Rent-A-Center Gives Dire Update On State Of US Consumer

In the bottom-up hierarchy of retailers catering to the lowest rungs of US society, there is Dollar Tree and Dollar General, and somewhere in their immediate orbit, is Rent-a-Center, which caters to those Americans who can’t afford to purchase outright, and whose credit is too low to finance, and are thus stuck renting out any certain “aspirational” product – like, say, a microwave. In short, its captive audience is America’s lower and lower-middle classes.

And unfortunately for the US, it is this lowest ring on the social ladder that is now getting decimated.

After the close Rent-a-center reported earnings that were simply horrendous: the company said that in Q4 it generated adjusted EPS $1.08 which badly missed estimates of  $1.61 on revenue of $1.17 billion, which also missed the estimate of $1.2 billion. But it was the company’s forecast that was catastrophic: the company now sees adjusted EPS of $4.50 to $5.00, far below the consensus estimate of $7.04; its revenue guidance of $4.45 billion to $4.60 billion was likewise a disaster compared to the estimate of $5.27 billion, with adjusted Ebitda in the $515 million to $565 million range, far below the estimate of $747.4 million.

What caused this collapse? The following commentary from the earnings call explains it:

“In the fourth quarter, the combined effect of significantly reduced government pandemic relief, decades-high rates of inflation, and supply chain disruptions impacted our target customers’ ability to access and afford durable goods, which negatively impacted our results. We anticipate these external headwinds will continue for the foreseeable future, resulting in year-over-year declines in revenue and earnings for 2022, on a pro forma basis, while free cash flow should increase for the year.”

Translation: after a year sustained by seemingly endless “stimmies” the US consumer is now hitting a brick wall, with the poorest getting hit first and hardest. This is precisely what both we, and Morgan Stanley’s Michael Wilson have been saying for months, and it is this sharp and unexpected hit to consumption that is behind the sharp slowdown in the US economy which has little to do with the Omicron hiccup in December and January. – READ MORE