Good morning, and thank you all for joining us to discuss Rent-A-Center's results for the Q2 of 2022. We issued our earnings release at the market close yesterday. The release and all related materials, including a link to the live webcast, are available on our website at investor.rentacenter.com. On the call today from Rent-A-Center, we have Mitch Fadel, our CEO, and Maureen Short, our CFO. As a reminder, some of the statements provided on this call are forward-looking statements, which are subject to factors that could cause actual results to differ materially from our expectations. These factors are described in our earnings release as well as in the company's SEC filings. Rent-A-Center undertakes no obligation to publicly update or revise any forward-looking statements except as required by law. This call will also include references to non-GAAP financial measures.
Please refer to our Q2 earnings release, which can be found on our website, for a description of the non-GAAP financial measures and the reconciliations to the most comparable GAAP financial measures. With that, I'll turn the call over to Mitch.
Thank you, Brendan, and good morning, everyone, and thank you for joining the call today to review our Q2 results. On today's call, I'll begin with an overview of Q2 performance, followed by our plans for the remainder of the year and some perspective on the external environment. Maureen will provide a more detailed review of our financial results, and of course, we'll finish up with Q&A. While Q2 trends are down compared to stimulus-enhanced 2021 results, we are encouraged by the performance of the business in the Q2 , given the very different and more challenging macro environment we're experiencing this year. Q2 financial results were strong relative to the quarterly guidance we provided in early May, with revenues at the high end of the range and adjusted EBITDA and EPS above the high end of the respective ranges.
We also delivered on business objectives over the H1 of the year, optimizing Acima's underwriting, maintaining year-over-year portfolio growth for the Rent-A-Center business segment, and managing costs to help offset the profitability headwinds from the challenging environment. While we executed well in the areas of the business that we could control, external factors like inflation and economic growth and discretionary income worsened during the H1 of the year. As the Q2 progressed, we began to see indications that macro weakness was causing lease volumes and payment behavior to trend below our assumptions for the H2 of the year. These trends have continued, and it became clear that if the current weak environment continued for the rest of the year, we would not achieve the full year 2022 financial targets introduced back in February.
As a result, we've lowered our full-year 2022 financial targets and now expect full-year non-GAAP earnings per share of $4-$4.50, with $0.10 of that change related to the increase in variable interest rates on our outstanding debt above and beyond what was built in our original targets. The full set of updated 2022 targets is included in our press release. Maureen will talk through them in more detail. As you can see, we still expect the progress we've made on our 2022 initiatives will result in a sequential step-up in profits for the H2 of the year. Moreover, we believe our business is well-positioned to generate value for shareholders during these evolving economic environments, as well as long-term growth in the business.
Moving on to financial highlights, consolidated revenues of $1.1 billion decreased 10.3% year-over-year, with Acima down 16.5% and the Rent-A-Center business segment down 3.1%. The primary factors that drove that decrease in revenue were cycling over strong growth for both businesses in the prior year period that have benefited from the effects of pandemic stimulus programs, lower lease volume in the current year for Acima due to tighter underwriting, and the effects of lower discretionary income for consumers in the current year. Consolidated adjusted EBITDA of $129 million was above the high end of our guidance range, with a margin of 12% up sequentially and a bit stronger than expected due to the favorable delinquency transfer Acima vintages originated in late 2021 and early 2022.
Non-GAAP diluted earnings per share for the quarter were $1.15 above the high end of the guidance range. We continued to generate solid cash flow, with $256 million of free cash flow year to date, highlighting the resiliency of our business. Moving on to segment performance. It was a productive quarter for Acima. Financial results were better than the assumptions behind our Q2 guidance. Our top Acima business priority for the Q2 and H1 of the year was to optimize underwriting for the current environment in order to generate returns that were consistent with our double-digit to low-teen segment margin targets.
After substantial progress in the Q1 , evidenced by a reduction of around 30% in first payment missed rates from the peak levels of December and January, we essentially maintained FPM rates near pre-pandemic levels during the Q2 . As a reminder, we believe FPM rates are the best early indicator for delinquencies and loss rates. Speaking of loss rates, we also had favorable trends for loss rates, with 11.6% in the Q2 , down from 12.6% in the Q1 . The improved underwriting should be even more visible in the H2 of the year, with loss rates expected to drop into the 8%-9.5% range and adjusted EBITDA margins expect to increase to the 11%-13% range.
GMV was down 24% in the quarter, which was at the lower end of our assumption range. However, two-year stack growth was 19%, + 19% when you factor in the 43% GMV growth in the Q2 of last year. A good two-year count number for sure. Drilling down into GMV drivers, active merchant locations were up approximately 15% year-over-year, while applications, approval rates, and conversion rates were lower compared to last year. When you add that all together, we think the takeaway here is that over the two-year period, favorable long-term underlying fundamentals, seen in the continued merchant growth I just mentioned, more than offset near-term volume headwinds from a combination of challenging prior year comps, pressure on discretionary income, and tighter underwriting.
The Rent-A-Center business segment continued to show impressive stability in the Q2 , largely sustaining the levels of business that we generated in 2021 during the peak period of government stimulus benefits. Revenues were $490 million in the quarter, with same-store sales down 3.3% in the current year and up 13.3% on a two-year stack basis. Rental revenues were down less than 1% year-over-year, benefiting from a strong lease portfolio that finished the quarter up nearly 1% sequentially and up 2% compared to last year. To put this performance in perspective, according to Census Bureau data, the three largest product categories we offer, furniture, appliances, and consumer electronics, experienced retail sales year-over-year decreases of 1%, 3%, and 4% respectively for the three months ending in May.
Our numbers certainly outdid those. Although it's not clear in our data yet, we think part of the outperformance is customers trading down into lease-to-own, which we have historically benefited from during challenging economic periods. E-commerce continues to benefit top-line performance, with web orders up 38% year-over-year and accounting for about 23% of revenue in the quarter. Commercial execution was strong again this quarter at Rent-A-Center. The team hosted a number of successful events that drove lease volumes, opened six new stores, including new concept stores featuring a smaller footprint and design intended to enhance the customer experience. We also advanced our extended aisle service, adding access to additional products and contributing to the e-commerce growth.
Customer payment behavior started showing signs of pressure from the high rates of inflation and pressure on discretionary income, and payment collection rates worsened during the Q2 , negatively impacting rental revenues. Skip/stolen losses ticked up to 4.2% as a percentage of revenue, which is above our long-term target of 3.5%-4%. We're implementing measures designed to improve that activity, including changes in the underwriting at Rent-A-Center, as well as some changes in account management processes. Looking forward to the H2 of the year, our objectives will build off the plan we've been executing against this year for Acima. This evolves to more of an emphasis on optimizing GMV within acceptable levels of risk and executing on the changes we have made within our sales function to continue to drive active and new merchant growth.
We're also continuing to build out the enterprise sales function, and I'm happy to announce we recently brought on a new Senior Vice President of Enterprise Business Development and Partnerships, Mike Bagwell, who starts later this month. Mike spent over eight years in a similar executive role with Synchrony, and we believe he'll make an impact by accelerating the partnership initiatives that are within our pipeline. For the Rent-A-Center business, some of the key areas of focus are further developing our extended aisle services, improving our retention engine to optimize returns, and enhancing our digital customer experience through more personalized offers, just to name a few. We also remain committed to our cost management efforts in all segments of the business.
Overall, looking at the back half of the year and into 2023, we believe the company is poised for commercial and financial performance that should highlight the appealing attributes of our business across economic cycles. LTOs are a relatively large and under-penetrated market, offering flexible and valuable solutions for more than 40 million U.S. households who have limited access to credit and also may be experiencing financial pressure from inflation and slowing economic growth. As the only LTO solution provider with both traditional and third-party host retailer LTO channels, we believe we're well-positioned for growth opportunities as consumers turn to LTO. Historically, LTO has demonstrated counter-cyclical attributes, maintaining better top line and loss rate trends during economic downturns due to the essential nature of the products we lease, the momentum of a portfolio business, and the stabilizing effect of non-traditional LTO consumers trading down to LTO.
This was illustrated during the global financial crisis from approximately the Q1 of 2008 through the Q2 of 2009 when our quarterly same-store sales growth outperformed year-over-year growth in consumer durable expenditures by an average of 900 basis points. The inflection for this trade-down appears to be when credit conditions deteriorate or tighten. External and internal data we monitor indicates that trends seem to be moving in that direction, and we'll continue to monitor that data. As I mentioned earlier, anecdotally, we saw signs in the strength of the Rent-A-Center business portfolio in the Q2 . Importantly, we think we're well-prepared to take advantage of market opportunities. With the Acima underwriting challenges that we experienced late last year, we had already started optimizing underwriting for a challenging macro environment early in the Q1 of 2022.
Today, our virtual lease-to-own underwriting is performing in line with expectations as we balance our objectives of generating both appropriate levels of GMV and attractive segment profits. In closing, Q2 results mostly outperformed our guidance, and we met key objectives for the H1 of the year. We believe we have the right plan in place to navigate a challenging environment and remain optimistic about the longer-term growth opportunities we see in our business. I want to thank the entire team for their continued dedication and their strong efforts throughout the quarter. With that, I'll turn the call over to Maureen.
Thank you, Mitch. Q2 revenues of $1.07 billion decreased 10.3% year-over-year due to cycling over strong results from the prior year period that included a significant benefit from stimulus programs. Lower lease volume in the current year for Acima due to tighter underwriting and the effects of lower discretionary income for consumers in the current year. Compared to 2019 pro forma revenues, which is a more normal baseline, Q2 2022 revenues were up approximately mid-teens%. The year-over-year decrease was evenly split between merchandise sales and rental and fees revenue. Merchandise sales revenues were down 27%, with fewer customers electing early payout options compared to the prior year, when many customers had built up savings and had additional income from stimulus programs.
With the wind down of stimulus in the H2 of 2021 and the current high rates of inflation, savings and discretionary income are now likely below pre-pandemic levels for many of our customers. Rental revenues decreased 6.4% year-over-year, but were also up approximately mid-teens compared to pro forma 2019 re-rental revenues. Most of the year-over-year decrease in rental revenues was driven by the Acima business, with the Rent-A-Center business segment down less than 1%. Consolidated adjusted EBITDA of $128.9 million was down 31.1% year-over-year in the Q2 , but was above the quarterly guidance range. The primary contributors to the decrease were lower revenues, higher provision for delinquencies for Acima, higher loss rates, and higher operating costs, notably labor and fuel. These were partially offset by cost control measures and lower performance-based compensation.
Sequentially, Q2 adjusted EBITDA was up 29.5% compared to the Q1 , driven by a 515 basis point improvement in Acima margins that benefited from a reduction in the provision for delinquencies, lower loss rates, and better than expected performance on lease vintages from late 2021 and early 2022. Adjusted EBITDA margin was 12% for the Q2 compared to 8.6% in the Q1 of 2022 and 15.7% in the prior year period. The same factors that drove changes in EBITDA caused changes in margins. Regarding Acima's performance, we believe the 24.2% decline in GMV during the Q2 was generally driven by a confluence of unique factors impacting the business this year rather than underlying fundamental trends.
The combination of comping over last year's 43% GMV growth in the Q2 due to stimulus programs and current year inflation has caused significant volatility in year-over-year trends across consumer businesses. On top of that, we made underwriting adjustments during the H1 of the year that resulted in lower approval and conversion rates. We think a better indication of underlying fundamentals is that despite all of the macro volatility, we continue to grow our active merchant count. As Mitch mentioned, we are up 15% year-over-year. Acima segment revenues decreased 16.5% year-over-year. Rental revenues were down 12.6%, primarily due to lower GMV in the H1 of the year and a higher provision on delinquencies compared to the prior year.
Merchandise sales revenue decreased 27.1% due to fewer customers electing to use early payouts with pressure on discretionary income and savings. Skip/stolen losses in the Acima segment increased approximately 290 basis points year-over-year to 11.6%, but decreased 100 basis points sequentially and continue to normalize from the elevated rates that followed the wind down of stimulus programs in 2021. We remain confident in our underwriting capabilities and expect the changes we implemented over the past few months will continue to drive loss rates down in the back half of the year as older, riskier vintages drop out of the portfolio. Adjusted EBITDA margin decreased 370 basis points year-over-year to 10%.
The key factors that drove the margin contraction were higher loss rates on lease vintages originated in late 2021, when underwriting lagged behind the rapid changes in consumer payment behavior, as well as generally higher delinquency rates this year compared to 2021. Moving on to the Rent-A-Center business segment, revenue decreased 3.1% in the Q2 compared to the prior year period, with same-store sales down 3.3%. The decrease in revenue was primarily driven by a decrease in merchandise sales resulting from fewer customers electing early payout options. Even though the lease portfolio balance ended the quarter up 2%, revenue and fee revenues decreased from the prior year period, primarily due to a decrease in the percentage of lease payments collected.
Skip/stolen losses increased 190 basis points year-over-year to 4.2%, which is above our target range due to an increase in our loss provision. Adjusted EBITDA margin was 21.2% and decreased 470 basis points year-over-year. The margin contraction was due to higher loss rates compared to the prior year period, which benefited from stimulus programs, the 240 basis point decline from increased labor expense, and a 100 basis point decline from higher delivery costs. These factors were partially offset by a favorable Gross Margin Mix stemming from lower merchandise sales.
Below the line, net interest expense was $19 million compared to $20.4 million in the prior year, reflecting the improvement in payment terms on our Term Loan B, partially offset by a higher debt balance. The effective tax rate on a non-GAAP basis was 26% compared to 25.2% in the prior year period. The diluted average share count was 59.7 million in the quarter compared to 67.8 in the prior year period. GAAP diluted earnings per share was $0.33 in the current quarter compared to a diluted earnings per share of $0.90 in the prior year period.
After adjusting for special items that we believe did not reflect the underlying performance of our business, non-GAAP diluted EPS was $1.15 in the Q2 of 2022 compared to $1.63 in the prior year period. Year to date, we've generated $287.1 million of cash flow from operations and $256.2 million of free cash flow. During the Q2 , we returned $18.4 million to shareholders through a 34-cent per share quarterly dividend. At quarter end, the company had approximately $360 million remaining on its current share repurchase authorization.
In addition, we had a cash balance of $112.2 million, gross debt of $1.4 billion after paying down $30 million of the revolver, net leverage of 2.4x, and available liquidity of $500 million. Shifting to the financial outlook, I will add some additional details to the revised 2022 financial targets that Mitch touched on and provide an outlook for the Q3 . Note that references to growth or decreases generally refer to year-over-year changes unless otherwise stated. Our financial targets assume the current external environment persists for the rest of the year, so we're not making a call on the macro environment getting better or worse.
Starting with the full year financial outlook, we now expect consolidated revenue of $4.265 billion-$4.385 billion, adjusted EBITDA of $480 million-$525 million, excluding stock-based compensation of approximately $20 million, and non-GAAP diluted EPS of $4-$4.50, and free cash flow of $390 million-$440 million. While we believe there are substantial opportunities to drive incremental revenue and profit over the long term, we are also cognizant of the near-term volatility and pressure on profits. We will continue to focus on aligning our cost structure with the business environment while ensuring we continue to enhance our capabilities.
For Acima, we expect continued pressure on consumer discretionary income, coupled with the lapping of extraordinary growth during the stimulus-driven 2021 period, will result in lower sales volume for merchant partners for the H2 of the year and translate to a low 20% decline in GMV for the full year. We expect revenues to be down mid-teens and adjusted EBITDA margin to be in the low double-digit range. This assumes loss rates improve to a range of 8%-9.5% for the H2 of the year as more recent lease vintages originated with lower risk profiles comprise more of the lease portfolio for the H2 of the year.
For the Rent-A-Center business segment, we expect revenues and same-store sales to be down low single digits for the full year, reflecting a flat or slightly positive portfolio value at year-end, offset by lower merchandise sales and lower revenue collection rates. Adjusted EBITDA margin is expected to be in the low 20% range, in line with our long-term targets, and assumes loss rates of approximately 4%. For Mexico and franchising businesses, we expect full-year revenue growth and margins will be similar to the H1 of 2022. Corporate costs are expected to be up mid-single digits for the year. Below the line, we expect interest expense will be $8 million-$10 million higher in the H2 of the year compared to the H1 of 2022. The tax rate should be approximately 26% for the H2 of the year.
For the Q3 , we expect consolidated revenues of $1 billion-$1.055 billion, adjusted EBITDA of $125 million-$142 million, excluding stock-based compensation of approximately $5 million, and non-GAAP diluted EPS of $1.05-$1.25. Acima's Q3 GMV is expected to be down in the low 20% range, which reflects the continuation of current macroeconomic trends and sales volume trends for merchant partners. Trends should improve sequentially in the Q4 to a decrease of 10%-15%. Q3 revenues should be down high teens% as a result of the 23% pro forma decrease in GMV for the H1 of 2022 and lower Q3 GMV. Adjusted EBITDA margin is expected to be in the low teens% range.
For the Rent-A-Center business segment, we expect Q3 revenues to be down mid-single digits with an adjusted EBITDA margin of approximately 20%. Regarding capital allocation, dividend payments and making progress toward our 1.5x leverage target are the top priorities. That said, we will continue to evaluate opportunistic share repurchases. We also want to provide an update on the resolution of our previously disclosed California Attorney General matter, which will be reflected in our Q2 10-Q filing. As a reminder, this is a 2018 matter with respect to our Acceptance Now host retailer business. We reached a settlement in principle back in November 2021. Earlier this week, we finalized the settlement, which includes a payment of $15.5 million and certain injunctive and compliance provisions. The full $15.5 million was previously reserved at year-end 2021.
We did not admit to any wrongdoing and disagree with the AG's statutory interpretations regarding the cash price, but entered into the agreement to avoid the expense, risk, and distractions associated with potential protracted litigation. Thank you for your time this morning. I'll now turn the call over for your questions.
Thank you. As a reminder to ask a question, please press star one one. Please stand by while we compile the Q&A roster. We'll take our first question from Jason Haas from Bank of America. Your line is now open.
Hey, good morning, and thanks for taking my questions.
Good morning.
The first is on, I know you're not providing any guidance yet for 2023, but conceptually, if the economic environment remains the same, should we expect to see growth in revenue and EBITDA just from a continued reduction in loss rates?
Year-over-year, from an EBITDA perspective, yes, we should expect to see benefits next year because of the higher quality portfolio. In the front half of this year, as we've talked about, there is a drag from lower performing leases that were written into the portfolio before we tightened up in late 2021 and early 2022. Definitely there should be a profit step up next year, given the loss rates.
Great. Thank you. As a follow-up, I wanted to focus on the Rent-A-Center business EBITDA margin. That's been up. I think it's almost doubled now over the past few years. I know it's, you know, that acceleration started before the pandemic. Just as we're in a tougher economic environment, I know you reiterated the long-term target for 20% margins there. I think there's some concern that just in this environment, we could see it revert back to historical levels. Can you just explain what gives you confidence that you'll be able to maintain those margin levels?
Sure, Jason. This is Mitch. The biggest reason is the difference in the portfolio size, the way it's grown really over the last four years, including the pandemic. In fact, as we mentioned, the portfolio actually ended the Q2 sequentially up and by about 1%, about 2% year-over-year. The portfolio holding up is what drives those margins based on, you know, it's pretty much a fixed cost business. We have some labor fluctuation. Wages are up a little bit. Actually, hours are down a little bit because of technology and auto pay and things like that. That offsets some of the labor rate pressure. It's really the size of the portfolio continues to perform well. It doesn't have to keep growing to maintain those margins.
We don't see it dropping with, you know, especially in this environment as people trade down. You know, we think the Rent-A-Center business in the Q2 really so far this year is outperforming retail already, seeing a little bit of effects of trade down there like I mentioned in my prepared comments. We believe we are at least. There is some slight indication of that in the numbers that the Clarity scores, if you will, that come into our decision engine. We're seeing at least the start of some trade down on the Rent-A-Center side and. Regardless, of course, it's the short answer to your question is it's a portfolio that has grown very well over the last three or four years, almost five years now.
That drives the higher margins just with the revenue because the costs don't go up much. Remember, we're starting with a lot of gross profit in the 70% range. When you get top line, consistent top line, and again, it's a portfolio, so it doesn't fluctuate a whole lot. When you get that portfolio up, you're gonna get some good EBITDA margins when the gross profit is 70%.
Jason, just to add to your question, I think you asked about just general trends for 2023, and I addressed the losses expectations for next year. There is some pressure on 2023 revenue given the lower GMV that we're seeing this year in the Acima business and lower collections as we stated in our lowering of expectations for this year. There's still a lot of factors at play for 2023, and we won't give consolidated guidance for profit or revenue until really the beginning of next year. From a loss rate perspective, should see more normalization as we work those lower performing leases through the portfolio.
Got it. That's helpful color. Thank you.
Thanks, Jason.
Thank you. We'll take our next question from Bobby Griffin from Raymond James. Your line is open.
Good morning, Bobby. Thank you for taking my questions. I guess.
Good morning.
Mr. Mitch, Good morning. I wanted to first just kinda high level, but it really appears that the store business is holding up a lot more resilient in this kind of economic environment than the virtual business. I understand the comparisons are different and some things, but the overall customer is fairly similar between the two. Just curious why you think that's the case, why the core Rent-A-Center stores are holding up better. Is it just, you know, the legacy aspect of it that they've been around, customers know them or just anything there to help us kinda understand what we can think about if things do improve, what might happen with the virtual side of the business?
Sure, Bobby. I'll start, and then if Maureen has anything to add, she can. I think the biggest difference between the two is, you know, Rent-A-Center is a standalone business, whereas the retail partner business, the Acima, you know, relies on the retail traffic. We get a certain percentage of that retail traffic, right? If all of us, all of our competitors as well, get a percent of that retail traffic. When retail traffic is down, you know, you look at numbers that are down 15%, you know, same store sales kind of numbers and some of the larger retailers out there, 15%, 20%. Their traffic's down even more, right? Because they, because they've got higher ticket, especially in household durable goods, when you look at some of those companies.
When traffic's down that much and you get a percentage of that traffic, like in Acima, let's say pick a retailer and we end up with 5% of their business or 3% of their business or something. If their traffic's down 30 or 40%, it, even if you have some trade down and you go up from 3%- 4% of the business, you're still going down overall. Rent-A-Center, conversely, where is that 40% of the traffic that's down, as I say, at a large box furniture store, or 30% of the traffic, where are they? You know, certainly there was some pull forward, but where are they when they need something today if they're not going into retail store?
If you get just a few percentage of that traffic going into Rent-A-Center 'cause there's so much more traffic in a retail store. You think about a large box retail store, just one of the big furniture stores. If you can get a couple of percent of what's not walking in there, that's gonna drive an awful lot of business to Rent-A-Center, right? 'Cause Rent-A-Center is so much smaller than all of that retail added together. I think the short answer is you got you know, you're not relying on retail traffic to drive your business. When retail traffic's way down, some of it's obviously, we believe, is going over to Rent-A-Center. And it only takes a little bit for Rent-A-Center to grow 'cause Rent-A-Center is so much smaller than of that whole retail pie.
You get a little bit of that going towards Rent-A-Center, and you're gonna have some difference in performance. Now, having said all that, you know, the Acima business on a two-year stack base is up 19%. You know, we don't see today's headwinds as fundamental issues. The business is still there as retail traffic picks back up.
All right. That's helpful. I don't know if you, I know visibility in each of the retail merchant partners is tough, but when you look in or kinda get the commentary, are you seeing retailers emphasize the virtual product more? Is there a way to see if you're making up where hypothetically you were 2% of the business and now you're 3% of the business? Do you get that type of visibility where you could see the product gaining more traction in this tougher kind of economic environment?
I think it depends on the retailer. Some do and not all of them, but some do. We certainly see that, you know, from a pipeline standpoint, and I mentioned bringing in a top executive from Synchrony to run our enterprise business, as we continue to add that at Acima. We're real excited about him starting later this month. When you think about, when we look at our pipeline, there's certainly more interest for the reasons you just spoke about when, in lease-to-own than there was during the pandemic, just because, you know, people couldn't fill all the orders they had in the first place during the pandemic. Why worry about another, you know, payment stream? There's more interest there in that.
As far as the ones we already have, yeah, you know, it depends on the retailer. Some emphasize it more, but not all of them.
Okay. Lastly for me, Maureen, I think you mentioned that you guys are forecasting a sequential improvement in the GMV performance in 4Q versus 3Q and kind of the H1 trends. Just curious, the underlying fundamental drivers of that improvement in the Q4 ?
Sure. We tend to see increases in seasonality in the Q4 relative to the rest of the year. We're basically using our portfolio at the end of the Q2 and forecasting some improvement in seasonality.
That and the Q3 , Bobby, really, I mean, the comps start. We start comping over much different numbers. The 43%, we just had to comp over. Then the Q3 , I don't remember it off the top of my head, but the comps go down.
19.
19% in the Q3 , and then the Q4 was five or something. You start comping over easier numbers is some of the simple math on it, as well as what Maureen was mentioning.
Okay. I appreciate the details. Best of luck here in 2H.
Great.
Thanks.
Thanks, Bobby.
Thank you. We'll take our next question from Kyle Joseph from Jefferies. Your line is now open.
Hey, good morning. Thanks for having me on and taking my questions. Staying on Acima for a second, just regarding the GMV contraction. Obviously, there's a lot going on, but can you give us maybe even a ballpark of how much you think of that contraction is underwriting changes versus more macro? I'm just trying to get a sense for the lift you guys may get into Q1 2023, really, as we lap those underwriting changes.
Yeah, I think, you know, hard to break down the exact number, Kyle, but certainly the retail traffic is a big part of it. It's not, I would say that's the. If you were gonna try to split them down the middle, the retail traffic versus the underwriting, I'd lean a little more towards the retail traffic even than the underwriting. You know, you could just about split them down the middle. Again, I think it's probably more the retail traffic than the underwriting. It's not like our underwriting is tighter by 20 points or anything like that. It's certainly as we lap the underwriting stuff and the comps get easier, it'll get us, you know, into that flattish range. You know, certainly as the retail traffic.
The retail traffic needs to pick up for us to get back to what we talked about our long-term goals of double-digit growth at Acima.
Okay, got it. Sounds like you're still able to add a lot of partners at Acima. Can you give us a sense of kinda the channels and the verticals of the retail partners that you've been adding? Also talk about, you know, conversation with retailers and whether there's, you know, improved demand for having the lease-to-own products for retailers that do not have it yet, given the challenging environment.
Yeah, you're right. You know, on the smaller business level, small business level, regional level, that continues to be very strong. As we mentioned, 15% year-over-year growth. Continue to sign a lot of good accounts. There are some larger Goodyear accounts and City Furniture recently down in Florida. We talked about P.C. Richard & Son a couple of quarters ago. We continue to sign some good accounts and then a ton of accounts you would have never heard of, much smaller ones. That's going well. As we see the pipeline increasing on the enterprise side, as we see more interest in people trying to figure out now that the supply chain pressures have eased so much and people actually have more supply in a lot of cases, that they're looking for other avenues. The pipeline's strong.
There is more interest. We're investing in the team, adding to the team we already have by bringing in the executive I mentioned earlier. We, you know, we're strong at the local regional level with our sales programs and getting stronger on the enterprise side and by adding some to the team. Once we have enterprise clicking as well as we have the local sales going, it's gonna be even bigger growth.
Got it. Thanks. Thanks a lot for answering my questions.
Thanks, Kyle.
Thank you. We'll take our next question from Brad Thomas from KeyBanc Capital Markets. Your line is open.
Hi, good morning. Thanks for taking my question. Wanted to focus first on, you know, one of the bright spots here and the 15% growth in active door count, and hoping you could add a little bit more color on, you know, categories that you're seeing growth in and perhaps also some perspective of the size of these incremental doors and if they're the kind of partners and doors that could be meaningful or if they're, you know, smaller cell phone kiosks and malls kind of things.
Yeah, it's a mix. It's primarily the two biggest categories of our growth are in furniture and in wheel and tire. I mentioned Goodyear. A lot of Goodyear stores are on our program now. A lot, you know, continues to be local furniture stores signing up. As far as meaningful, I think it's not like one big national account that you would factor into the business. You know, everybody gives us a little more business every month. We're happy to be up year-over-year, you know, at a pretty good number of 15%. Back to the category issue, it's again primarily furniture, wheel and tire. A little bit of jewelry addition would be the third largest category we're adding.
That's great. Thank you much. Then just a housekeeping item on the Acima losses. I think you said in the H2 of the year, you were expecting that to come in in the 8%-9% range. Obviously, at least for Q4, that would set you up for lower losses. Curious how you're thinking about it in the Q3 , and if we're, you know, kind of getting through this pig in the python dynamic on the losses from your perspective.
Yes. We did say Brad, 8%-9.5% for the H2 of the year. We are kind of working the lower performing leases through the portfolio. We'll see a step down in losses in the Q3 and then Q4 . Similar rates may tick up a little bit in the Q4 relative to the third, just given the tougher credit environment, macro environment. Yes, 8%-9.5% for the back half of the year for the Acima segment. A lot of that really is, as we talked about, working those lower performing leases through the system. With the tighter underwriting, the leases that we've underwritten since the tightening are much more in line with historical averages.
Now, that cost us some GMV. The quality of the portfolio is much better than it was, you know, late last year.
Brad, when we had the underwriting issues late last year and, you know, we said it would take two quarters to use your term, picking the python. We said it would take two quarters and sure enough, we're seeing that. Now you'll see that it would, I think one of your points is, geez, 11.6%- 8%-9.5%. That, is that really doable? Remember, we've been saying that it would be two quarters to get rid of those, you know, for those leases to play out. It's consistent with what we've been saying. In fact, they performed a little bit better than we had forecasted, and that was the majority of the beat actually in the Q2 .
Yeah, that's great. Really helpful. If I could squeeze one last one in. I was hoping you could talk a little bit about just leadership at Acima and you know, how the kind of overall, you know, integration of Acima is going. Obviously, Aaron's taken over more recently. Aaron obviously used to run Acima when it was independent. You know, just hoping you could talk a little bit more about how that team and leadership and strategies have evolved here, you know, as Aaron has taken back over.
Yeah, good question. You know, one of the things we focused on is building that team, right? Rather than just be relying on the founder who's got a window that, you know, as far as how long he's gonna be with us. We got to build as a team, right? Building around, like, our Chief Operating Officer, Reed Farnsworth, our Chief Development Officer, Tyler Montrone, just bringing in Mike Bagwell, who I just mentioned, as well as brought back a top technology person, Ryan Forrest. A lot of building the team is really the focus there, not just to be focused on one person. We're certainly happy to have Aaron back and more involved.
You know, the underwriting improvements we're talking about are all due to him coming back. He's got a great person in Stewart and a great team with Stewart and everybody else on that team. You know, it's more about as we think about who the key 10 people are out there and so forth. We're in much better shape and all that from an integration standpoint, to answer your question, than we were, you know, three or six months ago.
Great. Thank you so much.
Thanks, Brad.
Thank you. We'll take our next question from John Rowan from Janney. Your line is open.
Good morning.
Morning.
Good morning.
You know, Mitch, you talked a lot about, you know, the last recession and how it actually helped the Rent-A-Center business. You know, you didn't have Acima then. I'm wondering, you know, as a leading indicator here with Acima, do you think, you know, kind of that trade down in credit that happens for the consumer, you see that faster as, you know, a participant in broader waterfalls at other retailers, meaning you'll see the FICO bands change of people applying for credit through Acima, in this cycle relative to the last one?
I do believe that it'll happen on the Acima side as well. I think it's a little slower. To see on the Acima side, as we talked about earlier, with the way the Rent-A-Center business has held up better because, you know, the retail traffic is so far down, so it's hard to see. You know, you could get a five-point swing in trade down, and it'd be hard to see today based on the way retail traffic is in some of, especially in the furniture side of things.
As the pull forward wanes, let's say, going into 2023, as you have that pull forward kind of being less of an issue, in the furniture business, then and you have trade down, I think that's where things will start to get. You'll start to see it on the Acima side, just like we're already seeing it on the Rent-A-Center side. Yeah, I do believe it's gonna happen. We think there's already some of it happening on the Rent-A-Center side, but like I said, we're gonna overall, I mean, the traffic in some of these retail stores has to bounce back for the Acima business to get back to positive GMV growth.
Okay. Just maybe two housekeeping questions for Maureen. What was the interest expense guidance that you provided? Can you repeat that?
Well, we said the interest expense was going to be about a $0.10 impact, so higher by about $0.10 in the back half of the year relative to the front half.
$8 million-$10 million.
Yeah, it's about $8 million-$10 million higher. The interest expense we expect to be around $22 million in the Q3 and $25 million in the Q4 .
Okay. Can you just remind me, you know, how much of your corporate overhead is allocated to Acima?
There are some expenses allocated to the different business segments, if we can attribute them directly to the business. However, there is a good deal of corporate costs that are in the corporate segment. Things like, for example, the call center is in the Acima segment, the sales team, but then some of the IT expenses are in the corporate segment. Any kind of overhead from a headquarters perspective is mainly in the corporate segment.
Okay. All right. Thank you.
Thanks, John.
Thank you.
Thank you. As a reminder, to ask a question, please press star one. Our next question will come from Carla Casella from JP Morgan. Your line is open.
Hi, good morning. This is Mike Thompson for Carla. One of the ones we wanted to ask was that skips and stolens for the Rent-A-Center core side was a little bit above your typical range. I think it was 4.2%, and you guys got something a little bit lower than that. Can you say how that trended month-to-month within the quarter, and do you see that as kind of the peak?
Do you want me to take that?
Yeah.
Yeah. For the Rent-A-Center segment, it did come in at 4.2%. What we've seen the last, you know, what a normal rate looks like is about 3.5%-4%, so just slightly over. We don't typically look at the numbers on a monthly basis. At the end of the quarter, we do a basically a reserve adjustment based on the portfolio, and that reserve adjustment resulted in us going slightly above the 4%, which is the high end of the range. Because of the higher or the tougher collections that we've seen in the Rent-A-Center segment, we did expect it or it did end up being higher than we expected in the Q2 , and we factored those trends into our guidance.
Okay. Thank you. Another one was, you guys alluded to it earlier, but it feels like the foot traffic at your Acima partners is a little bit different than kind of the traffic you're seeing at your core Rent-A-Center stores. I mean, I don't know if you guys quantify the gap or how would you compare it qualitative, qualitatively or quantitatively, whatever you can provide.
Yeah. I'd just say, when you think about Rent-A-Center having 38% more e-commerce business than a year ago, you know, we don't have too many retail partners that are even up in traffic, let's call it, let alone up 38%. I think the traffic again, the numbers are much different, much smaller, as far as the number of people nationwide that's going into a Rent-A-Center versus all furniture or retail. When you get to retail traffic, you get some trade down. You get 2% trade down out of a huge retail number going into a small number like Rent-A-Center, and it can make a difference. I think the traffic's much better there.
Again, on a percentage basis with the e-com 30%, you know, things like rental same store sales, rental and fee same store sales being down 1% compared to all the other retail numbers you're looking at. The Rent-A-Center business, just like in 2008 and 2009 in a tough economic environment, is holding up well. You mentioned you asked about the losses. I mean, 4.2% versus 4% being the high end of our range is we don't like it. You know, we want it to be within our range, but you know, catastrophic doesn't happen in that business, in such a resilient business. You know, the retail partner business, you know, we need the retail traffic to pick up. We'll continue to add.
Thankfully, we're continuing to add locations or we'd be down more if we didn't have that 15% location growth year-over-year. We got to continue to add locations, continue to work on national accounts and get that GMV back to at least flat.
Great. Thank you. The last one from us was on the $15.5 million settlement. Did that come in line with your expectations? Was there, you know, if there's any update or any other pending investigations or any matters like that? Thank you.
Yeah, I'm sorry. First part, did it come as a-
In line with your expectations.
Oh.
Yeah.
Well, yeah. Yeah. I mean, we settled it last November from a dollar amount standpoint. It took this long to actually get the settlement agreed to, all the details of the settlement to get agreed to. Yes, that was in line with our expectations. We'll say that, you know, the 10-Q doesn't have any other issues like that in it. There is no issue, particularly like the one in California, that the cash price law in the Karnette Rental-Purchase Act in California is very uniquely written, and no other states write it the way it's written in that law. We did not see that being in any kind of issue elsewhere, that particular issue of the cash price in California.
Again, we don't agree with the way the AG looked at it. We thought it was better to get it behind us. It doesn't, it's not the kind of settlement that we worry about rolling into other states. You know, sometimes you fight a lot harder rather than settle if you thought it could roll in other states. But again, that law is unique to itself in California. We wanted to get it behind us. As far as any other AG issues, the rest of that's in our Q.
Okay. That's all from us. Thank you very much.
Thanks, Mike.
Thank you.
Thank you. That does conclude the question and answer session for today's conference. I'd now like to turn the call back over to Mitch Fadel for any closing remarks.
Thank you, operator, and thank you everyone for taking the time this morning on our call. You know, we're happy with the Q2 we're able to report. Not all that happy about having the lower guidance for the rest of the year, but we'll continue to work as hard as we can to continue to deliver results and address everything very best we can to provide value to our shareholders. Thank you, everyone.
Thank you. This concludes today's conference call. Thank you for your participation, and you may now disconnect. Everyone, have a wonderful day.
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