FORT WORTH, Texas (Oct. 9, 2001)—After a six-year experiment with the rent-to-own tire business, Cash America International Inc. is divesting its Rent-A-Tire Inc. subsidiary to concentrate on its core pawn business.
The Fort Worth-based company will close 21 of its 43 Rent-A-Tire locations and sell the rest. Rent-A-Tire has been part of Cash America's business since it opened four prototype stores in the Dallas-Forth Worth market in 1995, but the company said the number of locations was too dense for the metropolitan markets it served.
“I think we put too many in some of the markets,” said Jim Kauffman, executive vice president of Cash America. “Markets where we have a limited number of locations seem to be doing a satisfactory job, but I think we were unable to assess the density that was appropriate.”
In a prepared statement, the company said the subsidiary was successful in providing new tires and wheels to customers looking for an alternative to a direct purchase. It said that eliminating the unprofitable locations “would provide a prospective buyer with a slimmed-down operating concept that should produce a positive level of store contribution.”
Rent-A-Tire was founded on the premise of allowing customers, typically aged 18- to 35-year-old males, the option of renting new tires and wheels without a credit check or deposit. Customers could return the merchandise at any time with no further charges or eventually own the products.
The majority of Rent-A-Tire stores are located in Texas, with the rest in Louisiana, Oklahoma and Arizona. Besides Rent-A-Tire, Cash America operates a pawnshop business and offers check-cashing services.
Mr. Kauffman said that although the company is targeting unprofitable stores for closure, Cash America is unwilling to keep the remaining outlets because “that's not our core business anymore and it's not large enough for us to continue operating.” He said the company has been contacted by potential buyers but wouldn't disclose who or how many.
Cash America hopes to complete its sell-off of Rent-A-Tire within a year, according to Mr. Kauffman. The company hopes to sell the subsidiary as a unit rather than individually, he said.
The company expects an after-tax charge of $17 million for discontinuing the Rent-A-Tire operations. Cash America did not release earnings outlooks but said it expects the consolidated earnings per share from continuing operations to be between 52 and 55 cents for all of fiscal 2001, as opposed to initial projections of 44 cents to 50 cents per share.
During the first half of 2001, Rent-A-Tire posted a loss of $1.9 million compared with a $1.6 million loss during the same period in 2000, according to company filings with the Securities and Exchange Commission.