Rent-A-Center eliminates 25% of corporate staff in cost-cutting measure

Korri Kezar
Rent-A-Center signage is seen on a truck parked outside its store in Niles, Illinois.
Getty Images

Shares of Rent-A-Center Inc. rallied 10 percent on Thursday as the Plano company announced cost savings from extensive layoffs among its corporate staff.

Rent-A-Center said Wednesday that it will reduce its corporate headcount by 250 positions, or 25 percent. Including general and administrative expenses, the layoffs are expected to produce roughly $28 million in annual run-rate cost savings, with about $20 million saved in 2018.

The retailer has unveiled a strategic plan to create $65 million to $85 million in annual cost savings.

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Severance charges and other one-time costs related to the workforce reductions are expected to total around $3 million during the first quarter.

The company's corporate cuts come after it eliminated its chief operating officer position last month, an effort to bring direct control of all operations under CEO Mitch Fadel, who was named to the role in January.

"Rent-A-Center is implementing initiatives to reduce costs and improve performance. While major reductions in work force are difficult, we are confident that Rent-A-Center will be better positioned for long-term growth and profitability," Fadel said in a prepared statement. "Additionally, we remain focused on delivering a more targeted value proposition and look forward to building on our momentum from our January and February performance."

In conjunction with the workforce announcement, Rent-A-Center reiterated that its board is continuing to look at "strategic alternatives to maximize stockholder value, including evaluating a sale of the company."

Rent-A-Center has received bids to acquire the company and is engaged with potential buyers. It expects to decide whether to pursue a sale during the second quarter.

RCII shares rocketed upward in November on news that Vintage Capital Management LLC, an Orlando private equity firm specializing in the defense, manufacturing and consumer sectors, made a $693 million bid to buy the rent-to-own company.

Vintage also owns Buddy's Home Furnishings, another rent-to-own concept for furniture, and its past investments include RAC competitor Aaron's (NYSE: AAN).

At the time, Rent-A-Center said it was reviewing the "conditional, non-binding proposal."

"There can be no assurance that the board's exploration of strategic and financial alternatives will result in any particular action or any transaction being pursued, entered into or consummated, or the timing of any action or transaction," the company said in a prepared statement.

Some of Rent-A-Center's larger stakeholders have applauded its efforts to explore strategic alternatives. Engaged Capital, which owns roughly 16.9 percent of Rent-A-Center's stock, wrote in a letter last year:

"Engaged Capital commends the company's board of directors on initiating a long overdue strategic alternatives review process to unlock value for all stockholders. Engaged Capital believes that Rent-A-Center remains an attractive acquisition opportunity. We believe the company's strong cash flow generation, liquidity and leadership position in the attractive rent-to-own industry combine to underpin potential transaction price ranges that would allow both stockholders and a potential acquirer to realize significant value."

Rent-A-Center's stock closed at $7.65 per share on Wednesday, but was trading up nearly 10 percent as of 4:30 p.m. As of the closing price, the stock is trading down nearly 15 percent over the past 12 months.