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TheStreet Open House

First Cash Reports 16% Increase In Third Quarter Earnings Per Share To $0.67; Pawn Growth In Mexico Drives Record Earnings; With Completed Fast Cash Acquisition, YTD Store Additions Total 139

Stocks in this article: FCFS

ARLINGTON, Texas, Oct. 17, 2012 (GLOBE NEWSWIRE) -- First Cash Financial Services, Inc. (Nasdaq:FCFS) today announced record-setting revenue, net income and earnings per share for the three month period ended September 30, 2012. In addition, the Company announced that in September it completed the acquisition of 16 large format Fast Cash Pawn stores located in Denver, Colorado. The Company also noted that it was closing seven small format, payday-only stores located in Texas.

Earnings Highlights

  • Diluted earnings per share from continuing operations for the third quarter of 2012 were $0.67, compared to $0.58 in the third quarter of 2011, an increase of 16%. The third quarter results included non-recurring charges of approximately $0.02 per share related to acquisition expenses.
  • Year-to-date earnings per share from continuing operations increased 16% to $1.80, compared to $1.55 in the comparable prior-year period.

Revenue Highlights

Revenue growth rates are presented below on a constant currency basis, calculated by applying the currency exchange rate from the comparable prior-year period to the current year's Mexican peso-denominated revenue. The average exchange rate for the third quarter of 2012 was 13.2 Mexican pesos / U.S. dollar versus 12.3 Mexican pesos / U.S. dollar in the comparable prior-year period.

  • Consolidated third quarter revenue totaled $150 million, representing an increase of 16% on a constant currency basis compared to the third quarter of 2011. Revenue generated from operations in Mexico increased 19% on a constant currency basis and comprised 54% of total revenue.
  • Pawn fees, which the Company considers a core revenue stream, increased by 31% on a constant currency basis versus the prior-year third quarter, while in-store merchandise sales increased by 26%. Pawn fee growth in Mexico was particularly strong, up 35% compared to the same period last year.
  • While the average selling price for gold during the third quarter increased 8% compared to the prior-year quarter, the volume of scrap jewelry sold decreased 18% compared to the prior period. As a result, wholesale scrap jewelry revenues during the third quarter of 2012 decreased 12% compared to the same period last year. Scrap jewelry operations accounted for 8% of net revenue (gross profit) for the quarter.
  • The 12% decrease in scrap jewelry revenue caused consolidated same-store revenue (constant currency basis) to be flat in the third quarter. Excluding scrap jewelry sales, same-store revenue increased 9% in Mexico, 3% in the U.S. and 6% overall on a constant currency basis. The core revenue from same-store pawn service fees increased 12% on a consolidated basis, driven by 17% growth in Mexico and 7% growth in the U.S.
  • Short-term loan and credit services revenues (collectively, payday loan products) from the Company's stand-alone consumer loan stores that do not offer pawn loans, decreased 4% as compared to the prior-year period. Consolidated third quarter revenue from payday loan products increased 5%, primarily due to the acquisition of Mister Money, which offers payday loans as a minor ancillary product in their large format, full-service pawn stores. Including the acquisition of Mister Money, payday loan-related products comprised 9% of total revenue for the third quarter.

Pawn Metrics

  • Consolidated pawn receivables at September 30, 2012 totaled a record $108 million, an increase of 38% over the prior year (35% on a constant currency basis). In Mexico, pawn receivables increased 43% (36% on a constant currency basis), driven by 17% same-store receivable growth and the continued increase in store counts. Pawn receivables in the U.S. increased by 34% versus the prior year, primarily driven by store count growth and same-store receivable growth of 4%.
  • The consolidated gross margin on retail merchandise sales was 43% for the third quarter, compared to 41% in the prior-year quarter and 42% in the previous sequential quarter. The increase was driven by significantly improved retail margins in Mexico, which increased approximately 300 basis points versus the prior-year period. The consolidated gross margin on wholesale scrap jewelry was 27% for the quarter and 26% year-to-date, reflecting higher jewelry acquisition costs compared to the prior year.
  • Consolidated annualized inventory turns in the third quarter were 4.4 turns versus 3.9 turns during the comparable prior-year quarter, driven by improved inventory quality and retail demand.
  • On a consolidated basis, at September 30, 2012, 60% of total pawn loans were collateralized with hard goods (electronics, tools and appliances) with the remaining 40% collateralized by jewelry. In Mexico, 83% of the Company's pawns were collateralized with hard goods, and only 17% were collateralized with jewelry, compared to 77% and 23%, respectively, one year ago. In the U.S., jewelry comprised 64% of pawn collateral as of the quarter end, compared to a 66% jewelry mix last year. 

Profitability and Return Metrics

  • The Company's return on equity for the trailing twelve months increased to 24% versus 22% in the comparable prior-year period.     
  • Consolidated net operating margin (pre-tax income) was 20% for the trailing twelve month period, while store-level operating profit margins were 29% for the trailing twelve month period.       

Acquisitions and New Store Openings

  • In total, the Company added 36 pawn store locations during the third quarter of 2012.  Year-to-date, a total of 139 stores have been opened or acquired, compared to 69 additions at this point last year.  The Company has completed the majority of its planned new store openings for 2012.
  • Pawn store openings in the third quarter included 18 new stores in Mexico. Year-to-date, a total of 89 Mexico stores have been added, which includes 60 new store openings and a 29-store acquisition in January 2012. As of September 30, 2012, First Cash had 536 stores in Mexico, of which 483 are large format, full-service stores. The Company has increased the number of large format pawn stores in Mexico by 94 locations, or 24%, over the past twelve months.
  • On September 14, 2012, the Company completed the acquisition of Fast Cash Pawn located in Denver, Colorado. The 16 acquired locations are all large format, full-service stores.  Transaction costs and integration expenses associated with this and previously completed 2012 acquisitions reduced third quarter earnings by approximately $0.02 per share.  The assets, liabilities and operating results were included in the Company's consolidated results as of the closing date. The Company has successfully completed the integration of the Fast Cash stores into its point-of-sale and management information systems.
  • U.S. pawn store openings in the third quarter also included two new store openings in Texas and South Carolina.  Year-to-date, a total of 50 U.S. stores have been opened or acquired.  As of September 30, 2012, First Cash had 274 stores in the U.S., of which 182 are large format, full-service pawn stores. The Company has increased the number of large format pawn stores in the U.S. by 58 locations, or 47%, over the past twelve months.

Financial Position & Liquidity

  • During the nine month period ended September 30, 2012, the Company utilized cash on-hand, operating cash flows and its credit facility to fund $108 million of pawn store acquisitions, repurchase $61 million of common stock and invest $16 million in capital expenditures. 
  • EBITDA from continuing operations for the trailing twelve months was $126 million, an increase of 11% versus the comparable prior twelve-month period.  EBITDA margins were 22% for the trailing twelve months versus 23% for the prior-year period. Free cash flow for the trailing twelve months increased to $42 million, compared to $34 million in the comparable prior-year period. EBITDA and free cash flow are defined in the detailed reconciliation of these non-GAAP financial measures provided elsewhere in this release.
  • In September 2012, the Company entered into an agreement to expand its bank credit facility. The number of commercial bank lenders participating in the facility increased from two to five lenders and the amount of the facility was increased from $100 million to $175 million. The facility bears interest at the prevailing LIBOR rate plus a fixed spread of 2.0% and matures in February 2015. The total interest rate on the facility is currently 2.25% annually. At September 30, 2012, the Company had $111 million outstanding on the facility.  

Discontinued Payday Operations

  • During the third quarter, the Company elected to close seven stand-alone small format payday/consumer loan stores in the Texas cities of Austin and Dallas that were primarily focused on offering credit services products. The Company intends to continue to operate the 19 pawn stores in these markets that have pawn licenses and offer pawn products. A loss on disposal of the seven stores of $633,000 or $0.03 per share, net of tax, has been recorded in the third quarter of 2012 as a discontinued operation. The loss is primarily a non-cash charge associated with a goodwill write-down on the seven closed locations.  The operating results from continuing operations have been reclassified to exclude these Texas stores' results in 2012 and comparative prior-year periods.  Over the past five years, the Company has strategically divested or closed 68 payday/consumer lending locations in seven states as part of its strategy of focusing growth on large format pawn operations. 

Fiscal 2012 Outlook

  • While the outlook for payday lending earnings has been reduced by approximately $0.04 per share, the Company expects full-year earnings to remain in a range of $2.70 to $2.75 per share based on the strength of its core pawn operations. 
  • Approximately 91% to 92% of 2012 revenues are expected to be derived from growing pawn operations, with the remainder expected to come from consumer loan and credit services operations. 

Commentary & Analysis

Mr. Rick Wessel, chief executive officer, commented on the third quarter results, "We are very pleased with our third quarter results, which continue to be driven by impressive growth in our core pawn business. We achieved several significant milestones during the quarter as we opened our 800 th store, acquired an additional 16 pawn stores in the U.S. and continued our industry-leading record pace of large format de novo store growth in Mexico. Consolidated pawn receivables increased 35% over the prior year, topping $100 million for the first time in Company history. The growth in pawn receivables drove an impressive 31% increase in total pawn service fees for the quarter.  This is a strong leading indicator for the future growth of pawn fees and positions us well for not only a strong finish to this year, but also a solid start to next year."

"We remain excited and encouraged by the strong pawn growth in Mexico, which saw a 36% increase in pawn receivables and 35% growth in pawn fees.  These results demonstrate the consistency and profitability of our large format business model in Mexico, where our pawn operations are now almost entirely focused on hard good (non-gold) lending and retail sales. We have clearly differentiated ourselves in Mexico, where we have a dominant share of the large format, full-service retail pawn market."  

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