The Street drops Rent-A-Center (RCII)

Just when everyone was convinced Rent-A-Center, Inc  (NASDAQ:RCII) had the perfect business for a struggling America that can't afford to buy anything, earnings slip.  Down shares fell this morning to $19.20 and are trying to recover to over $20.  How should you play it?

All in all, it was a decent 2nd quarter but not good enough for this market. Rent-A-Center also raised its 2008 revenue forecast and tightened its earnings forecast for the year.  RCII is one of the few retailers that may benefit as the economy gets worse, can't buy it, then rent it.

Via Reuters - "We continue to be cautiously optimistic about the near term," Chief Executive Mark Speese said in a statement, adding that the tight consumer credit market should benefit the company since people, who are unable to borrow to buy, may be more likely to rent.

Second-quarter net income fell to $37.7 million, or 56 cents per share, from $41.3 million, or 58 cents per share, in the year-earlier quarter.

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Analysts, on average, were looking for earnings of 57 cents per share, according to Reuters Estimates.

Total revenue fell to $719 million from $724.2 million, reflecting a restructuring that reduced the company's store count by about 325 from a year ago, but the total exceeded the $705.6 million forecast by analysts.

Feels like Wall Street is overacting to the news, sending shares down 12%? 

The problem is investors wanted more from the quarter and the outlook. Here's a perfect picture that sums up the feeling RCII shareholders are experiencing today:

Rent-A-Center said second-quarter, same-store sales, a gauge of retail health, rose 0.9 percent to top internal targets and said full-year 2008 same-store sales would increase by 3 percent to 4 percent.

Rent-A-Center forecast third-quarter revenue in the range of $700 million to $715 million, and earnings of 45 cents to 50 cents per share.

Analysts polled by Reuters Estimates are looking for third-quarter revenue of $699.7 million and a profit of 50 cents per share.

 

For the full year, the company projected revenue of $2.89 billion to $2.92 billion, compared with its prior call for total revenue of $2.87 billion to $2.91 billion.

It narrowed its full-year profit forecast to $2.20 to $2.30 per share from its previous range of $2.17 to $2.32.

Fellow Masters, should RCII dip any further or analysts start slashing price targets, we may have to pick up shares on the fall. The fact that this retailer is actually doing well during these challenging times, well, logic can only defy today's trading for so long.

MASTERY