Same-store sales growth of 80 basis points, marking the first increase in 8 quarters.
Revenue growth of 20 basis points, the highest since mid-2022 for Rent-A-Center.
Lease charge-off rate decreased by 10 basis points from the previous year to 4.7%.
Strategic Initiatives and Outlook
The company continues to enhance underwriting capabilities and expand direct-to-consumer offerings.
Acima has integrated new tools and data sets, aiming for improved performance and lower charge-off rates.
Upbound Group aims for double-digit GMV growth for Acima and slight portfolio growth for Rent-A-Center in Q2 2024.
The company plans to focus on deleveraging, targeting a net leverage ratio of under 2x, with a long-term target of 1.5x.
Capital Allocation and Future Prospects
The company’s capital allocation priority is supporting innovative ideas that improve customer and merchant outcomes, with a secondary focus on shareholder value through dividends and opportunistic share repurchases.
Upbound Group ended Q1 with a net leverage ratio of approximately 2.7x, aiming for a reduction in leverage.
Question and Answer
Acima Segment Margin and Flow-Through
Question
What is the expected flow-through of incremental revenue in the Acima segment in the upcoming quarters, considering the timing lag between revenue and costs?
Answer
The first quarter results for Acima were in line with expectations, with a tough comp from the previous year.
The company expects margins to improve in the second quarter and target the low-teens to mid-teens range for the full year, similar to 2023.
The flow-through is expected to be consistent with 2023, with higher revenues from consecutive quarters of nearly 20% GMV growth.
Trade-Down and Organic Growth
Question
With significant GMV growth and no major signs of trade-down, is the organic growth driven by market share gains or other factors?
Answer
While trade-down is difficult to quantify, there is likely some trade-down occurring within the market.
The company believes there is more trade-down to come, potentially driven by credit card fee issues and further industry tightening.
The organic growth is attributed to a combination of market share gains and other factors, with a cautious approach to underwriting in the current environment.
Acima Segment Success Drivers
Question
What factors have contributed to the recent success and growth in the Acima segment, particularly in terms of merchant wins, approval rates, and retailer kickbacks?
Answer
The success is attributed to a combination of factors, including a strong sales team, both regionally and nationally, and a differentiated product offering.
Acima’s integration and e-commerce processes are noted for their ease of use and effectiveness, while the staffed option provides a unique value proposition.
Ongoing training and support for merchants, as well as the ability to leverage Rent-A-Center’s expertise, have contributed to the segment’s growth.
Rent-A-Center Segment Outlook
Question
What is the outlook for the Rent-A-Center segment, particularly regarding same-store sales and the impact of early buyouts and the tax refund season?
Answer
The company is optimistic about the Rent-A-Center segment, with expectations for slightly positive same-store sales throughout the year.
The impact of early buyouts and the tax refund season is expected to be less pronounced than in the first quarter, with a gradual improvement in same-store sales.
The company highlights the resilience of the Rent-A-Center customer base and the positive trends observed in the e-commerce channel.
Guidance and Business Trends
Question
Given the strong business trends and performance, what would it take for the company to become more constructive on its guidance for the rest of the year? Can you also provide insights into the performance of specific categories within the Acima segment?
Answer
While the company is pleased with the first quarter results and the momentum in both segments, it is maintaining its guidance at this time.
The company will revisit the outlook if margins improve as expected and the strong GMV growth continues.
Strength was observed across all categories in the Acima segment, with furniture, auto, jewelry, and other categories performing well.
Acima Early Buyout Trends
Question
Can you provide insights into the early buyout trends in the Acima segment and their impact on merchandise sales and gross profit margins?
Answer
The company believes that early purchase option trends have normalized to pre-pandemic levels, with flat or slightly lower percentages of 90-day buyouts compared to the previous year.
While merchandise sales were higher in the first quarter due to the larger portfolio size, the company notes that trends are normalizing and in line with pre-pandemic levels on a vintage basis.
Product Category Mix and Average Ticket Prices
Question
Can you discuss the product category mix at both Rent-A-Center and Acima, as well as trends in average ticket prices for each segment?
Answer
The product category mix is diverse at both Acima and Rent-A-Center, with strength observed across categories such as furniture, jewelry, electronics, appliances, and wheel and tire.
Average ticket prices were slightly down at Acima, reflecting the current economic environment and some deflationary pressures.
While the furniture category experienced a significant pull-forward of demand during the pandemic, the company is starting to see positive trends and green shoots in this category.
Acceptance Now Charge-Offs and Integration Impact
Question
Will the headwinds from Acceptance Now charge-offs, related to the Acima integration, abate in the next quarter or two?
Answer
The company expects the headwinds from Acceptance Now charge-offs to diminish in the second half of the year, with a similar loss rate in the second quarter and a downward trend thereafter.
The full-year loss rate is expected to be relatively flat compared to 2023, ranging between 9% and 9.5%.
Approval Rates and Trade-Down
Question
Can you provide more details on the drivers of lower approval rates at Acima and discuss how potential trade-down might impact approval rates in the future?
Answer
The lower approval rates are a result of a cautious underwriting approach in the current environment, considering factors like potential trade-down, customer payment performance, and the impact of the Acceptance Now conversion.
If trade-down becomes more prevalent, approval rates could potentially rise, as the company would be more selective in approving applications.
The underwriting process is highly targeted and specific to each category and retail partner, allowing the company to adapt to changing market conditions.
Impact of Fed Rate Cuts on Guidance
Question
How does the company view its original guidance, which included expectations for Fed rate cuts, in the current environment of higher inflation and potentially no rate cuts?
Answer
The company has updated its forecast to exclude the previously expected rate cuts, aligning with market expectations.
The impact on EPS from the absence of rate cuts is minimal, and the company’s guidance range is wide enough to accommodate the current interest rate environment.
The company remains confident in its outlook and the resilience of its consumer base, even in a scenario of higher interest rates.
Debt Structure and Floating Rate Debt
Question
What percentage of the company’s debt is floating rate debt, and how does the company view its debt structure in the current interest rate environment?
Answer
Approximately $850 million of the company’s $1.3 billion in debt is variable rate debt.
The company believes its debt structure is manageable and can absorb potential fluctuations in interest rates.
