Q2 2022 Rent-A-Center Inc Earnings Call
Yeah.
Good day and thank you for standing by welcome to rent a center's second quarter 2022 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
I ask a question during this session. Please press star one one on your telephone.
Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Mr. Brendan Medtronic Vice President of Investor Relations. Please go ahead.
Good morning, and thank you all for joining us to discuss rent a center's results for the second quarter of 2022.
Issued our earnings release after market closed yesterday.
Elyse and all related materials, including you'd make to the live webcast are available on our website at Investor Center Dot com.
On the call today from rent a center, we have Michelle our CEO .
In short our CFO .
A reminder, some of the statements provided on this call are forward looking statements, which are subject to factors that could cause actual results to differ materially from our expectations. These.
These factors are described in our earnings release as well as in the company's SEC filings.
Rent a center undertakes no obligation to publicly update or revise any forward looking statements, except as required by law.
This call will also include references to non-GAAP financial measures. Please refer to our second quarter earnings release, which can be found on our website for a description of the non-GAAP financial measures and the reconciliations to the most comparable GAAP financial measures with that I'll turn the call over to Mitch.
Thank you Brendan and good morning, everyone and thank you for joining the call today to review our second quarter results.
On today's call I'll begin with an overview of second quarter performance, followed by our plans for the remainder of the year and some perspective on the external environment and then marine will provide a more detailed review of our financial results and of course, we will finish up with Q&A.
Well second quarter trends are down compared to the stimulus enhanced 2021 results. We are encouraged by the performance of the business in the second quarter, given the very different and more challenging macro environment. We are experiencing this year.
Second quarter financial results were strong relative to the quarterly guidance. We provided in early may with revenues at the high end of the range and adjusted EBITDA and EPS above the high end of the respective ranges.
We also delivered on business objectives over the first half of the year.
Optimizing our siem is underwriting maintaining year over year portfolio growth for the rent a center business segment and managing costs to help offset the profitability headwinds from the challenging environment.
While we executed well in the areas of the business that we could control external factors like inflation and economic growth and discretionary income worsened during the first half of the year as the second quarter progressed, we began to see indications that macro weakness was costing lease volumes and payment behavior to trend below our assumptions for the second half of the year.
These trends have continued and it became clear that if the current weak environment continue for the rest of the year, we would not achieve the full year 2022 financial targets introduced back in February .
As a result, we have lowered our full year 2022 financial targets and now expect full year non-GAAP earnings per share of $4 to $4 50.
With 10 cents of that change related to the increase in variable interest rates on our outstanding debt above and beyond what was built into our original targets.
The full set of updated 2022 targets is included in our press release Marino talk through them in more detail as you can see we.
We still expect the progress we've made on our 2022 initiatives will result in a sequential step up in profits for the second half of the year.
Moreover, we believe our business is well positioned to generate value for shareholders. During these evolving economic environments as well as long term growth in the business.
Moving on to financial highlights consolidated revenues of $1 1 billion decreased 10, 3% year over year with the Sema down 16, 5% in the rent a center business segment down three 1%.
The primary factors that drove that decrease in revenue, we're cycling over strong growth for both businesses in the prior year period that had benefited from the effects of pandemic stimulus programs.
Lower lease volume in the current year for Sema due to tighter underwriting and the effects of lower discretionary income for consumers in the current year.
Consolidated adjusted EBITDA of 129 million was above the high end of our guidance range with a margin of 12% up sequentially in a bit stronger than expected due to the favorable delinquency transfer of Sema vintages originated in late 2021 in early 2022.
non-GAAP diluted earnings per share for the quarter were $1 15 above the high end of the guidance range. We continue to generate solid cash flow with $256 million of free cash flow year to date, highlighting the resiliency of our business.
Moving on to segment performance. It was a productive quarter for <unk> financial results were better than the assumptions behind our second quarter guidance.
Our top of seem a business priority for the second quarter and first half of the year was to optimize underwriting for the current environment in order to generate returns that were consistent with our double digit to low teens segment margin targets.
After substantial progress in the first quarter evidenced by a reduction of around 30% in first payment Mr rates from the peak levels of December and January we essentially maintained FTM rates near pre pandemic levels during the second quarter.
As a reminder, we believe STM rates are the best early indicator for delinquencies and loss rates speaking on loss rates. We also had favorable trends for loss for each with 11, 6% in the second quarter down from 12, 6% in the first quarter.
The improved underwriting should be even more visible in the second half of the year with loss rates expected to drop into the eight to nine 5% range and adjusted EBITDA margins expect to increase to the 11% to 13% range.
<unk> was down 24% in the quarter, which was at the lower end of our assumption range. However, two year stacked growth was 19% positive 19% when you factor in the 43% GNP growth in the second quarter of last year. So a good two year comp number for sure drilling down into <unk> drivers.
Active merchant locations were up approximately 15% year over year.
Applications approval rates and conversion rates were lower compared to last year.
When you add that all together, we think the takeaway here is that over the two year period favorable long term underlying fundamentals.
Seeing the continued merchant growth I, just mentioned more than offset near term volume headwinds from a combination of challenging prior year comps pressure on discretionary income and tighter underwriting.
The rent a center business segment continued to show impressive stability in the second quarter largely sustaining levels of business that we generated in 2021 during the peak period of government stimulus benefits.
Revenues were $490 million in the quarter with same store sales down three 3% in the current year and up 13, 3% and a two year stack basis.
Rental revenues were down less than 1% year over year benefiting from our strong lease portfolio finished the quarter up nearly 1% sequentially and up 2% compared to last year.
To put this performance in perspective, According to census Bureau data the three largest product categories, we offer furniture appliances, and consumer electronics experienced retail sales year over year decreases of one 3% and 4% respectively for the three months ending in May.
So our numbers certainly out the dose and although it is not clear in our data yet we think part of the outperformance is customers trading down into lease stone, which we have historically benefited from during challenging economic periods.
Ecommerce continues to benefit top line performance with web orders up 38% year over year and accounting for about 23% of revenue in the quarter.
Commercial execution was strong again this quarter at rent a center the team hosted a number of successful events that drove lease volumes opened six new stores, including new concept stores, featuring a smaller footprint and design intended to enhance the customer experience.
We also advanced our extended aisle service, adding excess to additional products and contributing to the ecommerce growth.
Customer payment behavior started showing signs of pressure from the high rates of inflation and pressure on discretionary income and payment collection rates worsen during the second quarter negatively impacting rental revenues.
Some losses ticked up to four 2% as a percentage of revenue, which is above our long term target of three 5% to 4%. So we are implementing measures designed to improve that activity, including changes in the underwriting at rent a center as well as well as some changes in account management processes.
So looking forward to the second half of the year objectives will build off the plan we've been executing against this year for Sema. This evolves to more of an emphasis on optimizing GMB within acceptable levels of risk and executing on the changes we have made within our sales function to continue to drive active and new merchant growth.
We're also continuing to build out the enterprise sales function and I am happy to announce we recently brought on a new senior Vice President of Enterprise business development and partnerships, Mike <unk>, who starts later this month and Mike spent over eight years and a similar executive role with synchrony.
And we believe they will make an impact by accelerating the partnership initiatives that are within our pipeline.
For the rest of our business some of the key areas of focus are further developing our extended aisle services, improving our retention engine to optimize returns and enhancing our digital customer experience through more personalized offers just to name a few.
We also remain committed to our cost management efforts in all segments of the business.
Overall looking at the back half of the year and into 2023, we believe the company is poised for commercial and financial performance that should highlight the appealing attributes of our business across economic cycles.
<unk> is a relatively large and underpenetrated market offering flexible and valuable solutions for more than 40 million U S households limited access to credit and also may be experiencing financial pressure from inflation and slowing economic growth.
As the only <unk> solution provider with both traditional and third party host retailer <unk> channels. We believe we are well positioned for growth opportunities as.
As consumers turn to <unk>.
Historically <unk> has demonstrated countercyclical attributes maintaining better topline in loss rate trends during economic downturns due to the essential nature of the products release the.
The momentum of our portfolio of business and the stabilizing effect of non traditional LCL consumers trading down in <unk>.
This was illustrated during the global financial crisis from approximately the first quarter of 2008 through the second quarter of 2009, when our quarterly same store sales growth outperformed year over year growth in consumer durable expenditures by an average of 900 basis points.
The inflection of this trade down appears to be on credit conditions deteriorate or tightened.
External and internal data, we monitor indicates the trends seem to be moving in that direction and we'll continue to monitor the data and as I mentioned earlier anecdotally, we saw signs in the strength of the rent a center business portfolio in the second quarter.
Importantly, we think we are well prepared to take advantage of market opportunities.
With a CMO underwriting challenges we experienced late last year, we had already started optimizing underwriting for a challenging macro environment early in the first quarter of 2022.
Today, our virtual lease to own underwriting is performing in line with expectations as we balance our objectives of generating appropriate levels of <unk> and attractive segment profits.
In closing second quarter results, mostly outperformed our guidance. So we met key objectives for the first half of the year.
We believe we have the right plan in place to navigate a challenging environment and we remain optimistic about the longer term growth opportunities, we see in our business and I want to thank the entire team for their continued dedication and their strong efforts throughout the quarter.
And with that I'll turn the call over to Maureen.
Thank you Max second quarter revenues of 1.07 billion decreased 10, 3% year over year due to cycling over strong results from the prior year period that included a significant benefit from stimulus program.
Slower lease volume in the current year for Athena data tighter underwriting and the effects of lower discretionary income for consumers in the current year.
Compared to 2019 pro forma revenue, which is the more normal baseline second quarter 2022 revenues were up approximately mid teens.
The year over year decrease was evenly split between merchandize sales and rental and fee revenue.
Merchandise sales revenues were down 27% with fewer customers electing early payout options compared to the prior year. When many customers had built have savings and have additional income from stimulus program.
With the wind down of stimulus in the second half of 2021 and the current high rates of inflation savings in discretionary income are now likely below pre pandemic levels for many of our customers.
Rental revenues decreased six 4% year over year.
Also up approximately mid teens compared to pro forma 2019 net rental revenue.
Most of the year over year decrease in rental revenues was driven by the athene that business with the rent a center business segment down less than 1%.
Consolidated adjusted EBITDA of $128 9 million was down 31, 1% year over year in the second quarter that.
That was above the quarterly guidance range.
The primary contributors to the decrease were lower revenues higher provision for delinquencies firsthand that higher loss rates and higher operating costs, notably labor and fuel.
These were partially offset by cost control measures and lower performance based compensation.
Sequentially second quarter, adjusted EBITDA was up 29, 5% compared to the first quarter driven by a 515 basis point improvement in Athima margin.
That benefited from a reduction in the provision for delinquencies lower loss rates.
And better than expected performance on lease vintages from late 2021 in early 2022.
Adjusted EBITDA margin was 12% for the second quarter compared to eight 6% in the first quarter of 2022 and 15, 7% in the prior year period. The same factors such as changes in EBITDA cause changes in margins.
Regarding his famous performance, we believe the 24, 2% decline in Dnb during the second quarter with generally driven by a confluence of unique factors impacting the business this year rather than underlying fundamental trends.
The combination of Comping over last year's 43% Gms growth in the second quarter due to stimulus program.
And current year inflation has caused significant volatility in year over year trends across consumer businesses.
On top of that we made underwriting adjustments during the first half of the year that resulted in lower approval and conversion rates.
We think a better indication of underlying fundamental is that despite all of the macro volatility we continue to grow our active merchant count as Mitch mentioned, we are up 15% year over year.
<unk> segment revenues decreased 16, 5% year over year.
Rental revenues were down 12, 6%, primarily due to lower DMV and the first half of the year and a higher provision on delinquencies compared to the prior year.
First of all <unk> sales revenue decreased 27, 1% due to fewer customers electing to use early payout with pressure on discretionary income and savings.
Skip stolen losses in the seamless segment increased approximately 290 basis points year over year to 11, 6%, but decreased 100 basis points sequentially and continue to normalize from the elevated rate that followed the wind down of stimulus programs in 2021.
We remain confident in our underwriting capabilities and expect the changes we implemented over the past few months will continue to drive loss rates down in the back half of the year as older Riskier vintages drop out of the portfolio.
Adjusted EBITDA margin decreased 370 basis points year over year to 10%. The key factors that drove the margin contraction were higher loss rates on lease vintages originated in late 2021, when underwriting lagged behind the rapid changes in consumer payment behavior as.
As well as generally higher delinquency rates this year compared to 2021.
Moving on to the rent a center business segment revenue decreased three 1% in the second quarter compared to the prior year period with same store sales down three 3%.
The decrease in revenue was primarily driven by a decrease in merchandise sales.
Wilting from fewer customers electing early payout options.
Even though the lease portfolio balance ended the quarter up 2% revenue and fee revenue decreased from the prior year period, primarily due to a decrease in the percentage of lease payments collected.
Skip stolen losses increased to 190 basis points year over year to four 2%, which is above our target range due to an increase in our loss provision.
Adjusted EBITDA margin was 21, 2% and decreased 470 basis points year over year.
<unk> contraction was due to higher loss rates compared to the prior year period, which benefited from stimulus programs.
240 basis point decline from increased labor expense.
And then 100 basis point decline from higher delivery costs.
These factors were partially offset by favorable gross margin mix stemming from lower merchandise sales.
Below the line net interest expense was $19 million compared to $20 4 million in the prior year, reflecting.
Reflecting the improvement in payment terms on our term loan b, partially offset by a higher debt balance.
The effective tax rate on a non-GAAP basis was 26% compared to 25, 2% in the prior year period.
The diluted average share count was $59 7 million in the quarter compared to 67 eight in the prior year period.
GAAP diluted earnings per share was <unk> 33 in the current quarter compared to a diluted earnings per share of <unk> 90 in the prior year period.
After adjusting for special items that we believe do not reflect the underlying performance of our business non-GAAP diluted EPS was $1 15 in the second quarter of 2022 compared to $1 63 in the prior year period.
Year to date, we've generated $287 1 million of cash flow from operations.
$256 2 million of free cash flow.
During the second quarter, we returned $18 4 million to shareholders through a <unk> 34 per share quarterly dividend.
At quarter end, the company had approximately $360 million remaining on its current share repurchase authorization.
In addition, we had a cash balance of $112 $2 million gross debt of $1 4 billion after paying down $30 million of the revolver net leverage of two four times and available liquidity of $500 million.
Shifting to the financial outlook I will add some additional details to the revised 2022 financial targets that Mitch touched on and provide an outlook for the third quarter.
Note that references to growth or decreases generally refer to year over year changes unless otherwise stated.
Our financial targets assume the current external environment persist for the rest of the year. So we're not making a call on the macro environment getting better or worse.
Starting with our full year financial outlook, we now expect consolidated revenue of $4 265 to $4 38 5 billion adjust.
Adjusted EBITDA of $480 million to $525 million.
Excluding stock based compensation of approximately $20 million and.
And non-GAAP diluted EPS of $4 to $4 50.
And free cash flow was $390 million to $440 million.
While we believe there are substantial opportunities to drive incremental revenue and profit over the long term.
We're also cognizant of the near term volatility and pressure on profits. So we will continue to focus on aligning our cost structure with the business environment, while ensuring we continue to enhance our capabilities.
For <unk>, we expect continued pressure on consumer discretionary income coupled with the lapping of extraordinary growth during the stimulus driven 2021 period.
Our results in lower sales volume for merchant partners for the second half of the year and translated to a low 20% decline in <unk> for the full year.
We expect revenues to be down mid teens.
And adjusted EBIT margin to be in the low double digit range.
This is Sam loss rates improved to a range of 8% to nine 5% for the second half of the year as more recent lease vintages originated with lower risk profiles comprised more of the lease portfolio for the second half of the year.
For the rent a center business segment, we expect revenues and same store sales to be down low single digits for the full year, reflecting a flat or slightly positive portfolio value at year end offset by lower merchandise sales and lower revenue collection rates.
<unk> EBITDA margin is expected to be in the low 20% range in line with our long term targets and assumed loss rates of approximately 4%.
For Mexico, and franchising businesses, we expect full year revenue growth and margins will be similar to the first half of 2022.
Corporate costs are expected to be up mid single digits for the year.
Below the line, we expect interest expense will be $8 million to $10 million higher than the second half of the year compared to the first half of 2022.
The tax rate should be approximately 26% for the second half of the year.
For the third quarter, we expect consolidated revenues of 1 billion to 1.055 billion.
Adjusted EBITDA of $125 million to $142 million, excluding stock based compensation of approximately $5 million and non-GAAP diluted EPS of $1 <unk> to $1.25.
The famous third quarter DMV is expected to be down in the low 20% range, which reflects the continuation of current macroeconomic trends.
And sales volume trends for merchant partners.
Trends should improve sequentially in the fourth quarter, two a decrease of 10% to 15%.
Third quarter revenues should be down high teens as a result of the 23% performance decrease in GNC for the first half of 2022 and lower third quarter GNC.
Adjusted EBITDA margin is expected to be in the low teens range.
For the rent a center business segment, we expect Q3 revenues to be down mid single digits.
With an adjusted EBITDA margin of approximately 20%.
Regarding capital allocation dividend payments in making progress toward our one five times leverage target are the top priorities.
That said, we will continue to evaluate opportunistic share repurchases.
We also want to provide an update on the resolution of our previously disclosed, California Attorney General matter, which will be reflected in our second quarter 10-Q filings.
As a reminder, this is a 2018 matter with respect to our acceptance now host retailer business.
We reached a settlement in principle back in November of 2021 earlier. This week, we finalized the settlement, which includes a payment of $15 5 million and certain injunctive and compliance provisions.
The full $15 5 million was previously reserved at year end 2021, we did not admit any wrongdoing and disagree with the AG statutory interpretations regarding the cash price that entered into the agreement to avoid the expense risks and distractions associated with potential of protracted litigation.
Thank you for your time this morning, I'll now turn the call over for your questions.
Thank you.
And as a reminder to ask a question. Please press star one one please standby.
While the Q&A roster.
And we'll take our first question from Jason Haas from Bank of America. Your line is now open.
Hey, good morning, and thanks for taking my questions.
Good morning, So first is on.
Good morning first of all.
I know, you're not providing any guidance yet for 2023, but conceptually if the economic environment remains the same should we start to see growth in revenue and EBITDA just from a continued reduction in loss rates.
Year over year from an EBITDA perspective, yes, we should expect to see benefits next year because of.
The higher quality portfolio in the front half of this year as we've talked about.
There is a drag from lower performing leases that were.
Written into the portfolio before we tightened up in late 'twenty one in early 'twenty two so.
Definitely there should be a profit step up next year, given the loss rates.
Great. Thank you and then as a follow up.
I wanted to.
Focus on the rent a center business EBIT margin.
So thats been up.
I think it's almost doubled over the past few years and I know it's.
That acceleration started before.
Before the pandemic, but just as we're in a tougher economic environment I know you reiterated the long term target for 20% ish.
Margins there I think there's some concern that just in this environment, we could see it revert back to historical levels. So can you just explain what gives you confidence that you'll be able to maintain those margin levels.
Sure Jason This is Mitch.
The biggest reason is the difference in the portfolio size the way its growing really over the last four years.
Including the pandemic and in fact, as we mentioned the portfolio actually ended the second quarter sequentially up.
By about 1% about 2% year over year. So the portfolio of holding up is what drives those those margins based on that.
It pretty much a fixed cost business, we have some labor fluctuation wages are up a little bit actually ours are down a little bit because of technology and the auto pay and things like that so that offset some of the labor rate pressure, but it's really the size of the portfolio continues to perform well.
<unk> have to keep growing to maintain those margins.
And we don't see it dropping with.
Especially in this in this environment as people trade down.
We think.
The rent a center business in the second quarter really so far this year is outperforming retail already seen a little bit of effects of trade down there like I mentioned in my prepared comments. We believe we are at least.
And there is some slight indication of that in the in the.
<unk>.
Yes.
The.
Clarity scores, if you will to come into our decision engine. So we're seeing at least the start of some trade down on the rent a center side and but regardless support.
The short answer to your question is it's a portfolio that has grown very well over the last three or four years almost five years now.
That drives the higher margin just with the revenue because the costs don't go up much remember, we're starting with a wider gross profit in the 70% range. So when you get topline consistent topline and against the portfolio. So it doesn't fluctuate a whole lot when you get that portfolio up youre going to get some good EBITDA margins when the gross profit.
Is 70% and Jason just to add to your question I think you asked about just general trends for 2023.
And I addressed the the losses expectations for next year. There is some pressure on 'twenty three revenue given the lower <unk> that we're seeing this year in the FEMA business.
And lower collections is as we speak.
Stated in our lowering of expectations for this year. So there's still a lot of factors at play for 2023, and we wont give consolidated guidance for the for profits or revenue until really the beginning of next year, but from a loss rate perspective.
Should see more normalization as we've worked through lower performing leases through the portfolio.
Got it that's helpful color. Thank you.
Thanks, Jason.
Thank you.
And we'll take our next question from Bobby Griffin from Raymond James Your line is open.
Good morning, Bonnie Thank you for taking my questions.
Yes, Mr. William first in Washington.
Good morning, I wanted to first just kind of high level, but it really appears that the store business is holding up a lot more resilient in this kind of economic environment and the virtual business and I understand the comparisons are different in some things, but the overall customers fairly similar between the two so just curious why you think that's the case why the core rent a center store.
Ours are holding up better.
Yes.
The legacy aspect of it that <unk> been around customers know them or just anything there to help us kind of understand where we can think about if things do improve.
Might happen with the virtual side of the business.
Sure Bob.
I'll start and then if more anything that you can I think the biggest difference in the two was.
Rent a center.
As a standalone business, whereas the retail partner businesses Sema.
Relies on the retail traffic and we get a certain percentage of that retail traffic right.
All of US do all of our competitors, what we get a percentage of that retail traffic. So on retail traffic is down.
You look at numbers that are down 15% same store sales kind of numbers and some of the larger retailers out there, 15%, 20%, but the traffic's down even more rate because it because they've got some ticket, especially in household durable goods. When you look at some of those those companies. So when traffic is down that much and you get a percent.
To do that traffic.
And as FEMA, let's say pick a retailer and say we get we ended up with 5%.
<unk> of their business or 3% of their business or something if their traffic's down 30% or 40%.
Even if you have some trade down and you go up to from 3% to 4% of that business Youre still going down overall rent a center, Conversely, where is that where does that 40% of the traffic that's down let's say the large box furniture store, 30% of the traffic where are they.
Certainly there was some pull forward, but where are they when they need something today. If they are not going into retail store and if you get just a few percentage of that traffic going into rent a center because there is so much more traffic.
In a retail store so do you think about.
A large box retail store, just one of the big furniture stores.
If you can get a couple of percent of what's not walking in there that's going to drive an awful lot of business to rent a center right because rent a center is so much smaller than all of that retail added together. So I think the short answer is you got.
You are not relying on retail traffic to drive your business and when retail traffic's way down some of it obviously, we believe is going over to rent a center.
And it only takes a little bit for rent a center.
To grow because theres, so much smaller than of that whole retail price. So you get a little bit of that going towards rent a center and youre going to have you're going to have some.
Sure.
Difference in performance now having said all of that.
<unk> business on a two year stack basis is up 19%. So we don't we don't see the.
Today's headwinds this fundamental issue is the business is still there as retail traffic.
As retail traffic fixed picks back up.
Alright, that's helpful and then I don't know if you.
I know visibility in each of the retail merchant partners is tough, but when you're looking or kind of get the commentary are you seeing retailers emphasize the virtual product more or are you seeing is there a way to see if youre mixing upward hypothetically you were 2% of the business and 93% of the business do you get that type of visibility, where you could see the product gaining more traction in that.
Tougher kind of economic environment.
I think it depends on the retailer some do and not all of them, but some do so were certainly see that.
From a pipeline standpoint, and I mentioned, bringing in top executive from synchrony to run our enterprise business.
As we continue to add to that team. We're real excited about him. Starting later this month, but when you think about.
When we when we look at our pipeline there is certainly more interest for the reasons you just spoke about.
In <unk> than it was during the pandemic just because.
People couldn't couldn't fill all the orders we had in the first place during the pandemic. So why worry about another payment stream. So theres more interest there as far as the ones we already have.
Yes.
On the retail some emphasizes a more but not but not all of them.
Okay, and then lastly for me Maureen I think you mentioned that you guys are forecasting a sequential improvement in the <unk> performance in <unk> versus <unk> and kind of the first half trends just curious the underlying fundamental drivers of that improvement in the fourth quarter.
Sure we tend to see increases in seasonality in the fourth quarter relative to the rest of the year. So we are basically using our ports.
Portfolio at the end of the second quarter and forecasting some improvement in seasonality that that in the.
In the third quarter, Bobby really I mean, the cash.
We start comping over much different numbers of 43%. We just we just had to comp over in the third quarter I don't remember it off the top of my head, but the comps go down.
19%.
The third quarter, and then fourth quarter, it was like 5% or something so you start comping over easier numbers as some of the simple math on that as well as what Marty was mentioning.
Okay I appreciate the details best of luck here in two weeks.
Great. Thanks, Bob.
Thank you.
And we'll take our next question from Kyle Joseph from Jefferies. Your line is now open.
Hey, good morning, Thanks for taking my questions.
And then on a CMO for a second.
Regarding the GMB contraction, obviously, there is theres a lot going on but can you give us maybe even a ballpark of how much you think of that contraction is underwriting changes versus more macro I'm just trying to get a sense for the lift you guys may get into first.
First quarter of 'twenty, three really as we lap those underwriting changes.
Yes, I think yes.
And then having to break down the exact number Kyle but certainly the retail traffic is a big part of it is not.
I would say that's.
If you split if you were going to try to split down the middle of the retail traffic versus the underwriting as lean a little more towards the retail traffic even in the underwriting.
You could just about splitting down the middle but again I think I think it's probably more the retail traffic than the Andre it's not like our underwriting is tighter by 20 points or anything like that.
So it's.
It's certainly as we lap the underwriting stuff and the comps get easier.
It gives us.
That flattish range, but certainly as the retail traffic the retail traffic needs to pick up for us to get back to what we talked about our long term goals of double digit growth at the sema.
Okay got it and then it sounds like Youre still able to add a lot of partners at <unk>.
<unk> can you give us a sense of kind of the channels in the verticals of the retail partners that you've been adding and then also talk about.
Conversation with retailers and whether theres improved demand for having the lease to own.
Products for retailers that do not have it yet given the challenging environment.
Yes, Youre right.
On the smaller business level small business level regional level that continues to be very strong as we mentioned, 15% year over year growth continue to sign a lot of good accounts there are some larger Goodyear accounts.
City furniture recently.
Down in Florida, we talked about PC Richards, a couple of quarters ago. So we continue to find some good accounts.
A ton of accounts you never heard of much smaller ones.
That's going well and as we see the pipeline increasing.
Increasing on the enterprise side as we see more interest in people trying to figure out now that the supply chain pressures have eased so much and people actually have more supply and a lot of cases that they are looking for other avenues and so the pipeline. The pipeline is strong there is more interest.
We're investing in the team adding to the team we already have by bringing in the executive I mentioned earlier so.
We're strong at the local regional level with our sales programs and getting stronger on the enterprise side and by adding some to the team once we have enterprise click and as well as we are a local sales going it's going to be even bigger growth.
Got it thanks, Thanks, a lot for answering my questions.
Thanks Kyle.
Yeah.
Thank you.
And we will take our next question from Brad Thomas from Keybanc Capital markets. Your line is open.
Hi, good morning, Thanks for taking my question.
Wanted to focus first on one of the bright spot here in the 10% to 15% growth.
Active door count and hoping you could add a little bit more color on.
Categories that you are seeing growth and perhaps also some perspective.
The size of these incremental doors there.
<unk> partners and doors it could be meaningful.
Smaller cell phone kiosks in malls.
Yes, it's a mix it's primarily the two biggest categories of our growth are in furniture and in wheel and tire.
I mentioned Goodyear a lot of Goodyear stores around our program now a lot continue.
Continues to be local furniture stores signing up.
As far as <unk>.
Meaning full I think it's it's not like one big National accounts that you would factor into the business, but everybody gives us a little more business every month so.
We're happy to be up year over year.
At a pretty good number 15%, but back to the category issue. It's again, primarily furniture will entire a little bit of jewelry addition, wood.
It would be that would be the third largest category already.
Thank you much.
And then.
Just a housekeeping item on that.
<unk> losses, I think you said in the second half of the year.
Hey, Matt to come in the 8% to 9% range.
Obviously Easter for <unk> that would set you up for lower.
Yes.
Awesome.
But curious how you're thinking about it in the third quarter or in the quarter.
Kind of getting through this taking the pipeline dynamic in the third quarter and a core kind of getting through this taking the python dynamic.
On the losses from your perspective.
Yes.
We did say Brad eight to nine 5% for the second half of the year, we are kind of working the lower performing leases three of the portfolio, we will see a step down in losses in the third quarter, and then fourth quarter similar rates may tick up a little bit in the.
Fourth quarter relative to the third.
Just given.
The tougher credit environment macro environment, but yes, eight to nine and a half.
For the back half of the year for the as seen in this segment.
A lot of that really is as we talked about working as lower performing leases through the system.
With the tighter underwriting the leases that we've underwritten since the tightening are much more in line with historical averages now that cost us some DMV.
But the quality of the portfolio is much better than it was late.
Late last year.
And Brad when we had the when we hit the underwriting.
Issues late last year.
We said it would take two quarters for us to use your term pig in the Python, We said would take two quarters and sure enough for sure enough, we're seeing that now youll see that.
I think one of your points as Gs 11, 6% to eight to nine and a half.
Is that really doable remember, we've been saying that it would be two quarters to get rid of those for those leases to play out. So it's consistent with what we've been seeing and in fact, we performed a little bit better than we had forecast and that was that was the majority of the beef actually in the second quarter.
Okay.
Really helpful.
If I could squeeze one last one I was hoping you could talk a little bit.
Ill.
Just leadership team and.
How do you kind of overall integration of the team is doing obviously Alan is taking over more recently our system.
Chemo when it was built upon them.
Just hoping you could talk a little bit more about how about team and leadership and strategies have evolved here.
Taking back open.
Yes, good question and one of the things we focused on is building that team right rather than just be relying on the founder who has got a window that.
As far as how long he's going to he is going to be with us. So we got a bill to the team.
Right and building around like our Chief operating officer, referring towards our Chief Development Officer, Tyler mantra on just bringing in Mike <unk>, who I just mentioned as well as brought in brought back a top technology person Ryan for us. So a lot of building. The team is really the focus not just not just to.
We focus on one person that we're certainly happy to have Aaron back and more involved.
Underwriting the underwriting improvements.
Improvements were talking about are all are all due to him coming back and he has got a great.
<unk> person and Stuart.
And the great team with steward and everybody else on it and that team. So it's more about as we think about who the key 10 people are out there and so forth. So we're much better shape and all of that from an integration standpoint to answer your question than we were three or six months ago.
Great. Thank you so much.
Thanks, Brett.
Thank you.
And we'll take our next question from John Rowan from Janney. Your line is open.
Good morning.
Good morning.
No Mitch you talked a lot about.
The last recession, and how it actually helps the rent a center business.
You didn't have the sema that Im wondering is the leading indicator here with the <unk> do you think kind of that trade down in credit that happens for the consumer.
You see that faster.
Participant in broader waterfalls that other retailers, meaning youll see the FICO bands change of people applying for credit through with Sema.
In this cycle relative to the last one.
I do I do believe that it'll happen on the <unk> side as well I think it's a little slower.
<unk>.
To see on the Athene side as we've talked about earlier with the way the rent a center business has held up better.
The retail traffic so far down so it's hard to see.
You can get a five point swing in trade down and it would be hard to see today based on.
The way retail traffic is in some of the especially in the furniture side of things, but as the pull forward.
Yes.
Wayne's lets say going into 2023 as you have that pull forward kind of being less of an issue.
In the furniture business, then Andrew Andrew have trade down I think that's where that's where things will start to get Youll start to see then the athima side, just like we're already seeing it on their own the center side. So yes, I do believe it's going to happen.
We think theres already some of it happening on the rent a center side, but like I said, we're going to overall I mean, the traffic in some of these retail stores that have to bounce back for the <unk> business to get back to positive GNP growth.
Okay, and then just maybe two housekeeping questions for Maureen what was the interest expense guidance that you provided can you repeat that.
What we said the interest expense is going to be about a 10 cent impact so higher by about 10 points in the back half of the year relative to the front half.
Yeah, it's about $8 million to $10 million higher so the interest expense, we expect to be.
Around $22 million in the third quarter and $25 million in the fourth quarter.
Okay and can you just remind me how much of your corporate overhead is allocated to Cmos.
There are some expenses allocated to the different business segments. If we can attribute them directly to the business. However, there is a good deal of corporate costs that are in.
The corporate segment.
So things like for example, the call center is in the seamless segment.
The sales team, but then some of the expenses are in the corporate segment, so any kind of overhead.
From a headquarters perspective is mainly in the corporate segment.
Okay alright, thank you.
Thanks, Ron.
Thank you and as a reminder to ask a question. Please press star one one.
And our next question will come from Carla Casella from Jpmorgan. Your line is open.
Hi, Good morning, this is Mike on for Carla.
One of the ones we wanted to ask.
<unk> for the rents in our core side.
But above your typical range I think it was.
Four 2% and you guys got some a little bit lower than that.
Can you say, how that trended month to month within the quarter and do you see that as kind of the peak.
Jeremy just to thank you again for the rent a center segment. It did come in at four 2%.
Seeing the last.
What a normal rate looks like is about 3.5% to 4% so just slightly over.
We don't typically look at the numbers on a monthly basis at the end of the quarter, we do a basically a reserve adjustment based on the portfolio.
And that reserve adjustment resulted in us growing slightly above the 4%, which is the high end of the range.
So because of the higher or the tougher collections that we've seen in the rent a center segment, we did expect it or it did end up being higher than we expected in the second quarter and we've factored those trends into our guidance.
Okay. Thank you.
And then another one was you guys alluded to it earlier, but it's still like the.
Foot traffic.
<unk> is a little bit different than kind of traffic you're seeing at your core rent a center stores.
You guys quantify the gap or how would you compare quantitatively or qualitatively or quantitatively or whatever you can provide.
Yes, I'd just say when you think about.
Rent a center, having 38% more.
E Commerce business.
A year ago.
We don't have any too many retail partners who to even up.
Traffic, let's let's call it.
Let alone up 38%, so I think the traffic and again the numbers are much much different much much smaller as far as the number of people nationwide that going into <unk> versus all furniture retail but.
So when you get.
Retail traffic get some trade down you get 2% trade down out of a huge retail number going into a small number like rent a center and it can make it can make a difference so I think the.
The traffic is much better there again on a percentage basis with the E com 30%.
Things like ground rental same store sales rental and fee same store sales being down 1% compared to all the other retail numbers you're looking at.
The rest of our business just like in 2008 2900, a tough economic environment is holding up holding up well you mentioned you asked about the losses, I mean $4 two versus four being the high end of our range.
As we don't like it.
We want it to be within a range.
But.
Catastrophic doesn't happen in that business and that such a resilient business.
The retail partner business.
We need we need the retail traffic to pick up we'll continue to add thankfully, we're continuing to add locations or would be down more if we ended at 15% location growth year over year. So we got to continue to add locations continue to work on national accounts.
You get that get that <unk> back to at least flat.
Great. Thank you.
Whilst one from US was on the $15 $5 million settlement did that come in line with your expectations and whether if there is any update or any other pending investigations or any matters like that.
Thank you.
Yes.
I'm sorry, the first party quick commerce.
In line with you.
Yeah.
And when we sell.
Last November from a dollar amount standpoint. It took this long to actually get the settlement agreed to all book.
The.
Details of the settlement agreed to so yes that was in line with our expectations.
We'll see.