Rent-A-Center Taps Speese as CEO; Activist Funds Slam Turnaround Plan

April 11, 2017  by Larry Thomas in Business Strategy, Executive Changes, Industry   

Speese, Rent-A-Center’s founder, chairman and former CEO, said he wants to build on the steps already taken to turn the company around.

“Since assuming the role of Interim CEO earlier this year, we have taken decisive actions to drive operational improvements for the benefit of all Rent-A-Center stakeholders, and remain committed to improving the lives of our customers with our unique value proposition,” he said.

Steven Pepper, lead independent director on the board, said he’s confident that Speese’s “bold vision” will improve the company’s fortunes.

“As a founder of Rent-A-Center, Mark brings a tremendous knowledge of the business and a strategic vision for the company. He has played an essential role in the creation of our new strategic plan as well as the numerous efforts we’ve undertaken to drive growth and profitability in the business,” said Pepper. “As we take the next steps with the execution of our initiatives, the entire board believes it is important for Mark to continue to lead the organization forward.”

The moves were almost immediately criticized by activist shareholder Engaged Capital, which owns 13.7% of Rent-A-Center’ stock and has nominated its own slate of directors for election at the company’s upcoming annual meeting. In addition, the investment fund Marcato Capital Management disclosed it owns a 4.9% stake in the company and said it would vote for the Engaged Capital’s nominees if Rent-A-Center continues to refuse to consider a sale.

In a letter to Rent-A-Center’s board, Marcato said a successful turnaround likely will take years, but can’t be done with a management team in transition.

“Despite the company's announcement of Mark Speese as CEO, our discussions with Mr. Speese have made clear to us that he does not intend or desire to be the CEO for the long term and that the search for a permanent CEO and CFO could take 12 to 18 months,” the letter said. “We encourage the board to be conservative with its expectations for the pace and magnitude of operational improvement in light of the ongoing management transition. Based on the current share price, it seems clear to us that shareholders have lost confidence the company can reverse course.”

Marcato urged the board to consider selling the company, and said a turnaround could best be accomplished as a private company. 

“The improvement plan announced today is ambitious, complicated and fraught with risk. These steps will likely necessitate accounting and cash restructuring charges and may temporarily disrupt business operations, creating volatility and a lack of earnings visibility that public markets often have a difficult time tolerating,” the letter said. “A new owner can more easily underwrite the path of improvement and will be willing to pay shareholders today based upon its confidence in its ability to execute.”

The reorganizational steps announced by Speese include changing its pricing strategy to promote early pay-offs of rented merchandise and increasing ownership to 40% of RTO agreements from the current 25%. 

In addition, the company wants to, among other things, increase its assortment of higher-end products; reduce employee turnover by staffing stores with a greater percentage of full-time workers; and reduce delinquencies by improved training, tools, and incentives. 

At its Acceptance Now business, which offers rent-to-own kiosks in third-party retail stores, the company wants to enhance its risk analytics to reduce losses and improve ownership rates, and centralize account management to reduce costs and improve speed to market.

Rent-A-Center said the plan should produce revenue growth in the low single digits in 2018 and the mid-single digits in 2019. Earnings per share are estimated at $1.20 to $1.40 in 2018 and $2.00 to $2.25 in 2019. 

In 2016, revenues fell 12.7% to $2.07 billion and the company recorded pre-tax loss of $113.3 million.