Rent-A-Center Struggles on Second Quarter Earnings Outlook

Rent-A-Center shares down sharply on weak quarterly outlook.
4:17 | 07/11/14

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Transcript for Rent-A-Center Struggles on Second Quarter Earnings Outlook
I bet that -- York and as -- head into the weekend this Friday July 11 that story stock. Soft earnings and Smartphones -- -- why this combo platter is making headlines. Or Rent -- Center. Now to explain -- all -- -- -- and -- got finance on this Friday so Mike they have first up tell us little bit about -- to senator business model and essentially what investors thought about their second quarter. It's -- -- to Rent -- Center has about 3000 locations across North America and they offer products on a rent to own basis this is things like television sets other appliances. Small electronics things like back computers. Where you basically pay a weekly amount in cash and over a rather long period of time. You can then by through that cumulative -- weekly rental payments it's not -- -- people who can't get credit card don't want one. But they basically today. Came out and said that their their quarterly earnings are expected to be far below. Wall Street forecast January they also had a bad -- so it seems like Wall Street lost patience with the company's stock down. More than 10% in the regular session today. So let's take a look at that and how they're today's stock chart look let's pull that out and -- and educate and -- Walk -- -- I mean that's a pretty steep drop for some minutes -- relatively flat lately. There really isn't it's been very very placid in the high twenties for quite awhile and -- -- obviously dropped. Right off that cliff back. -- -- -- ten or 11% decline I would say the stock's down about 35% from one year ago so clearly it's -- a worsening picture for awhile right now today the management of Rent A Center came out basically. Blame the general consumer environment we've heard this from other chains this week basically saying is a sluggish a -- -- at the middle to low end in terms of you know trying to get consumers to spend money they seem not to be able to -- not willing to right now. And so now this move up into the snow contract Smartphone business seems to be someone and -- -- -- but. This is how -- explain in a statement a company saying bluntly it hopes to appeal to a cash and credit strapped customer. But there are some questions about this idea right well always. Yes now first of all their core business is appealing to -- cash and credit strapped customer. The reason that they feel compelled to get into the -- and no contract rent to own Smartphone business is because the this is one of -- mean. Kind of regular expenses that people have right now most people don't wanna go without a Smartphone -- -- could somehow helping and if you think about it. Being credit -- is a really big part of getting a contract for mobile service right now you know -- fifteen Mobil's and the Verizon Wireless is the world they actually had to do a credit check they're gonna front you that piece of electronics. When they give you that that monthly -- they are subsidizing that thing to you so if you don't have credit you can't get 11 of those. I actually you know what to look online not reticent to bring in general what it cost about thirty bucks a week for kind of an entry level Samsung Smartphone. And after 36 months it's yours for over -- thousand dollars all told. That's three years thumbing its and that -- advances in technology along the way -- -- mean you're gonna have to kind of do the cost benefit for that. Overall though the bottom line always -- the bottom line is a -- economy a bit of a problem for these rent to owned businesses. You know it's it's -- it's -- wouldn't say it's a problem but it basically. It does mean that a handful of customers are gonna -- -- graduate away from you to some degree while the rest of them you know I'm don't have any more money today -- they did. Yesterday I think in general you know better job performance as we've seen recently. And wage growth is going to be good in you know for the consumer economy anybody trying. To sell but but right now without pricing power without the the ability to really compete. I don't think -- around -- senator -- would by the it's a crowded space Aaron rents is a public company that's in this area -- so the dollar stores are also sort of crying. That this is not a good environment for them so there's something to be said for the fact that they did better than expected. In a bad economy and now they're having to in some sense to deal with a somewhat -- context. And into a hold -- recent. -- -- from Yahoo! finance Mike thank you have a great weekends aren't used -- thank you been watching story stock. Stay with ABC news dot -- related headlines Dan Butler New York.

This transcript has been automatically generated and may not be 100% accurate.

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