.33 in the prior year |
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• | Earnings per diluted share, excluding special items, increased to $0.50 compared to $0.25 for the fourth quarter of 2013. Earnings per diluted share, excluding special items, decreased to $1.95 compared to $2.33 for the full year 2013 (see non-GAAP reconciliation below). The change was driven primarily by investment in our transformational initiatives, additional cost to support growth in Acceptance Now, and higher skip/stolen losses |
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• | Consolidated total revenues, excluding special items, increased 4.0 percent to $797 million and same store sales increased 4.7 percent (see non-GAAP reconciliation below) |
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• | Core U.S. same store sales decreased by 0.6 percent, representing a sequential improvement of 300 basis points and the 4th consecutive quarterly improvement |
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• | Acceptance Now same store sales increased 28.4 percent, Mexico same store sales increased 17.0 percent, and we opened a net of 47 Acceptance Now locations in the quarter |
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• | The Company’s operating profit as a percentage of total revenues, excluding special items, improved 160 basis points from 4.5 percent to 6.1 percent (see non-GAAP reconciliation below) |
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• | For the full year 2014, cash flow from operations was $19.1 million, capital expenditures totaled $83.8 million, and the Company ended the year with $46.1 million of cash and cash equivalents |
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• | The Company paid a dividend of 23 cents per share in the fourth quarter, and declared a dividend of 24 cents per share to be paid in the first quarter of 2015 |
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• | Progress on initiatives: |
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◦ | Smartphones were over 7 percent of Core U.S. total store revenues in the fourth quarter |
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◦ | Launched the flexible labor model pilot in November |
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◦ | Signed an agreement with NFI, a leading 3rd party logistics provider, as part of our sourcing and distribution initiative |
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◦ | Rolled out initial price changes in certain product categories as part of our pricing strategy initiative |
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◦ | Implemented our new technology in over 650 existing Acceptance Now manned locations |
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◦ | New POS system is fully operational in its first site following the system-wide implementation of the back office solution |
"During the fourth quarter, Core U.S. same store sales were essentially flat and Acceptance Now continued to deliver strong same store sales growth. This resulted in total company same store sales of approximately 5 percent for the quarter. In addition, Core U.S. operating profit increased year over year for the first time in many quarters. However, our EPS did not meet our expectations because our margins were not as strong as projected and skip/stolen losses were too high. In short, we did not achieve the desired balance between sales growth and margin improvement that we ideally are seeking through our strategies," said Robert D. Davis, the Chief Executive Officer of Rent-A-Center, Inc.
“As a result, our resolve is strengthened in the pursuit of that balance and the urgency remains high in delivering on the initiatives and results that we have promised. To that end, our focus is on improving operational execution by implementing a new labor model for our Core U.S. stores, developing a new supply chain and implementing a customer-focused value-based pricing strategy. And, in our Acceptance Now business, we are already seeing some progress on getting skip/stolen losses back in line, and we remain excited about the growth prospects for the business, including the much-anticipated rollout of virtual Acceptance Now locations,” Mr. Davis concluded.
SAME STORE SALES
(Unaudited)
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Table 1 | | 2014 | | 2013 |
Period | | Core U.S. | | Acceptance Now | | Mexico | | Total | | Core U.S. | | Acceptance Now | | Mexico | | Total |
Three months ended March 31, | | (6.1 | )% | | 26.1 | % | | 20.3 | % | | (0.8 | )% | | (8.7 | )% | | 33.8 | % | | 80.0 | % | | (4.3 | )% |
Three months ended June 30, | | (4.7 | )% | | 25.1 | % | | 17.0 | % | | 0.6 | % | | (5.8 | )% | | 32.0 | % | | 61.3 | % | | (1.6 | )% |
Three months ended September 30, | | (3.6 | )% | | 25.7 | % | | 25.9 | % | | 1.9 | % | | (5.0 | )% | | 29.3 | % | | 36.2 | % | | (0.8 | )% |
Three months ended December 31, | | (0.6 | )% | | 28.4 | % | | 17.0 | % | | 4.7 | % | | (5.5 | )% | | 26.4 | % | | 31.4 | % | | (1.1 | )% |
Year ended December 31, | | (4.0 | )% | | 25.5 | % | | 19.7 | % | | 1.2 | % | | (6.3 | )% | | 30.1 | % | | 47.1 | % | | (2.0 | )% |
Quarterly Operating Performance
Explanations of performance are excluding special items and compared to the prior year unless otherwise noted.
CORE U.S. fourth quarter revenues of $600.5 million decreased 2.4 percent year over year primarily due to the 150 store consolidation completed in the second quarter of 2014. As compared to the prior year, gross profit as a percentage of total revenue was negatively impacted by the introduction of smart phones. Labor, as a percent of store revenue, was positively impacted by the lower store count and health care costs were higher in the prior year due to an increase in large claims during the quarter. Other store expenses, as a percent of store revenue, were favorably impacted by lower gas prices, partially offset by higher skip/stolen losses primarily from smart phones. Core U.S. operating profit, as a percent of total revenue, increased 220 basis points compared to a year ago.
ACCEPTANCE NOW fourth quarter revenues of $169.8 million increased 30.8 percent year over year driven by the increased number of locations and same store sales. As compared to the prior year, gross profit as a percent of total revenue was negatively impacted by more Acceptance Now locations offering 90 day option pricing. Labor, as a percent of store revenue, was positively impacted by improved leverage in the business. Other store expenses, as a percent of store revenue, were negatively impacted by higher skip/stolen losses. Acceptance Now operating profit, as a percent of total revenue, decreased 80 basis points.
MEXICO fourth quarter revenues increased 38.5 percent and operating losses improved by $0.8 million.
FRANCHISING fourth quarter revenues increased 1.6 percent and operating profit increased by $0.9 million.
Other
Depreciation and amortization expense decreased $1.7 million for the quarter due to lower capital expenditures from fewer new store openings year over year.
General and administrative expenses decreased by $4.0 million primarily due to lower incentive compensation expense in the fourth quarter.
Interest expense was $12.7 million, an increase of $1.8 million year over year, driven by increased debt and a higher rate on our senior credit facility.
On a GAAP basis, the effective income tax rate decreased to 27.6 percent in the fourth quarter from 44.8 percent in the prior year. In Q4 2014, the tax rate was positively impacted by credits stemming from the extension of certain tax provisions that were approved by Congress in late December. In Q4 2013, the tax rate was negatively impacted by the reduction of non-deductible goodwill when we sold stores to franchisees as part of our ColorTyme re-branding initiative.
Non-GAAP Reconciliation
Rent-A-Center management believes that excluding special items from the financial results provides investors a clearer perspective of the Company's ongoing operating performance and a more relevant comparison to prior period results. Special items in the fourth quarter of 2014 consist primarily of a reduction in revenue due to consumer refunds as a result of an operating system programming error, additional costs related to the Core U.S. store closures done in the second quarter of 2014, and store closures in Mexico planned to occur in the first quarter of 2015.
Reconciliation of net income to net income excluding special items (in thousands, except per share data):
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Table 2 | | Three Months Ended December 31, 2014 | | Three Months Ended December 31, 2013 |
| | Amount | | Per Share | | Amount | | Per Share |
Net income | | $ | 25,550 |
| | $ | 0.48 |
| | $ | 13,237 |
| | $ | 0.25 |
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Special items, net of taxes: | | | | | | | | |
Revenue adjustment | | 471 |
| | 0.01 |
| | — |
| | — |
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Vendor settlement charge | | 189 |
| | — |
| | — |
| | — |
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Other charges | | 269 |
| | 0.01 |
| | — |
| | — |
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Net income excluding special items | | $ | 26,479 |
| | $ | 0.50 |
| | $ | 13,237 |
| | $ | 0.25 |
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Table 3 | | Year Ended December 31, 2014 | | Year Ended December 31, 2013 |
| | Amount | | Per Share | | Amount | | Per Share |
Net income | | $ | 96,422 |
| | $ | 1.81 |
| | $ | 128,757 |
| | $ | 2.33 |
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Special items, net of taxes: | | | | | | | | |
Revenue adjustment | | 400 |
| | 0.01 |
| | — |
| | — |
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Vendor settlement credit, net | | (4,630 | ) | | (0.08 | ) | | — |
| | — |
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Other charges | | 8,437 |
| | 0.16 |
| | — |
| | — |
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Finance charges from refinancing | | 2,853 |
| | 0.05 |
| | — |
| | — |
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Net income excluding special items | | $ | 103,482 |
| | $ | 1.95 |
| | $ | 128,757 |
| | $ | 2.33 |
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2015 Outlook
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• | 2015 diluted earnings per share are expected to range between $2.05 and $2.30, including 10 to 12 cents dilution related to our Mexico operations |
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• | We project 2015 consolidated total revenue growth of three to six percent, or between 3.250 billion and 3.350 billion dollars driven by Core Same Store Sales of negative one percent to positive one percent |
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• | We expect 2015 Acceptance Now total revenues between 800 and 825 million dollars, including |
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◦ | Comp Store sales growth of 15 to 20 percent |
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◦ | 150 new manned locations |
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◦ | 1,150 new unmanned locations generating 2015 revenues of approximately 4 million dollars |
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◦ | Conversion of approximately 100 manned locations to unmanned locations |
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◦ | Approximately 50 closures |
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• | Gross profit as a percent of total revenues is expected to be down 50 to 100 basis points |
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• | Labor is expected to improve by 100 to 150 basis points as a percent of total store revenues |
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• | Other store expenses are expected to improve 25 to 75 basis points as a percent of total store revenues |
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• | General and administrative expenses are expected to be between 180 and 200 million dollars |
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• | Depreciation and amortization is expected to be between 80 and 90 million dollars |
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• | Capital expenditures are expected to be between 70 to 80 million dollars |
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• | Annual effective tax rate of 38 percent to 38.5 percent |
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• | Free cash flow is expected to be approximately 100 million dollars |
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• | The 2015 guidance does not include the potential impact of any repurchases of common stock the Company may make, changes in future dividends, material changes in outstanding indebtedness, or the potential impact of acquisitions or dispositions that may be completed or occur after February 2, 2015 |
Longer Term Guidance
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• | Annual revenue growth target of three to five percent |
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• | Operating profit margin as a percent of total revenue improvement of 400 basis points by 2017 |
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• | Target leverage ratio of 2.2x on a debt to EBITDA basis |
The Company believes providing earnings per diluted share guidance provides investors the appropriate insight into the Company’s ongoing operating performance.
Guidance Policy
Rent-A-Center, Inc. provides annual guidance as it relates to same store sales, earnings per diluted share, and other key line items and will only provide updates if there is a material change versus the original guidance. Management will not discuss intra-period sales or other key operating results not yet reported as the limited data may not accurately reflect the final results of the period or quarter referenced.
Webcast Information
Rent-A-Center, Inc. will host a conference call to discuss the fourth quarter results, guidance and other operational matters on Tuesday morning, February 3, 2015, at 10:45 a.m. ET. For a live webcast of the call, visit http://investor.rentacenter.com. Certain financial and other statistical information that will be discussed during the conference call will also be provided on the same website.
About Rent-A-Center, Inc.
Rent-A-Center, Inc., headquartered in Plano, Texas, is the largest rent-to-own operator in North America, focused on improving the quality of life for its customers by providing them the opportunity to obtain ownership of high-quality, durable products such as consumer electronics, appliances, computers, furniture and accessories, under flexible rental purchase agreements with no long-term obligation. The Company owns and operates approximately 3,000 stores in the United States, Mexico, Canada and Puerto Rico, and approximately 1,400 Acceptance Now kiosk locations in the United States and Puerto Rico. Rent-A-Center Franchising International, Inc., a wholly owned subsidiary of the Company, is a national franchiser of approximately 190 rent-to-own stores operating under the trade names of "Rent-A-Center", "ColorTyme", and "RimTyme". For additional information about the Company, please visit our website at www.rentacenter.com.
Forward Looking Statement
This press release and the guidance above contain forward-looking statements that involve risks and uncertainties. Such forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "could," "estimate," "should," "anticipate," or "believe," or the negative thereof or variations thereon or similar terminology. The Company believes that the expectations reflected in such forward-looking statements are accurate. However, there can be no assurance that such expectations will occur. The Company's actual future performance could differ materially from such statements. Factors that could cause or contribute to such differences include, but are not limited to: the general strength of the economy and other economic conditions affecting consumer preferences and spending; economic pressures, such as high fuel costs, affecting the disposable income available to the Company's current and potential customers; changes in the unemployment rate; difficulties encountered in improving the financial performance of the Core U.S. segment; the Company’s ability to develop and successfully execute the competencies and capabilities which are the focus of the Company’s multi-year program designed to transform and modernize the Company’s operations; costs associated with the Company's multi-year program designed to transform and modernize the Company’s operations; the Company’s ability to successfully market smartphones and related services to its customers; the Company's ability to develop and successfully implement digital electronic commerce capabilities; the Company's ability to retain the revenue from customer accounts merged into another store location as a result of the store consolidation plan; the Company's ability to execute and the effectiveness of the store consolidation; rapid inflation or deflation in prices of the Company's products; the Company's available cash flow; the Company's ability to identify and successfully market products and services that appeal to its customer demographic; consumer preferences and perceptions of the Company's brand; uncertainties regarding the ability to open new locations; the Company's ability to acquire additional stores or customer accounts on favorable terms; the Company's ability to control costs and increase profitability; the Company's ability to enhance the performance of acquired stores; the Company's ability to retain the revenue associated with acquired customer accounts; the Company's ability to enter into new and collect on its rental or lease purchase agreements; the passage of legislation adversely affecting the rent-to-own industry; the Company's compliance with applicable statutes or regulations governing its transactions; changes in interest rates; adverse changes in the economic conditions of the industries, countries or markets that the Company serves; information technology and data security costs; the Company's ability to protect the integrity and security of individually identifiable data of its customers and employees; the impact of any breaches in data security or other disturbances to the Company's information technology and other networks; changes in the Company's stock price, the number of shares of common stock that it may or may not repurchase, and future dividends, if any; changes in estimates relating to self-insurance liabilities and income tax and litigation reserves; changes in the Company's effective tax rate; fluctuations in foreign currency exchange rates; the Company's ability to maintain an effective system of internal controls; the resolution of the Company's litigation; and the other risks detailed from time to time in the Company's SEC reports, including but not limited to, its annual report on Form 10-K for the year ended December 31, 2013, and its quarterly reports on Form 10-Q for the quarters ended March 31, 2014, June 30, 2014, and September 30, 2014. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Except as required by law, the Company is not obligated to publicly release any revisions to these forward-looking statements to reflect the events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events.
Contact for Rent-A-Center, Inc.:
Maureen Short
Senior Vice President - Finance, Investor Relations and Treasury
(972) 801-1899
maureen.short@rentacenter.com
Rent-A-Center, Inc. and Subsidiaries
STATEMENT OF EARNINGS HIGHLIGHTS - UNAUDITED
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Table 4 | | Three Months Ended December 31, |
| | 2014 | | | 2014 | | | 2013 |
| | | | | | | | Revised |
(In thousands, except per share data) | | Before | | | After | | | |
| | Special Items | | | Special Items | | | |
| | (Non-GAAP | | | (GAAP | | | (GAAP |
| | Earnings) | | | Earnings) | | | Earnings) |
Total Revenues | | $ | 797,124 |
| (1) | | $ | 796,534 |
| | | $ | 766,175 |
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Operating Profit | | | 48,856 |
| | | | 47,694 |
| | | | 34,669 |
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Net Earnings | | | 26,479 |
| (1) | | | 25,550 |
| | | | 13,237 |
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Diluted Earnings per Common Share | | $ | 0.50 |
| (1) | | $ | 0.48 |
| | | $ | 0.25 |
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Adjusted EBITDA | | $ | 75,823 |
| | | $ | 75,823 |
| | | $ | 63,301 |
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Reconciliation to Adjusted EBITDA: | | | | | | | | | | | |
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Earnings Before Income Taxes | | $ | 36,457 |
| (1) | | $ | 35,295 |
| | | $ | 23,970 |
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Add back: | | | | | | | | | | | |
Revenue adjustment | | | — |
| | | | 590 |
| | | | — |
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Vendor settlement charge | | | — |
| | | | 236 |
| | | | — |
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Other charges | | | — |
| | | | 336 |
| | | | — |
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Interest expense, net | | | 12,399 |
| | | | 12,399 |
| | | | 10,699 |
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Depreciation, amortization and write-down of intangibles | | | 26,967 |
| | | | 26,967 |
| | | | 28,632 |
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Adjusted EBITDA | | $ | 75,823 |
| | | $ | 75,823 |
| | | $ | 63,301 |
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(1) Excludes the effects of a $0.2 million pre-tax vendor settlement charge, $0.3 million of pre-tax restructuring charges and a $0.6 million pre-tax reduction of revenue due to consumer refunds as a result of an operating system programming error. These charges reduced net earnings and net earnings per diluted share for the three months ended December 31, 2014, by approximately $0.9 million and $0.02, respectively.
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Table 5 | | Twelve Months Ended December 31, |
| | 2014 | | | 2014 | | | 2013 |
| | | | | | | | Revised |
(In thousands, except per share data) | | Before | | | After | | | |
| | Special Items | | | Special Items | | | |
| | (Non-GAAP | | | (GAAP | | | (GAAP |
| | Earnings) | | | Earnings) | | | Earnings) |
Total Revenues | | $ | 3,158,386 |
| (2) | | $ | 3,157,796 |
| | | $ | 3,094,018 |
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Operating Profit | | | 199,672 |
| | | | 193,462 |
| | | | 247,009 |
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Net Earnings | | | 103,482 |
| (2) | | | 96,422 |
| | | | 128,757 |
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Diluted Earnings per Common Share | | $ | 1.95 |
| (2) | | $ | 1.81 |
| | | $ | 2.33 |
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Adjusted EBITDA | | $ | 287,071 |
| | | $ | 287,071 |
| | | $ | 334,989 |
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Reconciliation to Adjusted EBITDA: | | | | | | | | | | | |
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Earnings Before Income Taxes | | $ | 152,776 |
| (2) | | $ | 142,353 |
| | | $ | 208,196 |
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Add back (subtract): | | | | | | | | | | | |
Revenue adjustment | | | — |
| | | | 590 |
| | | | — |
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Vendor settlement credit, net | | | — |
| | | | (6,836 | ) | | | | — |
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Other charges | | | — |
| | | | 12,456 |
| | | | — |
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Finance charges from refinancing | | | — |
| | | | 4,213 |
| | | | — |
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Interest expense, net | | | 46,896 |
| | | | 46,896 |
| | | | 38,813 |
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Depreciation, amortization and write-down of intangibles | | | 87,399 |
| | | | 87,399 |
| | | | 87,980 |
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Adjusted EBITDA | | $ | 287,071 |
| | | $ | 287,071 |
| | | $ | 334,989 |
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(2) Excludes the effects of a $6.8 million pre-tax vendor settlement credit, a $7.9 million pre-tax restructuring charge, a $4.6 million pre-tax impairment charge, a $0.6 million pre-tax reduction of revenue due to consumer refunds as a result of an operating system programming error and a $4.2 million pre-tax refinancing charge. These charges reduced net earnings and net earnings per diluted share for the twelve months ended December 31, 2014, by approximately $7.1 million and $0.14, respectively.
SELECTED BALANCE SHEET HIGHLIGHTS - UNAUDITED
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Table 6 | | December 31, |
| | 2014 | | | 2013 |
(In thousands) | | | | | Revised |
Cash and Cash Equivalents | | $ | 46,126 |
| | | $ | 42,274 |
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Receivables, net | | | 65,492 |
| | | | 59,178 |
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Prepaid Expenses and Other Assets | | | 211,922 |
| | | | 78,471 |
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Rental Merchandise, net | | | | | | | |
On Rent | | | 960,414 |
| | | | 913,476 |
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Held for Rent | | | 277,442 |
| | | | 210,722 |
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Total Assets | | $ | 3,276,969 |
| | | $ | 3,018,175 |
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Senior Debt | | $ | 492,813 |
| | | $ | 366,275 |
|
Senior Notes | | | 550,000 |
| | | | 550,000 |
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Total Liabilities | | | 1,887,574 |
| | | | 1,682,306 |
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Stockholders' Equity | | $ | 1,389,395 |
| | | $ | 1,335,869 |
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Note: During the fourth quarter of 2014, the Company revised its 2013 balance sheet and its statements of earnings for the three- and twelve-month periods ended December 31, 2013, to correct immaterial errors from prior years that resulted in an understatement of accrued liabilities, an overstatement of held for rent merchandise and an understatement of receivables. The correction resulted in an increase in accrued liabilities of $10.8 million, a decrease in on rent merchandise of $1.1 million and an increase in receivables of $0.5 million at December 31, 2013. The above corrections resulted in increases to net income of $0.2 million and $0.5 million for the three- and twelve-month periods ended December 31, 2013, respectively. The statements of earnings for the three-month periods ended March 31, 2014, June 30, 2014, and September 30, 2014, will be revised in future filings to increase (decrease) net earnings by $(1.6) million, $0.1 million and $0.6 million, respectively.
Rent-A-Center, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS - UNAUDITED
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Table 7 | Three Months Ended December 31, | | Year Ended December 31, |
| 2014 | | 2013 | | 2014 | | 2013 |
(In thousands, except per share data) | | | Revised | | | | Revised |
Revenues | | | | | |
Store | | | | | | | |
Rentals and fees | $ | 697,550 |
| | $ | 683,380 |
| | $ | 2,745,828 |
| | $ | 2,695,895 |
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Merchandise sales | 64,591 |
| | 51,582 |
| | 290,739 |
| | 278,753 |
|
Installment sales | 21,545 |
| | 20,165 |
| | 75,198 |
| | 71,475 |
|
Other | 5,573 |
| | 3,889 |
| | 19,949 |
| | 18,133 |
|
Total store revenues | 789,259 |
| | 759,016 |
| | 3,131,714 |
| | 3,064,256 |
|
Franchise | | | | | | | |
Merchandise sales | 5,591 |
| | 6,015 |
| | 19,236 |
| | 24,556 |
|
Royalty income and fees | 1,684 |
| | 1,144 |
| | 6,846 |
| | 5,206 |
|
Total revenues | 796,534 |
| | 766,175 |
| | 3,157,796 |
| | 3,094,018 |
|
Cost of revenues | | | | | | | |
Store | | | | | | | |
Cost of rentals and fees | 180,738 |
| | 173,128 |
| | 704,595 |
| | 676,674 |
|
Cost of merchandise sold | 57,221 |
| | 40,303 |
| | 231,520 |
| | 216,206 |
|
Cost of installment sales | 8,056 |
| | 7,228 |
| | 26,084 |
| | 24,541 |
|
Total cost of store revenues | 246,015 |
| | 220,659 |
| | 962,199 |
| | 917,421 |
|
Vendor settlement charge (credit) | 236 |
| | — |
| | (6,836 | ) | | — |
|
Franchise cost of merchandise sold | 5,252 |
| | 5,563 |
| | 18,070 |
| | 23,104 |
|
Total cost of revenues | 251,503 |
| | 226,222 |
| | 973,433 |
| | 940,525 |
|
Gross profit | 545,031 |
| | 539,953 |
| | 2,184,363 |
| | 2,153,493 |
|
Operating expenses | | | | | | | |
Store expenses | | | | | | | |
Labor | 222,099 |
| | 237,451 |
| | 888,929 |
| | 881,671 |
|
Other store expenses | 210,451 |
| | 197,734 |
| | 839,801 |
| | 789,212 |
|
General and administrative expenses | 37,484 |
| | 41,467 |
| | 162,316 |
| | 147,621 |
|
Depreciation, amortization and write-down of intangibles | 26,967 |
| | 28,632 |
| | 87,399 |
| | 87,980 |
|
Other charges | 336 |
| | — |
| | 12,456 |
| | — |
|
Total operating expenses | 497,337 |
| | 505,284 |
| | 1,990,901 |
| | 1,906,484 |
|
Operating profit | 47,694 |
| | 34,669 |
| | 193,462 |
| | 247,009 |
|
Finance charges from refinancing | — |
| | — |
| | 4,213 |
| | — |
|
Interest expense | 12,665 |
| | 10,855 |
| | 47,843 |
| | 39,628 |
|
Interest income | (266 | ) | | (156 | ) | | (947 | ) | | (815 | ) |
Earnings before income taxes | 35,295 |
| | 23,970 |
| | 142,353 |
| | 208,196 |
|
Income tax expense | 9,745 |
| | 10,733 |
| | 45,931 |
| | 79,439 |
|
NET EARNINGS | $ | 25,550 |
| | $ | 13,237 |
| | $ | 96,422 |
| | $ | 128,757 |
|
Basic weighted average shares | 52,917 |
| | 52,946 |
| | 52,850 |
| | 54,804 |
|
Basic earnings per common share | $ | 0.48 |
| | $ | 0.25 |
| | $ | 1.82 |
| | $ | 2.35 |
|
Diluted weighted average shares | 53,294 |
| | 53,247 |
| | 53,126 |
| | 55,162 |
|
Diluted earnings per common share | $ | 0.48 |
| | $ | 0.25 |
| | $ | 1.81 |
| | $ | 2.33 |
|
Rent-A-Center, Inc. and Subsidiaries
SEGMENT INFORMATION HIGHLIGHTS - UNAUDITED
On January 1, 2014, the Company realigned its reporting structure to include its Canadian stores in the Core U.S. segment, which were previously reported in the International segment. The accompanying prior-year amounts and store counts have been revised to reflect this change, and we now refer to the segment formerly reported as "International" as "Mexico" since only that country's results are reported therein.
During the fourth quarter of 2014, management reevaluated its operating segments and segment reporting, and determined that the chief operating decision makers relied more heavily on operating profit before corporate allocations when evaluating segment performance than operating profit after corporate allocations. In the following tables, segment operating profit is presented before corporate allocations. Corporate costs, which are primarily costs incurred at our U.S. corporate headquarters, are reported separately to reconcile to operating profit reported in the consolidated statements of operations. The costs incurred at our Mexico field support center are reported in the Mexico segment because our Executive Vice President of Mexico Operations is responsible for Mexico's operations and its field support center. The Franchising segment's corporate costs are reported in the Franchising segment because the President of RAC Franchising International is responsible for that segment's operations and corporate functions. Certain corporate assets used to support our Core U.S., Acceptance Now and Mexico segments, including the land and building in which the corporate headquarters are located and related property assets, cash and prepaid expenses were also allocated historically to these operating segments based on segment revenue. In the following tables, corporate assets are reported separately to reconcile to the consolidated balance sheets. Management believes that these changes provide investors with a more precise view of field operations and corporate costs that accurately aligns with management's view of the business.
|
| | | | | | | | | | | | | | | |
Table 8 | Three Months Ended December 31, | | Year Ended December 31, |
| 2014 | | 2013 | | 2014 | | 2013 |
Revenues | | | Revised | | | | Revised |
Core U.S. | $ | 600,515 |
| | $ | 615,138 |
| | $ | 2,414,659 |
| | $ | 2,527,660 |
|
Acceptance Now | 169,188 |
| | 129,763 |
| | 644,853 |
| | 489,425 |
|
Mexico | 19,556 |
| | 14,115 |
| | 72,202 |
| | 47,171 |
|
Franchising | 7,275 |
| | 7,159 |
| | 26,082 |
| | 29,762 |
|
Total revenues | $ | 796,534 |
| | $ | 766,175 |
| | $ | 3,157,796 |
| | $ | 3,094,018 |
|
|
| | | | | | | | | | | | | | | |
Table 9 | Three Months Ended December 31, | | Year Ended December 31, |
| 2014 | | 2013 | | 2014 | | 2013 |
Gross profit | | | Revised | | | | Revised |
Core U.S. | $ | 432,294 |
| | $ | 447,573 |
| | $ | 1,753,269 |
| | $ | 1,822,243 |
|
Acceptance Now | 97,375 |
| | 80,597 |
| | 372,012 |
| | 290,647 |
|
Mexico | 13,339 |
| | 10,187 |
| | 51,070 |
| | 33,945 |
|
Franchising | 2,023 |
| | 1,596 |
| | 8,012 |
| | 6,658 |
|
Total gross profit | $ | 545,031 |
| | $ | 539,953 |
| | $ | 2,184,363 |
| | $ | 2,153,493 |
|
|
| | | | | | | | | | | | | | | |
Table 10 | Three Months Ended December 31, | | Year Ended December 31, |
| 2014 | | 2013 | | 2014 | | 2013 |
Operating profit (loss) | | | Revised | | | | Revised |
Core U.S. | $ | 67,864 |
| | $ | 56,113 |
| | $ | 264,967 |
| | $ | 311,301 |
|
Acceptance Now | 26,203 |
| | 21,531 |
| | 112,918 |
| | 89,075 |
|
Mexico | (5,033 | ) | | (5,667 | ) | | (21,961 | ) | | (22,828 | ) |
Franchising | 1,104 |
| | 209 |
| | 3,295 |
| | 1,853 |
|
Total segment operating profit (loss) | 90,138 |
| | 72,186 |
| | 359,219 |
| | 379,401 |
|
Corporate | (42,444 | ) | | (37,517 | ) | | (165,757 | ) | | (132,392 | ) |
Total operating profit | $ | 47,694 |
| | $ | 34,669 |
| | $ | 193,462 |
| | $ | 247,009 |
|
|
| | | | | | | | | | | | | | | |
Table 11 | Three Months Ended December 31, | | Year Ended December 31, |
| 2014 | | 2013 | | 2014 | | 2013 |
Depreciation, amortization and write-down of intangibles | | | Revised | | | | Revised |
Core U.S. | $ | 19,548 |
| | $ | 22,173 |
| | $ | 61,555 |
| | $ | 64,042 |
|
Acceptance Now | 897 |
| | 651 |
| | 2,917 |
| | 2,287 |
|
Mexico | 1,641 |
| | 1,525 |
| | 6,683 |
| | 5,450 |
|
Franchising | 49 |
| | 19 |
| | 184 |
| | 79 |
|
Total segments | 22,135 |
| | 24,368 |
| | 71,339 |
| | 71,858 |
|
Corporate | 4,832 |
| | 4,264 |
| | 16,060 |
| | 16,122 |
|
Total depreciation, amortization and write-down of intangibles | $ | 26,967 |
| | $ | 28,632 |
| | $ | 87,399 |
| | $ | 87,980 |
|
|
| | | | | | | | | | | | | | | |
Table 12 | Three Months Ended December 31, | | Year Ended December 31, |
| 2014 | | 2013 | | 2014 | | 2013 |
Capital expenditures | | | Revised | | | | Revised |
Core U.S. | $ | 7,900 |
| | $ | 11,600 |
| | $ | 31,228 |
| | $ | 44,715 |
|
Acceptance Now | 1,302 |
| | 768 |
| | 3,833 |
| | 3,047 |
|
Mexico | 238 |
| | 2,864 |
| | 4,164 |
| | 11,537 |
|
Franchising | — |
| | — |
| | — |
| | — |
|
Total segments | 9,440 |
| | 15,232 |
| | 39,225 |
| | 59,299 |
|
Corporate | 12,612 |
| | 19,374 |
| | 44,560 |
| | 49,068 |
|
Total capital expenditures | $ | 22,052 |
| | $ | 34,606 |
| | $ | 83,785 |
| | $ | 108,367 |
|
|
| | | | | | | | | | | | | | | |
Table 13 | On Rent at December 31, | | Held for Rent at December 31, |
| 2014 | | 2013 | | 2014 | | 2013 |
| | | Revised | | | | Revised |
Rental merchandise, net | | | | | | | |
Core U.S. | $ | 593,945 |
| | $ | 611,375 |
| | $ | 264,211 |
| | $ | 195,926 |
|
Acceptance Now | 345,703 |
| | 284,421 |
| | 4,897 |
| | 3,837 |
|
Mexico | 20,766 |
| | 17,680 |
| | 8,334 |
| | 10,959 |
|
Total on rent rental merchandise, net | $ | 960,414 |
| | $ | 913,476 |
| | $ | 277,442 |
| | $ | 210,722 |
|
|
| | | | | | | |
Table 14 | December 31, |
| 2014 | | 2013 |
Assets | | | Revised |
Core U.S. | $ | 2,519,771 |
| | $ | 2,479,297 |
|
Acceptance Now | 420,660 |
| | 358,305 |
|
Mexico | 59,841 |
| | 69,826 |
|
Franchising | 2,604 |
| | 1,688 |
|
Total segments | 3,002,876 |
| | 2,909,116 |
|
Corporate | 274,093 |
| | 109,059 |
|
Total assets | $ | 3,276,969 |
| | $ | 3,018,175 |
|
Rent-A-Center, Inc. and Subsidiaries
LOCATION ACTIVITY - UNAUDITED
|
| | | | | | | | | | | | | | |
Table 15 | Three Months Ended December 31, 2014 |
| Core U.S. | | Acceptance Now | | Mexico | | Franchising | | Total |
Locations at beginning of period | 2,841 |
| | 1,359 |
| | 176 |
| | 188 |
| | 4,564 |
|
New location openings | — |
| | 69 |
| | 1 |
| | 7 |
| | 77 |
|
Acquired locations remaining open | 4 |
| | — |
| | — |
| | — |
| | 4 |
|
Closed locations | | | | | | | | | |
Merged with existing locations | — |
| | 22 |
| | — |
| | — |
| | 22 |
|
Sold or closed with no surviving location | 21 |
| | — |
| | — |
| | 8 |
| | 29 |
|
Locations at end of period | 2,824 |
| | 1,406 |
| | 177 |
| | 187 |
| | 4,594 |
|
Acquired locations closed and accounts merged with existing locations | 6 |
| | — |
| | — |
| | — |
| | 6 |
|
|
| | | | | | | | | | | | | | |
Table 16 | Three Months Ended December 31, 2013 |
| Core U.S. | | Acceptance Now | | Mexico | | Franchising | | Total |
Locations at beginning of period | 2,992 |
| | 1,254 |
| | 150 |
| | 213 |
| | 4,609 |
|
New location openings | 22 |
| | 91 |
| | 1 |
| | 31 |
| | 145 |
|
Acquired locations remaining open | 35 |
| | — |
| | — |
| | — |
| | 35 |
|
Closed locations | | | | | | | | | |
Merged with existing locations | 7 |
| | 13 |
| | — |
| | — |
| | 20 |
|
Sold or closed with no surviving location | 32 |
| | 7 |
| | — |
| | 65 |
| | 104 |
|
Locations at end of period | 3,010 |
| | 1,325 |
| | 151 |
| | 179 |
| | 4,665 |
|
Acquired locations closed and accounts merged with existing locations | 20 |
| | — |
| | — |
| | — |
| | 20 |
|
|
| | | | | | | | | | | | | | |
Table 17 | Year Ended December 31, 2014 |
| Core U.S. | | Acceptance Now | | Mexico | | Franchising | | Total |
Locations at beginning of period | 3,010 |
| | 1,325 |
| | 151 |
| | 179 |
| | 4,665 |
|
New location openings | 10 |
| | 209 |
| | 31 |
| | 30 |
| | 280 |
|
Acquired locations remaining open | 6 |
| | — |
| | — |
| | — |
| | 6 |
|
Closed locations | | | | | | | | | |
Merged with existing locations | 163 |
| | 127 |
| | 5 |
| | — |
| | 295 |
|
Sold or closed with no surviving location | 39 |
| | 1 |
| | — |
| | 22 |
| | 62 |
|
Locations at end of period | 2,824 |
| | 1,406 |
| | 177 |
| | 187 |
| | 4,594 |
|
Acquired locations closed and accounts merged with existing locations | 13 |
| | — |
| | — |
| | — |
| | 13 |
|
|
| | | | | | | | | | | | | | |
Table 18 | Year Ended December 31, 2013 |
| Core U.S. | | Acceptance Now | | Mexico | | Franchising | | Total |
Locations at beginning of period | 3,008 |
| | 966 |
| | 90 |
| | 224 |
| | 4,288 |
|
New location openings | 37 |
| | 411 |
| | 63 |
| | 40 |
| | 551 |
|
Acquired locations remaining open | 47 |
| | — |
| | — |
| | — |
| | 47 |
|
Closed locations | | | | | | | | | |
Merged with existing locations | 46 |
| | 44 |
| | 2 |
| | — |
| | 92 |
|
Sold or closed with no surviving location | 36 |
| | 8 |
| | — |
| | 85 |
| | 129 |
|
Locations at end of period | 3,010 |
| | 1,325 |
| | 151 |
| | 179 |
| | 4,665 |
|
Acquired locations closed and accounts merged with existing locations | 38 |
| | — |
| | — |
| | — |
| | 38 |
|