In the bottom-up hierarchy of retailers catering to the lowest rungs of US society, there is Dollar Tree and Dollar General, and somewhere in their immediate orbit, is Rent-a-Center, which caters to those Americans who can't afford to purchase outright, and whose credit is too low to finance, and are thus stuck renting out any certain "aspirational" product - like, say, a microwave. In short, its captive audience is America's lower and lower-middle classes.
And unfortunately for the US, it is this lowest ring on the social ladder that is now getting decimated.
After the close Rent-a-center reported earnings that were simply horrendous: the company said that in Q4 it generated adjusted EPS $1.08 which badly missed estimates of $1.61 on revenue of $1.17 billion, which also missed the estimate of $1.2 billion. But it was the company's forecast that was catastrophic: the company now sees adjusted EPS of $4.50 to $5.00, far below the consensus estimate of $7.04; its revenue guidance of $4.45 billion to $4.60 billion was likewise a disaster compared to the estimate of $5.27 billion, with adjusted Ebitda in the $515 million to $565 million range, far below the estimate of $747.4 million.
What caused this collapse? The following commentary from the earnings call explains it:
“In the fourth quarter, the combined effect of significantly reduced government pandemic relief, decades-high rates of inflation, and supply chain disruptions impacted our target customers’ ability to access and afford durable goods, which negatively impacted our results. We anticipate these external headwinds will continue for the foreseeable future, resulting in year-over-year declines in revenue and earnings for 2022, on a pro forma basis, while free cash flow should increase for the year."
Translation: after a year sustained by seemingly endless "stimmies" the US consumer is now hitting a brick wall, with the poorest getting hit first and hardest. This is precisely what both we, and Morgan Stanley's Michael Wilson have been saying for months, and it is this sharp and unexpected hit to consumption that is behind the sharp slowdown in the US economy which has little to do with the Omicron hiccup in December and January.
But how is that possible - after all recent retail sales have been soaring and trending much higher than they were before covid, which to most economists has been a confirmation of just how durable US consumption is. Well, no: one look at the trendline comparison in retail sales and real disposable personal income shows just how unsustainable and artificial the bubble in retail sales has been.
And now that stimmies are gone, disposable income is collapsing. As for retail sales, the reason why they have been red hot is simple: with US consumers expecting even higher prices in just a few months, they are buying now to avoid paying even more in the future.
More ominously, the Rent-a-Center commentary confirms what Morgan Stanley's Michael Wilson noted last week when he predicted a sharp slowdown in the economy when he noted that "whether it's the payback in demand, or sharp decline in real personal disposable income, the rate of consumption is likely to disappoint expectations in the first half of 2022. Furthermore, this weaker consumption is arriving just as supply chains are finally loosening up, something that is likely to be aided by the end of Omicron and the labor shortages it has created in the transportation and logistics industries."
And while we wait to see the market to finally realize just how serious the coming slowdown is, the 40% collapse in RCII stock price after hours will serve as an ominous harbinger of just how big and painful the "repricing" of the US consumer, and economy, will be in the coming months.
[Odd graph] cms.zerohedge.com/s3/file...posable.jpg?itok=TfsJVHFs
Poster Comment:
Not a good sign...
#1: Horse To: Esso (#0)
Horse posted on 2022-02-24 08:53:06 Reply Private Reply
#2: Esso To: All (#0)
That graph really put the hook in me...
Those huge spikes starting in the first quarter of 2020 were probably caused from the Coof panic setting in. People must've been too afraid to go shopping causing the huge decline in retail sales. I don't think lockdown mania had started yet, although I might be wrong about that. That would account for the huge rise in disposable income also, I don't think the 'stimulus' checks had started yet, but I could be wrong about that also.
The wind in the wires made a tattle-tale sound when the waves broke over the railing.
At the beginning of 2021 after Christmas was done and the election was decided shows a huge increase in both disposable income and sales caused by stimulus until income drops off a cliff when stimulus ends, yet sales continue upward which I would attribute to pent up demand and human nature for people to willingly destroy themselves. Regardless, income and spending should be directly correlated as shown by the graph from 2014-2020. The wild divergence is a major warning signal. Thanks Bidet.
Sound collision.
Esso posted on 2022-02-24 09:05:05 Reply Private Reply
#3: NeoconsNailed To: Esso (#2)
NeoconsNailed posted on 2022-02-24 09:13:39 Reply Private Reply
#4: Esso To: Horse, Lod, 4um (#1)
Right, the continued upward trend in sales has to be done on credit which may become problematic for the banks.
Yeah buddy! The kooky divergence in the graph, post-Bidet, makes it pretty clear that it's underway.
Rent-A-Center is trading at a huge discount. I'm going to look into that. The slog back up will be a hard and long one, but it's worth looking into. I don't see much potential for people ever being able to afford a refrigerator ever again. Or the electricity to run one, come to think about it.
Esso posted on 2022-02-24 09:19:02 Reply Private Reply
#5: Esso To: NeoconsNailed, 4um (#3)
It will. I'm glad I'm old.
Esso posted on 2022-02-24 09:20:03 Reply Private Reply
#6: Horse To: Esso (#4)
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All you have to do is right click on the image and select copy image link.
Horse posted on 2022-02-24 09:29:39 Reply Private Reply
#7: Lod To: Horse (#6)
For me, sometimes that provides the image, and other times, just the link.
Lod posted on 2022-02-24 09:34:58 Reply Private Reply
#8: Horse To: Lod (#7)
Horse posted on 2022-02-24 09:49:14 Reply Private Reply
#9: Esso To: Lod (#7)
I might have to gear up and see if my gal at the liquor store is working today before the snow & ice hits. I need a fix.
Esso posted on 2022-02-24 10:08:25 Reply Private Reply
#10: Lod To: Esso (#9)
www.wunderground.com/weather/us/tx/austin/KTXAUSTI2535
Wishing you the best on your fix(s) mission, bundle up, and cheers.
Lod posted on 2022-02-24 10:48:24 Reply Private Reply
#11: NeoconsNailed To: Esso (#5)
www.bitchute.com/video /RJTX4TSXaQIC/
NeoconsNailed posted on 2022-02-24 18:15:42 Reply Private Reply
#12: BTP Holdings To: NeoconsNailed (#11)
The trouble with these doctors is they have their opinions that are not necessarily supported by facts. They seem to make things up as they go along.
The only trouble in this is under the 1947 Nuremburg rulings they are not allowed to give experimental or unproven medical procedures.
The latest line of baloney is I have the open wounds because of "poor blood circulation" in my legs.
If I hadn't listened to that doctor in Joplin that I had the wounds because of "leaky valves" in veins of my legs I might not now have blood clots in veins. It is likely I will be on blood thinners for extended period of time if not indefinitely. I should have never allowed the Venous Ablations to be done. ;)
BTP Holdings posted on 2022-02-24 18:30:23 Reply Private Reply
#13: StraitGate To: Esso (#0)
This Rent-a-center outfit gets its business from people who haven't the money to outright buy a microwave oven or a television. But after everybody gets a $600 or $1200 wealth transfer check a time two, wouldn't Rent-a-center's customer base naturally contract for a while? My microwave oven is 19 years old and still going strong. And wouldn't a TV last at least a few years?
StraitGate posted on 2022-02-24 18:47:05 Reply Private Reply
#14: Esso To: StraitGate, 4um (#13)
Congratulations on keeping your microwave 19 times longer than you're supposed to. But you're not an idiot. You cheated. As far as TeeVees go, there's enough of those that walked out of the stores to keep the US supplied until the 22nd century.
Esso posted on 2022-02-24 19:03:09 Reply Private Reply
#15: StraitGate To: Esso (#14)
Go to the head of the class, old man.
StraitGate posted on 2022-02-24 19:18:41 Reply Private Reply
#16: Esso To: StraitGate (#15)
Make that Lord Commander Grumpy Old Man, kid.
(Edit) Gotta give Vlad credit for knocking the US People's Convoy out of the news and giving the Bidet more reasons to stomp them out by brutal means. "C'mon, man! They're Russian terrorists!"
Esso posted on 2022-02-24 19:28:38 Reply Private Reply
#17: NeoconsNailed To: Horse (#8)
NeoconsNailed posted on 2022-02-24 23:14:14 Reply Private Reply