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First Cash Reports Second Quarter Earnings Per Share Of $0.53; Revenue From Core Pawn Operations Increases 25%; Same-Store Revenue Up 9%

Stocks in this article: FCFS

ARLINGTON, Texas, July 17, 2013 (GLOBE NEWSWIRE) -- First Cash Financial Services, Inc. (Nasdaq:FCFS) today announced revenue, net income and earnings per share for the three-month period ended June 30, 2013.

Earnings Highlights

  • Diluted earnings per share for the second quarter of 2013 were $0.53, which included $0.04 of non-recurring expenses related to acquisition costs and integration charges primarily associated with the acquisition of a chain of 19 pawn stores in Texas that was completed at the end of the second quarter. This compares to earnings per share of $0.56 in the second quarter of 2012.
  • Year-to-date diluted earnings per share increased 7% to $1.21, which also included $0.04 of non-recurring expenses, compared to $1.13 in the comparable prior-year period.

Revenue Highlights

Revenue growth rates presented below on a constant currency basis are 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 second quarter of 2013 was 12.5 Mexican pesos / U.S. dollar versus 13.5 Mexican pesos / U.S. dollar in the comparable prior-year period.

  • Revenue from core pawn store operations (retail merchandise sales and pawn loan fees) increased 32% for the quarter (25% on a constant currency basis).
  • Retail merchandise sales in the Company's pawn stores increased by 35% for the second quarter (28% on a constant currency basis), while revenue from pawn fees increased 27% versus the prior-year second quarter (21% on a constant currency basis).
  • Same-store revenue in the Company's pawn stores (which excludes wholesale jewelry scrapping) increased 22% in Mexico, 4% in the U.S. and 15% on a consolidated basis for the second quarter, as compared to the prior year. The same measures, on a constant currency basis, increased 12% in Mexico, 4% in the U.S. and 9% overall.
  • Revenue from non-core wholesale scrap jewelry operations in the second quarter decreased 78% compared to the same period last year and reflects lower gold prices and the Company's decision to hold a significant portion of its second quarter scrap gold production in inventory rather than selling it at market prices during the quarter. The average selling price for the 2,100 ounces of gold liquidated during the quarter was $1,561 per ounce, which generated a scrap gross profit margin of 13%. Scrap jewelry profits accounted for only 1% of net revenue (gross profit) for the second quarter, compared to 7% in the second quarter of the prior year.
  • Short-term loan and credit services revenue (collectively, payday loan products) decreased 11% in the second quarter compared to the prior-year quarter, primarily the result of a 16% decrease in revenue from the Company's U.S. stand-alone small format stores that are all located in Texas. The Company attributes much of the decrease to increased competition from online and other store-front lenders such as installment and title loan providers in the Texas markets. U.S. payday loan-related products comprised less than 7% of total revenue for the second quarter.

Pawn Metrics

  • Consolidated pawn loans at June 30, 2013, totaled $112 million, an increase of 27% over the prior year (24% on a constant currency basis). Total pawn loans in the U.S. increased by 38% versus the prior year, reflecting acquisition growth, while in Mexico total pawn loans increased 17% (11% on a constant currency basis). Pawn loans collateralized with non-jewelry hard good items increased 19% in Mexico (constant currency basis), while jewelry pawn loan growth in both the U.S. and Mexico was dampened to a degree by lessened demand for jewelry pawns and adjustments to the loan to value ratios associated with lower gold prices.
  • At June 30, 2013, 64% of total pawn loans were collateralized with hard goods (electronics, tools and appliances) with the remaining 36% collateralized by jewelry. In Mexico, 87% of the Company's pawn loans were collateralized with hard goods, and only 13% were collateralized with jewelry, compared to 80% and 20%, respectively, one year ago. In the Company's U.S. stores, jewelry comprised 61% of pawn collateral as of the quarter end, compared to 65% last year.
  • The consolidated gross margin on retail merchandise sales was 39% for the second quarter of 2013 and 40% year-to-date, compared to 42% for the comparable periods in 2012.  The slight decline in retail margins relates primarily to the continued shift in the Company's retail product mix toward lower margin hard good items and away from jewelry, resulting from the overall growth of the hard good business, especially in Mexico.
  • Ending inventories included approximately 7,700 ounces of gold derived from scrap jewelry at a cost of $9.3 million. Excluding this amount, inventories totaled $72.7 million, up 37% over prior year, which was consistent with the growth in pawn loans. Consolidated annualized inventory turns, excluding the held gold inventory, were 3.9. 

Acquisitions and New Store Openings

  • In total, the Company added 33 large-format pawn store locations during the second quarter of 2013. Year-to-date, a total of 55 stores have been opened or acquired. As of June 30, 2013, the Company had 299 stores in the U.S, of which 208 are large format, full-service pawn stores, and 568 stores in Mexico, of which 516 are large format, full-service stores.
  • On June 25, 2013, the Company completed the acquisition of Valu + Pawn, located in Texas. The 19 acquired locations are all large format, full-service stores. Transaction costs and integration expenses associated with this and previously completed acquisitions reduced second quarter earnings by approximately $0.04 per share. The assets, liabilities and operating results were included in the Company's consolidated results as of the closing date. There were also four U.S. pawn store additions in the second quarter that included two new store openings in Texas and two acquired stores in Maryland and Texas.

  Financial Metrics & Liquidity

  • Consistent with last year, the 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. The Company's return on equity for the trailing twelve months ended June 30, 2013, was 23% versus 24% in the comparable prior-year period.    
  • EBITDA from continuing operations for the trailing twelve months ended June 30, 2013, was $143 million, an increase of 16% versus the comparable prior twelve-month period. The EBITDA margin from continuing operations of 23% for the trailing twelve months equaled the prior-year period. Free cash flow for the trailing twelve months was $58 million. EBITDA from continuing operations and free cash flow are defined in the detailed reconciliation of these non-GAAP financial measures provided elsewhere in this release.
  • Over the past twelve months, the Company has invested $122 million in acquisitions, $39 million in stock repurchases, $22 million in capital expenditures and $21 million in net new loans and inventory. As of June 30, 2013, the Company had $153 million outstanding and $22 million of availability under its $175 million bank credit facility. The Company's credit facility bears interest at the prevailing LIBOR rate plus a fixed spread of 2.0% and matures in February 2015. The Company ended the quarter with $33 million in cash on the balance sheet.
  • In January 2013, the Board of Directors of the Company authorized a program for the repurchase of up to 1,500,000 shares of its common stock. The Company repurchased 729,000 shares of its common stock during the second quarter of 2013 at an aggregate cost of $39 million and an average price per share of $53.07. At June 30, 2013, a total of 771,000 shares remain available for repurchase under the current authorization. 

Fiscal 2013 Outlook

  • As previously provided, the full-year 2013 guidance projects earnings growth over the prior year with earnings per share to be in a range of $2.75 to $2.90. This forecast is predicated on gold prices remaining in the $1,200 to $1,300 range and the Mexican peso to U.S. dollar exchange rate at approximately 13 to 1.
  • Excluding potential future acquisitions, the Company expects to add approximately 85 to 95 new locations in 2013, the majority of which will be in Mexico. All of the anticipated 2013 store openings will be large format pawn stores.
  • Approximately 93% of 2013 revenues are expected to be derived from the Company's 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 second quarter results, "We are pleased with the results of our core pawn operations, posting 9% same-store sales growth driven by our pawn retailing and lending activities. Retail sales of pawn merchandise were the strongest part of our operation, particularly in Mexico where almost 90% of our retail inventory is comprised of hard goods. On a constant currency basis, same-store retail merchandise sales increased 15% in Mexico and 4% in the U.S. Despite some pressure from lower loan to value ratios on gold, pawn growth remained solid with same-store pawn fee increases of 8% in Mexico and 5% in the U.S. versus the prior year."

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