Q1 2020 Earnings Call
[music].
Good morning, and thank you for holding welcome to rent a center's first quarter earnings conference call.
As a reminder, this conference is being recorded Thursday may 720 20.
Your speakers today, our Mitch Fidel Chief Executive Officer of rent a center.
Maureen short Chief Financial Officer.
And Daniel Overwork, Senior Vice President Finance and real estate.
I would now like to turn the conference over to Mr. O'rourke. Please go ahead Sir.
Thank you good morning, everyone and thank you for joining.
Our earnings release was distributed after market close yesterday and it outlines our operational and financial results for the first quarter of 2020.
Oh related materials, including at least a live webcast for available on our website at Investor Day rent a center dot com.
As a reminder, somebody statements provided on this call are forward looking statements, which are subject to many factors that could cause actual results to differ materially from our expectations.
These factors are described in our earnings release issued yesterday as well and the company that's easy filings.
What does that are undertakes no obligation to publicly update or revise any forward looking statements.
This call. It will also include references to non-GAAP financial measures.
Please refer to our first quarter earnings release, which can be found on our website for a reconciliation of non-GAAP financial measures to the most comparable GAAP financial measures I.
I'd now like to turn the call over to Mitch.
Thank you Daniel and good morning, everyone. Thank you for joining us.
Well, we'll be providing a voice over to the presentation shown on the web cast or can also be found it investor that rent a center dot com.
So starting on slide three the Corona viruses put significant stress on our economy and on our organizations. We all the justice social distancing in other governmental measures to combat the pandemic.
We worked extremely hard to ensure that health and safety of our employees customers and suppliers, which is our number one priority, but making sure we're addressing our customers' needs.
Many are affected by this crisis, we are sensitive to their condition and focused.
Reinforcing the attributes that it made rent a center a trusted partner for over three decades.
The responses highlighted the strength of organization.
People have gone above and beyond in so many ways from providing mass to keeping everyone safe to implementing curbside pickup and keeping the increased volume of ecommerce deliveries moving smoothly.
Their hard work and dedication, especially of our frontline coworkers inspire each of US every day and I'm incredibly proud of their efforts.
Or increase modestly driven back same sources increase a 1.7% in the rest of their business and the addition of the merchants preferred virtual solution.
Or encourage my trends were seeing any cameras switch experience growth of over 100 per cent in April versus the last year.
First quarter adjusted even our main consistent with the first quarter of 2019, one nine gap earnings per share grew by almost 15%.
There will be an impact from the pandemic in the second quarter at the compared to last year, but we believe it will not be near as severe as traditional retail is we expect our revenue declined to be 10% or less with the potential for a lower impact and keep it out.
Turn has five five.
We're committed to investing in strategic priorities that we believe have the potential steeping, our long term demand curve by improving the customer experience.
He commerce as clearly one of those.
We were spotted the widespread social distancing back accelerating initiatives to enhance customer service and new payment options for on bank customers and implement additionally cameras functionality.
These initiatives are improving traction with both new and existing customers.
Additional or digital strategies overall demand is being helped by the government stimulus and our own internal programs.
The majority of our customers qualify for the U.S. cares acting many of you stimulus wants to make rental payments in fact, the data direct deposit government stimulus payments were sent out we saw material increasing demand and revenue.
And we expect further benefits from stimulus as a male checks go out and waves all summer.
Well, it's all for an internal program called benefits, plus which includes an unemployment benefit underwritten by and.
That enables eligible customers would become unemployed to keep their merchandise during this difficult time, which is providing nice additional support.
Skip smaller offices in each of the segments performed in line with expectations for the quarter.
Most of our products are necessities, our customers want to keep and we're working to help them do just that even providing payment extensions in some cases.
In addition to adding digital capabilities to support demand were making continued progress to streamline operations and I want to stress that these initiatives are really paying off.
We've been able to react faster and work smarter and that's helped offset some of the near term headwinds from their sponsor the virus.
Importantly, the focus on optimizing costs will have long term benefits as well.
Do you use just one example.
We made enhancement star centralize contact center as we reduced labor hours in the staffed prefer these stores.
We believe goes a long term opportunity become more efficient a collection says would free up store hours to support additional sales.
Our financial condition as strong with substantial equated as we move forward on their strategic plans.
We ended the quarter with $183 million in cash and no debt maturities until 2024, and we prioritize our cash for operations.
We are expecting sequential improvement in cash flow and the second quarter and continue to invest in our strategic priorities.
Also declared half second quarter dividend consistent with historical amounts.
Based on our experience during the great recession, we expect a man for our product and services to continue to increase as prime and <unk> moved back up the credit scale.
The demand increases we've historically seen at the top of our final typically more than make up for any short term impact we see during recessions.
We put a lot of time and effort in improving the customer experience more confident in our ability to execute asher teacher initiatives to capture white space opportunity via digital and for a tool.
We see numerous opportunities to gain market share in the run the centre segment.
And we also believe the stress on traditional retailers, it's enhancing our growth prospects for prefer at least.
Our conversations with potential retail prior to show that they're looking for ways to improve their sales as the virus accelerates change.
We have a strong balance sheet and a flexible partner model versus competitors that are not as well capitalised, particularly the regional level really some great opportunities force there.
And with that I'll turn it over to marine to discuss the first quarter financial some more detail.
Thanks Nets.
Consolidated earning for favorite from last year.
Increase in the top line in a fight declining.
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Needs for approximately seven huh.
In the first quarter.
And increase the 0.8%.
Period last year.
The game is driven by the addition, I've been ranchers preferred virtual silly show and the same story fans entries at 1.7% in a random centered isn't that.
Partially offset by read franchising and rationalizing our store base.
Adjusted evened out with 65.5 million in the corner.
And even in large and with 9.3% I think 9.5% anything period last year.
Non gasoline in E.T.S. with 67 cents at 14.6% over last year.
Other benefits to Nongaap deleted E.P.S. included lower interest expense versus last year.
And about our tax rate on the 18.4% down from 22.9 per cent in the first quarter of 2019.
Trained to segment result, starting with our largest like net revenues for the rabbits, and our business, which includes corporate on U.S. stored and rented center dot com.
For 455 million and the first quarter and benefited from the 1.7% increase in same three sale.
To provide some contacts for the current events impact.
Same store sales in Iran us in our business increased 2.8% in January.
4.8% in February and we're down to 0.5% in March as the initial impacted the pandemic tickets fact across the U.S.
In April trends improves sequentially, driven by governments stimulus payment.
Adjusted even for the rats in our business was 74.5, knowing at 240 basis points as a percentage of segment revenue versus the same quarter last year.
The performance was driven by better grass margins and lower operating expenses.
As we continue to streamline the business.
As a percentage of revenues gets stolen losses for the rented center business.
We're 3.9% and 20 basis point decline from the fourth quarter 2019.
And at 20 basis points versus a year ago period.
Comfortably total revenues increased 10 per cent in the first quarter versus the same quarter last year.
The performance reflects a 17% increase in invoice volume.
Driven by the addition of the reckons preferred virtual installation.
Adjusted even asked for preferred lean was 18.8 million or 8.7 per cent of rather than in.
You ever you're changing even as a percentage of sales was driven by investments to support future growth.
The mixed Shasta virtual location.
Any impact from the current a virus from close retail partner location during the second half of March.
It's gets stolen losses were 12.2% of sales for the prefer these segment in the first quarter versus last year, we increase our mix and virtual location.
But down 200 basis points sequentially.
Profitability in this segment is expected to Santa Cruz as we scales that virtual offering.
Finally in the corporate segments first quarter expensive increased 5.5 million driven by the addition of the merchant preferred virtual solution right expenses, resulting from the stay on a partial these back in the corporate headquarters.
And timing of our annual stock worried grant.
Moving onto the balance sheet in cash flow highlight.
Cash generated from operating activities with 47.4 million for the first quarter.
The company ended the first quarter with 182.9 million of cash in cash equivalent an outstanding indebtedness of 362 million.
No turning to slide seven as we outlined that are large update.
We're not providing guidance for the year, given the fluid nature of the Corona virus.
The varied effort by the states to contain the spread and reopen their economy.
That said, we do want to provide additional color on or near term outlook and the adjustments were making to address these challenges.
There will be in impact overall in the second quarter as it compares to last year, but not as severe as many traditional retailers are experiencing.
Based on what we know today, we expect second quarter revenue to be down, 10% or less versus last year.
Driven by lower demand from close locations and lower collection.
As mentioned noted we have transform the organization to incorporate a more variable expenses structure.
And we expect that coupled with our ongoing focus on reducing costs.
To result in and even a decline for the second quarter.
And the same range to slightly better than the impact and revenue.
Additionally, given the improves capital structure and lower interest expense versus last year.
<unk> per share is expected to be essentially flat to last year during the second quarter.
We do not expect to see material pressure on skits stolen losses for the year.
Do you know our contracts or nieces and unlike a traditional stuff probably wonder returning the merchandise is always an option for our customers.
Additionally, any pressure reduce the on skits dawn losses is reflected as a nod cash right off of inventory when customers stopped paying and do not return the merchandise.
Turning to expenses, we've made a number of additional adjustments to reduce operating expenses, including executive pay reduction.
Temporarily furloughing employees and store them at our corporate office.
Do things for hours in some cases, and where possible renegotiating real estate leases.
We plan to build back in some expenses as we move into the second half of the year, which has the potential to impact our season only low third quarter.
That said, we believe our actions will further streamlined cost and improve efficiency benefiting future years.
Regarding cash flow inventory purchases and capital expenditures have been reduced in order to partially mitigate the impact of the current a virus.
In addition, we were able to take advantage of the net operating loss carry back and differed payroll taxes available as a result of the care that.
We are talking to a sequential improvement and free cash flow as compared to the first quarter 2019.
Or near term outlook of down 10% or less in revenue and even for the second quarter reflects the resiliency ever leads to own model and our swift actions to reduce costs.
Turning to fly eight.
Our financial position as strong with total liquidity of over 230 million.
And net debt to adjusted EBITDA at 0.7 times at the end of the first quarter.
Compared to 1.4 times in a year ago quarter.
Are liquidity at the end of April is actually up to 280 million.
Increase of approximately 50 million since the end of the corridor driven by strong performance in April.
Our capital allocation priorities are to continue to invest in the business and return value to shareholders.
In the first quarter, we increase our quarterly dividend from 25 cents to 29 cents and repurchased 1.46 million shares for $26.5 million.
Returning approximately 42 million and capital just to shareholders.
As much mentioned earlier and given our healthy financial position, we intend to pair a second quarter to other than on June 1st.
As always details income statements by segment are posted to our Investor Relations website.
And we anticipate filing the 10 Q. on me 11.
Thank you for your time on now turn the call over for question.
<unk>.
Thank you and at this time I would like to remind everyone. If you do have a question.
Please press star one on your telephone keypad that's.
Star one.
Will pause for just a moment for any question.
Hey, and your first question will be from the line of Bobby Griffin with Raymond James.
Want everybody. Thank you for taking of course.
In a while staying healthy.
I guess, the first course I want that.
<unk> oil nature of the business given that trains are starting a pool appear in April and more states are opening.
Two q. large we'd be on the low watermark for revenue or does it before side of the business mean that you know the in fact could actually be a worse than three two from a revenue decline perspective, just trying to understand how this business woke are trained going for if we stay on the same path.
More opening then slut modest we sequentially improving trends by Mark.
Yeah, Good morning, Bobby.
I think at this point, it's too hard to say, what's gonna happen in a portfolio between now and in the end of the quarter.
Which is what old drive.
Third quarter, the third quarter Robin so.
I don't know foots, the the little watermark or not.
Really too much.
It's too hard to forecast Oh, we can tell you is the man's really strong right now.
<unk> as you can see April was if it was good to mandolin strong, but what are the portfolio <unk> I don't know, we we can't predict the third quarter, yet to say that the second quarter, so the little water mark or not.
Well when it gets a little movie after a different way it based on the guidance of down 10 per cent. That's true too Avenue are you assuming that contracts <unk> modest we improve.
In May and June burst, what they're doing today in April.
Well, we expect a demand to stay strong for a couple reasons you know the stimulus it's still going there's paper checks getting know about all summer long.
So we expect that that continue to help the yeah <unk> as we've talked about that that we're already seeing in the marketplace as as credit tightens up and pushes more demanding the least zone transaction. So <unk> demand to be to continue to be strong now just.
April not just in April thing.
Okay, and then I guess last me for me you mentioned briefly during the response when you talk to kind of your your third party retail partners and you look at down the pipeline their preferred leasing are they starting to mention already that the first year and second tier offerings that they usually use for credit are changing and your seem more people either knew.
Summers, our current customers having to rely on that right John offering or is that typically three six months that happens three six months. After we get a economic shock like we're getting now I'll quit did that credit conditions typically change.
We think it's happening already and it's about just from anecdotal feedback from retail partners is I mean, we see.
We have a decision mentioned in the prefer these business. So we see the customer to the gets.
That comes into the engine from a credit standpoint, not Miss they fucked go score sampling, but our own credit decisioning.
Both in staffs locations in a virtual location and we're seeing.
A higher quality credit customer coming into the decision engine already.
Okay. I appreciate that does both very helpful jump back from the Kid. Thank you for answering my <unk>.
<unk>.
In in your next question will be from Dawn ball with people.
Good morning, Oh, Congratulations all great first quarter of a <unk> all jump right in.
Any comments Mitch on what's happening.
With pick ups, obviously are skips Boston's forms are in good shape, rather curious or you happen to.
Pick up and then re ran a much more frequently today.
No. We haven't we haven't seen that that yet John you know, we're we're going to customers. They want to keep our products like we like we always talk about the majority of our products are central products.
Customers want to keep them you know that they the <unk> customers not necessarily under any more pressure than they normally are I mean are I think as you know the those customers under pressure all the time.
Obviously, it's is it is a tough time for a lot of people, but I don't know that it's <unk>.
Necessarily any more specific to our customers and maybe maybe others you know keep in mind. The majority of the central workforce, probably fits in our customer demo. So we're not seeing.
You know anything dramatic there and and the people that need help work and listening to keep an eye on rent.
Yeah, we haven't been in.
In the field a whole lot the last six weeks either will there be a few more pick ups, you know and man doing the normal.
We haven't seen it yet I I think they're probably be a few more <unk>, which on one hand is okay. Because it it yeah, we buy less product that way to rerun to others because the demand.
I'd comfortable thing the demand will will outrun any returned in the in the pickups as more and more people get pushed into the lease on transaction as credit Titans as people are looking for more flexible options and so forth.
And then you mentioned the A. got up to.
She's just sorta review for for my benefit mothers.
How many customers have that okay, let's all the store side.
And and all that kind of working what you're seeing how many people are utilizing a that the benefit and now it's kind of kind of how the pluses and minuses about are are working so far.
Well, it's all it's all pluses about 70% of our customers have.
Agreements that have the benefits plus attached to their agreement, which includes the the unemployment benefits like I said under under written by Yeah, and then which allows eligible customers would become unemployed to keep their to keep their merchandise I would tell you that we've it's certainly gone up from normal circumstances, but it's not.
It's not an avalanche of claims for that I I I really think we're saying, it's not like I I I'm not seeing an unemployment rate at our demographic higher than you know what what maybe is impacting middle income or higher higher incomes. The again I think the majority of our costs majority.
Central workforce out there isn't a isn't our demo so it's helpful.
We're glad we habit, we make money when we sell the product and now comes in handy and and dance processing. The claims it is more more claims the normal.
Of course, but it's not it it's it's.
It's nice support I mean, it'll help US you know.
A million or two a month and you know one in in the money coming in from someone like down in helps the customers keep the product because they make the payments warm, but it's not it's not against one going to be 20 per cent of urban or anything like that now we're just not seen those kind of unemployment rates with our.
Customer adds up I can't say the exact number I don't know what the exact numbers, but it's not <unk>.
I think that's just it then there's an impression out there that the the.
The lowest incomes got to be heard the worse, then and I don't know that that's the case, obviously time will tell but like I said I think.
The maturity this central workforce. This work in this country right now is is our our customers. So.
It's it but it certainly helps all go ahead, we have it.
It is staying on this theme Oh.
Pavement extensions in some cases correct me, if I'm wrong, but you do that to some degree all the time. So the question is.
Are you doing a meeting play more or to the tell much you just made.
No, it's not that bad slight slightly more what what what do you see.
Yeah, more the ladder I'd say, a little more than slightly but it's not <unk> again, it's not it's not an avalanche of having to do that we'll do it to help the customer keep the product, but it's a circumstance by circumstance decision to this the the stores make and that for preferred lease our context Senator makes.
You know, it's Oh, but it's not easy you see what we're forecasting the revenue to be in the second quarter you know lesson.
You know less than 10 per cent dropped from from last year. So it's obviously not a huge number.
Because if we do the intervention.
Not like that would count towards the revenue if we do the extension.
If if it was that big they are revenue forecast for the second quarter wouldn't be you know worse than what we're we're we're telling you.
Right.
Oh, Okay, and then you mentioned.
Fall in love.
Favorably side that.
25% of your clustering worse for your retail partners were were closed at the end the large in 65 per cent of they grow up and now and you are quote trending toward normal I guess kind of two part question.
Most of those retail partners or furniture, if I recall correctly.
Oh you.
I would assume even if they're open now their business is still off substantially.
Worse is pretty virus being open so I'm wondering yeah trending back towards normal sounds like you're close to getting it all back it just pointing out a little hard bleed, but what are your expectations.
That business revenue tracking and I assume we'll get most the stores open.
Within the next 60 days if not sooner.
Yeah, and the numbers with the the accident and prepared comments John only 25 at the end of March only 25% Rural open and now it's 65%. So we had just you know 70 <unk> the inverse of that obviously, 75% closed and only 25% open at the end of March now 65.
Center opened so so and I agree with you I think by the end by the end of the quarter.
If not sooner they'll all be open it.
<unk>.
We've been we've been pleasantly surprised even in the furniture category to the the demand has been strong think furniture retailer. So we'll tell ya cause I talked to a lot of them will tell you they've been surprised that you know it initially back in the Middle of March you know the rush was the central products like computers and appliances and so forth.
And the longer people are in their homes I think what we're seeing and as I as I said it in talking some furniture executives.
Sealed in some of the bigger furniture company is there.
No the the.
The belief is now based on what they're seeing is that anything for the home is going to do well anything you know as people are inside more and staying home more and you know not only through the pandemic, but even afterwards you know there's the belief people will be home worn out to eat less and those kinds of things is as you know.
But it seems like anything for the home the demand is high and.
I'm not I'm, not saying that that you know furniture executives they'll tell you that you know, they're doing better than last year, but what they what they thought they would do when they reopened compared to what they're doing and doing a lot better than than they thought that the there's a lot of pent up demand there and it is a lot of the stores or opening and and get it working back.
Normal levels ourselves so keep in mind, John they could be 20% off last year, and we could still be doing more as credit above us tightens up so I.
I think in a furniture store, because social <unk> and so forth there I can still going to be down some not as bad as people thought when this started when they reopened they're not down as much as they thought they were and we may not be down at all.
Based on credit being tied or above us.
Okay. Your next question, it's from a line of Brad Thomas with Keybank Capital. Please go ahead.
[noise] Hi, good morning match morning, Marine <unk>, that's a nice execution.
<unk>.
Let's hear I wasn't his follow up on on some of junk questions on that.
<unk>.
Side of the business I apologize if I, if I missed it I'm, having trouble getting the slide deck up but you talk a little bit more about what the invoice.
Oh Yum growth rates with those trends have look like as you went through March and April and how it's tracking here in early may.
Well that 17% increase in the invoice volume of for for at least in the first quarter if.
And we <unk> pretty much lost the last two weeks of March it was very very low those last two weeks in March <unk>, 75% of stores close.
So if you factor in.
A yeah to those two weeks, we're about about 50.
Per cent of the quarter I mean, that's 17% gets back to.
<unk> to where we were.
Like in the fourth quarter net 30% range. If we had in the last those last two weeks so.
And as I said that as a as they reopened the demand as strong I don't have a forecast for you and what we think this <unk>.
We'll be in the in this quarter, but as as you see we we expected to be pretty strong based on the the kind of revenue that were forecasting for the for the corridor.
Gotcha, Okay, and can you remind us how much merchants preferred would have contributed to revenue and invoice volume here for the quarter as a as being an acquisition.
Yeah revenue in the corridor for prefers means was 23 million.
And it generated anyway smelling yeah.
Pretty similar to what what they contributed last quarter around the same range to the the red paint number for the corner.
Okay great.
And then I guess Mitch in terms of a bigger picture question here you know as you think about the Atlanta Center side of the business for at least have.
How how does the new world that were and how does it change strategically you know how'd you like to position. These businesses you think about.
Yeah, the strategy and somebody and that's what you're going to be making over the next couple of years.
<unk>, yeah, so much more of the business.
It is going towards the web Cam.
<unk>.
And and.
<unk> were as we said we're double in April what we're we're a year ago as far as a foreigners coming in on the on the web and we wouldn't expected to stay a double but we would expect it to stay high I would think more <unk>. This is this isn't going to be a one and done thing as far as more more people shopping online it it's going to continue.
Well, we're making investments in it you know one of the one of the.
The the maybe one of the most telling staffing give ya.
Yeah. It is when we say.
April was double.
About two thirds of the customers that come they come through our website and and <unk> and put their put an order in three campsite about two thirds of two thirds of them are new customers. The we haven't seen do business, let us before or at least on a very long time.
And that two thirds, new customers is holding as the web as the numbers doubled from last year. So not only is a website.
Business double the two thirds being brand new customers has held so the new customers. This double too and I think that's a real telling stat and we'll continue to to invest their in and I think yeah. That's that's partially because of our value propositions, partially 'cause or credit tightening up above us.
Flexibility. The fact that this is the least and not a sale all those kind of things and and so will continue to invest their we've added.
Additional payment options for the customer both bank then unbanned customers. So they can pay and multiple places. We've we've made it easier to sign up for auto pay we've added texting capabilities. Both on the sales and the collection side. So a lot of investment on the E. com side, and that's why we say well, we're going to come out of the stronger.
And and so from a strategic sample, whether you're talking about prefer at least or run. The center. <unk> is is probably the biggest change from a a method that wasn't part of the strategy, but it just got a lot more important and a lot a lot more of our investments going there and we're <unk>, we just couldn't be more thread.
Well the fact that it does double in in April one through the first few days of me and that the two thirds of new customers.
Has held so that it's not like our customers, you're just sitting home using our website to do business with us instead of coming to the store because a stay at home owners the new customer.
Portion of it has doubled as well and I think that's that's a lot about our brand and says a lot about or.
Or a value proposition.
Great. That's very helpful. Thank you much.
Thanks bread.
Thank you and your next question will come from a line of Dawn Rolling with Janet. Please go ahead with your question.
Chamberland. Please pressed are one again.
Maybe I'm your job.
Hey, <unk>.
Hi, It came here we're now.
Yeah, I, just I I <unk> morning, so.
As you look into two Q. and you know you've made the comments about having you know a big increase in in cash flow. What are your plans are you going to maintain a high level of liquidity and a lot of cash or would you look to actually reduce debt in two q.
Yeah. So we're evaluating that we initially dirty down at an additional 118 million when the pandemic first started because of the uncertainty and and just to make sure that we had access your cash flow and an adequate liquidity given that.
Increases in Kashmir that were affecting animal in the second quarter will be evaluating that we'll know a lot more about the state governments opening up their economies and what impact that's going to have on our business and and May feel comfortable at some point within the corridor seen up there too.
Reduce that day.
Okay, and then came remind me is there any online only business and merchants preferred mean that you don't actually you know that the merchandise to shop for on line and then or at least shown transactors created fully online or is <unk> or is it primarily the virtual at least.
Phone in store.
Well, it's a combination we we don't yet have any retailers is only new business online but.
You know and are generally speaking in prefer at least about 30% of the bid.
Okay <unk> starts on line would that retailer so.
It's about 30% of that business like I said, but it's not 100 per cent anywhere where they don't we're not doing business with anybody yet that doesn't you know doesn't have any stores.
Okay. Thank you.
Thank you.
Question will come from a line of cow.
Right.
Hey, good morning, guys. Thanks for taking my question is in apology that popped on like if I do at something that that was stated earlier.
It's just wanted to get that then you know you guys have given us a lot of color on on.
Right.
I've hardly but.
Want want to cover.
Detailed demand for.
Kill him rent sounds product couldn't have you seen in an increase in in down calls from retailers.
Oh right down to their their product please.
Yeah, we <unk>, it's it's pretty active there you know as as.
You know retail goes through the the the.
<unk>.
I don't know, which one to call it such a huge change so fast and accelerated change. If you will we think there's gonna be great opportunity forced to add account large accounts and small accounts for that matter.
I think is going to be huge opportunity if they look for ways to replace tightening credit.
Yeah, primarily and and so we think it's going to be a better environment coming out of here for the preferred least business than than even before.
Got it and then it'd be helpful get you get a sense for for your thoughts on the on the health of the underlying humor.
You know obviously, we've had planted claims go up a lot so at least that emulate.
In federal unemployment to offset that yeah.
See that's scheduled to and at some point, but can you just block as to where your customers right now and in general and where you see that heading over the next month's in quarters.
Yeah, I think the customers in pretty good shape right now.
Stimulus they've got more disposable income, we're seeing demand that really strong levels.
You know as I've said, a couple of times. This morning cow that our customers under pressure all the time so.
You know what we what we've seen in past recessions is you know more customers get pushed you know come into the top of our phone or less credit Titans and and to the extent, there's any that we lose out of the other side of the final that that that we can't keep on rented struggled to hard.
Yeah, we've seen in the past is you know more customers get pushed into our transaction then get pushed out of the transaction during during a recession and and.
And when you think about R.R.E. com business being double what it was a year ago and our new customers coming as part of that number also doubling you know I'd say, there's a lot of customers getting getting pushed pushed into this transaction and and.
Yes.
Kind of under the belief, it's gonna be like past recessions, where we do pretty dumb Don won't.
Right.
Got it.
And then you know given that this environment will sit to eat calmer.
That's for house how sales.
The mixed 50 shifted in in impact on March Yeah, you're the margin that the better center businesses are much better than I had model for it.
Year over year, So you get 10 for your outlook there.
Yeah, and the the margins probably.
They they are they are pretty good and around San business, probably just because it changes we made a value probably not necessarily because of shifting product mix certainly wouldn't have started.
No there was a murder push on the central products, you know laptops were were hot appliances.
You know refrigerators, and freezers and and the like.
<unk>, even game councils as as people home more I guess trying to give the kids something something to do or maybe it's more adults. These days I don't know I'm not I'm not a gamer <unk> awful lot of game Council.
But as we you know like six weeks into it now the mix is getting pretty even hail. The furniture is starting to move again and moving moving well in it with with with good demand and T.V.'s are are going again, and I think right now it's spread out over the over the all of our products as the.
As people stay at home more it's not just the things they had to have real quick like on a laptop to work from home or for the kids, yeah, because their <unk> their home schooling, and so forth, it's pretty well spread out through all of our product categories now.
And the next E. commerce sales as a percentage of rather nail was 16.5% in the corridor, which was that from 14.7%.
In the fourth quarter of 19, so we can either see that increase and then of course with some of the clothes chat rooms.
Some of the shifting customer behavior to shop online, we find even more dramatic increase this path corner.
Got it that's really helpful. One last one for me I like your your outlook for the second quarter is.
Very impressive in this environment I see yeah, <unk> ramps coming down to a certain extent, but in terms of modeling.
Line item.
Tentatively.
Expect to be the bake off that's there.
Yeah, a lot of the the savings on the operating expense side come from the temporarily for allowing and store employees wherever there's cases of clothes show runs or with preferred leads the retail partner is close we've temporarily for.
At at our employees.
There's also decreases that we're seeing and real estate com leave renegotiated leases with.
Pretty significant number of our landlord.
Taking either rent the furrows or even rent reduction.
And then there's we did it evaluate any nonessential times.
And said to try to counteract some of that negative impacts that we're seeing.
From the top line, we will see a modest increases gets stolen losses in the second quarter. However, we're doing everything we can to try to to offset those losses by being smarter about our costs and and reducing costs were weekend.
But that in the biggest line to summarize what you just said Murray I wouldn't be the labor line right. You know if here the the reason that the revenues download to 10% and even.
Is down less than 10 per cent as well or will be down.
10% is we forecasted today labor is the biggest line you would you would be adjusting in a model right right. There's others that are more variable expenses like for example, you know we're doing.
Less deliveries less kick and so there is a.
Delivery time, well go ahead and <unk> lean so that helps drive it and then another variable type does expenses will be lower in that corner yeah.
<unk> you know we've we've for a lot of years people thought of us and we even said yeah. We we had a real more of a fixed costs model.
And we really over the last couple of years in in having to turn around the company a few years ago. Yeah, We really turned out labor model into something we could call a variable model now and we don't have any of the the.
Minimum so like you got to have a minimum of the summer people and so I got a minimum of this number trucks and it's very it's very much variable now and.
As as some share rooms or coast or if the mantle saw before the stimulus checks came out.
Then we yeah, we were able to reduce the labor so delivers a variable line force now as compared to what it has been in the past.
Really appreciate that very helpful. Next morning, Thanks, so much and echo others on and got some great quarter. Despite though.
Laptop operating environment.
<unk>.
Your next question will come from a line.
Okay.
Please go ahead.
Hey, Thanks, guys. Good morning appreciate the the gotten she gave for the second quarter and that it's it's very strong guidance appreciate that could you, possibly helped break it out by segment level. So how you're thinking about the the rent a center stores versus prefer at least.
Or revenues in earnings.
Yeah. So we didn't expect to see it at pipeline intact, that's fairly similar between the two segments.
But from an operating expense standpoint, as we just walked through there's a number has more items that we can address on the redness that are assigned to to help blah that somebody intact.
The prefer at least side, where we've seen more of the closures and nor that intact without not many opportunities to address the expense side, we have let that reducing the labor lines within the prefer these segment as well and has done.
A temporary for allowing of employees. We've also shifted some of the collections activities.
Two or centralized call centre to try to improve the efficiency and.
And it helped improve the the margin, but we will see more of the.
Pressure on this gets stolen losses in different friends needs segment.
Then they're ready to send our business, where we're able to you know pick up the product we have more of a relationship with the customer and she had to see.
Very modest intact on skits dollar losses within the rent is that our business.
That's a very helpful detail. Thank you and I guess on that when I think about skip stolen some bad debt and also how do you think about maybe depreciation up the items.
Any thoughts or incremental save reserves that you'd have to take their and.
I guess, maybe one related question, but this the dust and you Cecil accounting methodology affect your accounting at all.
This this cecil impact was only experience in our installment sales get it now home choice business. It was less than a million dollars and did not affect our rented a center or prefers me businesses.
And then the skits on losses that we talked about in the first quarter and we did look at the reserves and intake some adjustments were needed, but not a significant adjustment made it for cobin 19, well see reserve adjustments likely in the second quarter.
[noise] to address potential pressure ends gets dollar losses.
But anything anything we think we might need to take them to second quarter is built into the fact that we still thinky, but I'll be with them.
Yeah right per cent of of last year in totally P.S. When you factor in the interest savings it'll be pretty flat with last year. So it's not going to be that can be a huge number. There's other there's other offsets you know we're <unk>.
Everybody is it's this is still a lease another sale I mean, when when things get type people can just return it and we can run reruns if somebody else in and we work other customers to keep them on rent, but this isn't.
You know a a sub prime loan where if they don't have the money, there's nothing much to do but graded right off the the balance so so much more flexible business model and leads down and we just.
We've seen that you can go back and look at 2008, and nine losses and that just they're just not there right and if they are right off their inventory right down there not.
No cash impacting item.
And then one other thing to point out.
We have seen some pressure on collections, but that's already reflected in our revenue numbers since we don't.
Record the revenue until we collect payments from our customers. So that's already impacting our business and.
Is reflected in our color about the second quarter with.
Revenue and even being down 10% or less those are reflected with the lower collections are estimates for what this gets stolen losses and reserves will look like and we still believe that we can perform.
With.
With pretty decent margins given this environment.
I think Vince and all that that all of that reflects on the operations payment. Both ran the center in it for for at least at at what a great job they're doing.
Not just management, but even more more specifically to our frontline store coworkers of of what a great job they're doing during these trying times to help the customer get new products as well as help keep people on rent. We got we got additional ways for customers to pay than we had just six weeks ago.
Yeah as far as far as payments on line and so forth. So there's been really great team effort on making it easier for the customer to pay in in a in a great effort by our store employees.
Yeah, It definitely shows and your results appreciate that.
<unk> <unk> <unk> question, so the the topic of the tightening.
Editors or or I should say lenders, who are more on the the prime on your prime space.
In the last recession, you took a lot of Sharon and grew a ton of profitable business from people, who are typically a shopping at your stores that because tightening, but I came down.
<unk>.
Just curious what you're seeing today in terms of who's coming into the stores physically and virtually three e. com business or they are they <unk>. The same type of customers are you interact with or you actually seen different customers it'd be hired to your customers and then for those customers that you might not normally be seen by ever seen now are there any specific types of.
Products are buying already like Differentiators there.
Yeah. Good question, what what we know is is is a <unk> customer we're seeing has a higher and when we put him through our decision engine is a higher.
<unk> comes out with a higher quality score than than before this would be to us means.
The the lenders above us <unk>, pushing more down because we're getting a better credit coming into our transaction.
As far as the and then and then on the on the website. The fact that our new customer traffic is doubled it was a year ago. It tells us so there's a lot new customers coming in their higher quality customer and I mean higher quality from from a credit decisioning [laughter] not necessarily the person I don't want to catch the newest version to there.
But just that from a credit quality standpoint, or higher quality customer and and they and the fact that it's doubled and from a product mix standpoint.
<unk>, yeah doubled as far as the kind of traffic.
With new customers as far as the product makes no we're not seeing.
<unk> any any shift there again early on it was more towards things you'd consider a little more central but now it's spread out I mean furniture televisions and things you'd consider more centrally stays like laptops in appliances, refrigerators, and so forth but.
That early on it was more just say central products and now it's a pretty even spreadable, we normally see.
[noise] or.
Okay.
<unk>.
There are no other questions at this time, all trying to call back over to match.
For final.
But they got operator.
As I was just mention I'd like take one more opportunity to think are sort of coworkers who've done such a great job safely taking care of themselves and our customers all will dealing with an increase in demand for for our products and services and.
I'll tell Ya frontline store coworkers deserve a tremendous amount of credit and I want to point that out again and I want I want all of you to know how much. We appreciate you out there in the stores those though visiting some stores the other day and and just can't be more thankful of of the effort. We're getting out of our store co workers, who are doing a great job and I.
Wanting to take it one more opportunity to say, thank you and they get everyone else, who joined US on this call and for your continued support so bone ever really good day every one in Stacey.
Thank you. Thank you everyone again.
These calls.
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