Rent-A-Center Cost and Profit Revealed (2024)
Is Rent-A-Center Franchise a profitable business option to consider? Reveal the answer on this article by VettedBiz
Table of Contents:
The Rent-A-Center Franchise business was started by Ernie Talley in Wichita, Kansas during the 1960s. Rent-A-Center is for rental businesses that provide “rental purchase” programs for a specialized inventory of rental products, such as major consumer electronics, appliances, furniture, computers, tires, and jewelry, as well as the sale of related accessories. In addition, in states with favorable laws, a small number of our Rental Stores offer financial services, including payday loans and title loans.
The company was incorporated in 1986 and as of 2014 operates approximately 2,972 company-owned stores in the United States, Puerto Rico, and Mexico, accounting for approximately 35% of the rent-to-own market in the United States based on store count. Mitch Fadel was named CEO in 2018. Rent-A-Center has affiliates Get It Now, Rainbow Rentals, Rent Rite, RentWay, and Home Choice.
Over the past 9 years, Rent-A-Center unit count has decreased from 3,205 to 2,369, representing a decrease of 26%!
How Is Rent-A-Center Franchise Positioned in the Retail Products and Services Industry?
The U.S. Retail Products and Services industry is well-established and depends on a strong distribution channel for all types of retail companies. The market provides several different goods such as food, apparel, furniture, jewelry, and many others. The retailer’s subsector within the industry employs 1 out of 5 Americans. In addition, independent and privately held retail businesses account for 95% of the whole retail industry. For retail companies, the holiday seasons are the most important time of the year.
Online retailing continues to be the fastest-growing segment within the industry, with e-commerce emerging as the major shopping platform. The sector is expected to grow 9% annually, reaching $1.3 trillion by 2030. In addition, retail companies must continue to embrace technologies and automation in order to better leverage growth. Even expecting a growth of 2.2%, slower than previously anticipated at 2.5%, the industry still has space to transform itself and encourage consumer spending.
How Much Is a Rent-A-Center Franchise?
The initial Rent-A-Center Franchise Fee is $35,000. You have to pay this upfront fee when opening a Rent-A-Center franchise.
Rent-A-Center Franchise Cost
The estimated total investment necessary to begin the operation of the Rent-A-Center franchise ranges from $355,000 to $560,000.
Rent-A-Center Franchise Requirements
- The minimum liquid capital to own a Rent-A-Center franchise is $1,000,000 to $1,300,000.
- The net worth required is $750,000 to $3,000,000.
- The length of the initial franchise term is 10 years.
Owning a Rent-A-Center Franchise Requires Ongoing Fees
Royalty: 6% of Gross Sales
Marketing Fee: 3% of Gross Sales
The royalty fee for Rent-A-Center is a little higher compared with the 5.7% in the Retail Products and Services industry as a whole, and the marketing fee for Rent-A-Center is also comparably higher compared to the 2.5% of gross sales in the whole industry.
How Much Do Rent-A-Center Franchise Owners Make?
2020 Sales Figures and Break-Even Point:
Royalty Fee: 6% of Gross Sales
Marketing Fee: 3% of Gross Sales
Estimated Franchise Sales: $33,358,333
Estimated Average Revenue: $722,042
| Initial investment (midpoint) | %Profit margin of median franchise sales | Estimated Profits | Time to recoup investments |
|---|---|---|---|
| $457,500 | 10% | $72,204 | 7.5 years |
| $457,500 | 15% | $108,306 | 5.5 years |
| $457,500 | 20% | $144,408 | 4.5 years |
2021 Sales Figures and Break-Even Point:
Royalty Fee: 6% of Gross Sales
Marketing Fee: 3% of Gross Sales
Estimated Franchise Sales: $2,265,450,661
Estimated Average Revenue: $1.12M
| Initial investment (midpoint) | %Profit margin of median franchise sales | Estimated Profits | Time to recoup investments |
|---|---|---|---|
| $457,500 | 10% | $112,000 | 5.5 years |
| $457,500 | 15% | $168,000 | 4.5 years |
| $457,500 | 20% | $224,000 | 3.5 years |
Based on the median sales provided by Rent-A-Center’s franchise locations, at an average of a 20% profit margin it will take around 3.5 years to recoup your investment. The time to recover the initial investment might be more than 5 years, but it is still relatively short if the business is profitable.
This is just an estimate of sales based on the franchisor’s income statement and can vary greatly depending on the length that the particular franchise location has been open and how well the business is run.
Rent-A-Center Units Changed During the Past Years
Based on the statistics on Entrepreneur, the number of stores of Rent-A-Center did not act as a good indication for the company. As we could see from the graph, since around 2015 the number of Rent-A-Center units has continually decreased, which, to a certain degree, shows that the franchise might not be profitable.
Is the Rent-A-Center Franchise Profit Worth the Franchise Cost
As seen in the sales figures above, it takes a relatively short time to recoup your investment if you own a Rent-A-Center. It will take 5 years on average with a profit margin of 12.8%, which is the operating profit margin of Rent-A-Center in 2021.
As there is no Rent-A-Center franchise that is on sale now, based on our estimation, when you go to sell a Rent-A-Center based on the median multiple of 0.54 and net sales averaging $1,120,000, it would sell for $604,800. This is higher than the midpoint initial investment of $457,500. Hence, overall, although it might take a long time (more than 5 years) to recover the initial investment, the investors could still resale their Rent-A-Center to recover its initial costs and even make some profits.
Rent-A-Center Income Statement
Rent-A-Center Income Statement Key Insights
| 2021 | 2020 | 2019 | |
|---|---|---|---|
| Revenues | |||
| Store | |||
| Rentals and fees | $3,522,453 | $2,263,091 | $2,224,402 |
| Merchandise sales | 829,222 | 378,717 | 304,630 |
| Installment sales | 73,585 | 68,500 | 70,434 |
| Other | 4,148 | 3,845 | 4,795 |
| Total store revenues | 4,429,408 | 2,714,153 | 2,604,261 |
| Franchise | |||
| Merchandise sales | 126,856 | 80,023 | 49,135 |
| Royalty income and fees | 27,187 | 20,015 | 16,456 |
| Total revenues | 4,583,451 | 2,814,191 | 2,669,852 |
| Cost of revenues | |||
| Store | |||
| Cost of rentals and fees | 1,260,434 | 655,612 | 634,878 |
| Cost of merchandise sold | 935,765 | 382,182 | 319,006 |
| Cost of installment sales | 25,637 | 24,111 | 23,,383 |
| Total cost of store revenues | 1,260,434 | 655,612 | 634,878 |
| Franchise cost of merchandise sold | 126,603 | 80,134 | 48,514 |
| Total cost of revenues | 2,348,439 | 1,142,039 | 1,025,781 |
| Gross profit | 2,235,012 | 1,672,152 | 1,644,071 |
| Operating expenses | |||
| Store expenses | |||
| Labor | 644,763 | 579,125 | 630,096 |
| Other store expense | 770,073 | 609,370 | 617,106 |
| General and administrative expenses | 194,894 | 153,108 | 142,634 |
| Depreciation, amortization and write-down of intangibles | 54,830 | 56,658 | 61,104 |
| Other charges and (gains) | 289,913 | 36,555 | (60,728) |
| Total operating expenses | 1,954,473 | 1,434,816 | 1,390,212 |
| Operating profit | 280,539 | 237,336 | 253,859 |
| Debt refinancing chares | 15,582 | 2,168 | |
| Interest expense | 70,874 | 15,325 | 31,031 |
| Interest income | (221) | (768) | (3,123) |
| Earnings before income taxes | 194,304 | 222,779 | 223,783 |
| Income tax expense | 59,364 | 14,664 | 50,237 |
| Net earnings | 134,940 | 208,115 | 173,546 |
| Basic earnings per common share | 2.37 | 3.84 | 3.19 |
| Diluted earnings per common share | 2.02 | 3.73 | 3.10 |
| Cash dividends declared per common share | 1.27 | 1.18 | 0.54 |
Rent-A-Center is a very profitable business for the franchisor with a net income of $4,378,896 in 2020. Compared to the $1,439,743 net income in 2019, Rent-A-Center saw a dramatic 200% increase from 2020 to 2021. This is a good indication of high growth as a company overall.
Rent-A-Center Recent Earnings Key Insights
During the year 2022, based on the information provided by the Rent-A-Center official website, the overall revenues and sales in the year 2022 were worse compared to 2021. In 2022, except for the first quarter when the revenues increase by 11.9% compared with the first quarter in 2011, the revenues in the second quarter decreased by 10.3%, and the revenues in the third quarter decreased by 13.3% compared with the same quarter in 2021.
Additionally, in the following graph, we could find that the sales in the same store are continually decreasing since the start of the year 2022. These might indicate potential unprofitability and risk to owning a new Rent-A-Center now.
Additionally, besides the revenues and the sales, the adjusted EBITA for Rent-A-Center in the year 2022 is also worse compared with 2021 for several different reasons. According to the analysis of the Rent-A-Center official website, in the first quarter, the adjusted EBITA decreased by 28.3% compared with the adjusted EBITA in the first quarter of 2021 due to an increase in delinquency and loss rates caused by customers’ discretionary income pressures and higher operating expenses.
In the second quarter of 2022, the adjusted EBITA is 31.1% lower compared with the second quarter of 2021 for the same reason as the first quarter. In the third quarter of 2022, the adjusted EBITA decreased by 34.6% compared with the third quarter of 2021 because of lower revenue and higher loss rates caused by pressure on customer discretionary income.
However, although there are significant decreases in revenues, sales, and adjusted EBITA, which might act as a bad indication of opening a Rent-A-Center. Their “failure” in 2022 could partly be attributed to inflation and the overall economic recession in the U.S., which will reduce the public’s willingness to spend money in Rent-A-Center. Therefore, it might indicate that when the economy recovers, the profitability of Rent-A-Center will recover and even increase.
Rent-A-Center Stockholders (2022)
The top three holders of Rent-A-Center are Fidelity Management & Research Company LLC, BlackRock Institutional Trust Company, N.A., and The Vanguard Group, Inc. These three top buy-side companies, in the financial market, investment in the Rent-A-Center, to a certain extent, shows their confidence in Rent-A-Center, demonstrating the potential profitability of the company, well-capital structure in the company, and a clean financial situation. Especially, except for BlackRock Institutional Trust Company N.A., both Fidelity Management & Research Company LLC and Vanguard Group, Inc. increased their shareholdings in Rent-A-Center even though their overall profitability decreased during 2022. Hence, it seems that it would be a “safe” investment to open a Rent-A-Center.
| Shares Held | %O/S | Share Change | Filling Date | |
|---|---|---|---|---|
| Fidelity Management & Research Company LLC | 8,322,421 | 14.95 | 772,555 | 9/30/22 |
| BlackRock Institutional Trust Company | 7,615,048 | 13.68 | -145,521 | 9/30/22 |
| The Vanguard Group, Inc | 5,945,974 | 10.68 | 66,728 | 9/30/22 |
| Allred (Aaron R) | 5,151,978 | 9.25 | 2,894,585 | 9/30/22 |
| Engaged Capital, LLC | 3,604,216, | 6.47 | 1,039,672 | 4/11/22 |
| State Street Global Advisors (US) | 2,108,689 | 3.79 | -41,499 | 12/9/22 |
| IEQ Capital LLC | 1,990,108 | 3.57 | -66,225 | 9/30/22 |
| Dimensional Fund Advisors, L.P | 1,265,796 | 2.22 | 67,142 | 9/30/22 |
| Geode Capital Management, LLC | 963,373 | 1.73 | -9,857 | 9/30/22 |
| LSV Asset Management | 869,860 | 1.56 | 51,800 | 9/30/22 |
Stock Performance
From the 2022 Proxy Statement/2021 Annual Report, we could find that until the end of 2021, the total return of the stock of Rent-A-Center in the stock markets increased relatively faster than two U.S. main stock indexes–NASDAQ Composites and S&P 1500 Specialty Retail Index. This shows that in the whole retail industry, Rent-A-Center has relatively higher returns and profits compared with other companies.
Hence, if you want to invest in a retail industry franchise, Rent-A-Center would be a good choice in this regard.
Conclusion
Investing in a Rent-A-Center franchise is an interesting opportunity, especially for individuals looking to make their way into the Retail industry. The prospects for growth and success within the industry and the Rent-A-Center brand itself are extensive, and some markets continue to be available as they move forward with growing their presence across the country.
If you are an individual with a passion for owning a restaurant and are willing to invest an amount ranging from $355,000 to $560,000 or more, Rent-A-Center might be the right fit for you.
We strongly recommend you speak to at least 5 Rent-A-Center franchisees to better understand the financials (see questions to ask).
