The American consumer may not be buying much these days, but my guess is his desire for goods has not abated. This is clearly demonstrated by the healthy returns enjoyed by two companies in the rent-to-own business, Aaron's (NYSE: AAN) and Rent-A-Center, Inc. (NASDAQ: RCII). According to USA Today, both companies experienced great success as the economy folded. Tight credit brought in customers who could not qualify for conventional loans.
Both companies rent household appliances, entertainment electronics, computers and furniture. Customers agree to pay a monthly amount toward the eventual full price of the goods selected, and are able to take their selections home immediately.
The USA Today article reports that three-quarters of the customers of Rent-A-Center return their rented goods within 17 weeks, never coming close to ownership. In fact, only one in twenty end up buying what they have rented. The full retail price of merchandise purchased through these companies is considerably higher than it would be if bought from a conventional retailer, so buying through rent-to-buy is an expensive proposition.
Rent-A-Center also experienced a strong first quarter, with net income up $9 million over the same quarter of 2008, to $45.4 million. It too surprised analysts, outstripping expectations by 10 cents. In light of recent earning, forecasters are projecting growth in the neighborhood of 9% for 2009 and 2010.
Both companies should appeal to any investor who believes the turnaround is still a long way off. As long as our appetite for big-screen TVs and leather couches remains, these two retailers could be setting pretty.
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