Easyhome revenues rise 13.6% in second quarter

Rent-to-own chain's earnings fall due to closeouts, new IT system

Staff Staff -- Furniture Today, August 27, 2008

MISSISSAUGA, Ontario - Sales for Easyhome, Canada's largest rent-to-own merchant, continued to grow in both the second quarter and first half of 2008, however, earnings fell as the chain moved to liquidate older distressed merchandise while implementing a new information technology system.

Revenues for the three months ending June 30 was C$39.8 million, up 13.6% from the C$35 million generated during the second quarter of 2007. Same-store revenue growth was 8.7%, continuing a trend of 27 consecutive quarters of comparable revenue growth.

Net earnings were C$2.2 million or 21 Canadian cents per share, 20.6% below the C$2.8 million or 26 cents per share recorded for the comparable period last year. Operating income was off 17.3% to C$3.9 million.

For the six months that also ended June 30, revenue was C$79.6 million, a 14.7% gain from the C$69.4 million in the first half of 2007. Net income was $5.7 million or 54 cents per share, a decline of 8.3% from the C$6.2 million or 59 cents per share earned during the comparable period. Operating income fell 6.9% to C$9.7 million.

The company said two factors affected performance in both the second quarter and the first half. To generate new business, the company reduced price points on a broad selection of its product offerings during the quarter while also liquidating older distressed merchandise.

Easyhome also implemented a new information technology system across its chain of 209 Canadian stores. This system touches all aspects of the customer transaction from taking payments through writing new leases. It also extends to all management reporting.

"While our net income for the second quarter was a disappointment, I am confident that the issues have been isolated and that our management team has initiated the appropriate actions to correct them," Easyhome President and CEO David Ingram said in a conference call, adding that management believes margins will improve thanks to both selective price increases and vendor cost reductions that were also introduced in recent weeks. This should return amortization expenses to more normal levels in the third quarter.

"While we anticipated many of the potential issues with the new system rollout, it was still a significant undertaking for our associates," Ingram said. "The new point-of-sale system ultimately diverted operational focus from key areas of deliveries and cash collection, which we can measure and attribute to having a negative effect on Easyhome's income. All stores are now converted and we expect to have worked through most of the operational transition issues in this quarter."

However, the second quarter also hosted several positive developments; including the nine-kiosk Easyfinancial, which is now contributing to earnings, as is Easydecor, the company's rent-to-rent product service for the staging community. The company also signed two franchise development agreements in the United States, which will add a total of 16 stores.

Easyhome also acquired Insta-Rent late in the second quarter.

"With the combination of focused execution and diversified growth platforms, we are well positioned to continue our eight years of sequential growth," Ingram said.