When Rent-A-Center, Inc. (RAC) began rolling out its new point-of-sale (POS) computer system in late 2014, it had significant problems and was already outdated, claim confidential witnesses. The complaint for this class action claims that the company knew of problems but did tell investors because it did not want to take a write-down on the system. This was a violation of Securities Exchange Act of 1934, the complaint says.
The class for this action is all persons and entities who acquired RAC publicly-traded common stock between February 2, 2015 and October 11, 2016 and who were damaged thereby.
RAC operates rent-to-own stores in North America that allow customers to obtain electronics, appliances, furniture, and other items for which they make regular payments, often with an option to purchase, but also with the option to return the goods and stop payments at any time. Its primary business segment is Core US, accounting for 72% of the company’s revenues.
Because RAC’s main customer base is persons who are “unbanked” or without credit, most payments are made in-store, in cash, the complaint says; 75% of rented items are returned and employees must devote significant time to collection efforts. The new POS system was supposed to help with both inventory management and collection as well as introduce flexible pricing and e-commerce options.
The company’s February 2, 2015 announcement that the new system was fully operational in one store marks the beginning of the class period. According to the complaint, even at this point, the company knew that the system had “stability and functionality problems.” However, it did not halt the roll-out to solve them, the complaint says, but repeatedly told investors the system was “fully operational and ready to go.” When problems began affecting performance, the company insisted they were only short-term issues that had been addressed.
The system was in all stores by June 30, 2016, although the complaint claims that the problems began to come to light before that, in February, when the company had to report its earnings for 2015 and project a decrease for the first quarter of 2016.
The company dismissed the problems as related to putting the system in stores and training employees, but the complaint claims that results for that first quarter were still disappointing. Second-quarter results were also poor, yet the company claimed that “the distraction of a major system roll-out is now behind us.”
Finally, when the company announced its third-quarter results, with same-store sales down by approximately 12% because of the new system’s slow performance and outages, it had to admit that the system problems were significant.
The complaint claims that the company’s stock fell from its class period high by approximately 74% as information about the system’s inadequacy was gradually revealed.