Market Overview

FirstCash Reports Fourth Quarter and Full-Year Earnings Results; Declares Quarterly Dividend and Issues 2019 Earnings Outlook

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FORT WORTH, Texas, Jan. 31, 2019 (GLOBE NEWSWIRE) -- FirstCash, Inc. (the "Company") (NASDAQ:FCFS), the leading international operator of more than 2,450 retail pawn stores in the U.S. and four countries in Latin America, today announced earnings per share for the fourth quarter and the full year ended December 31, 2018. In addition, the Board of Directors declared a $0.25 per share quarterly cash dividend to be paid in February 2019. The Company also initiated its fiscal full-year 2019 earnings guidance.

Mr. Rick Wessel, chief executive officer, stated, "Fiscal 2018 was another outstanding year for FirstCash, marked by continued growth in operating margins, net income and store counts. The fourth quarter results produced strong profitability and growth metrics in both the U.S. and Latin America, highlighted by increasing year-over-year pawn fees and retail margins in the U.S. and sequential improvement in same-store loan growth and retail margins in Latin America. In addition, the Company added 445 new locations in 2018 through acquisitions and new store openings, which resulted in an increase of more than 20% in the number of pawn locations. Our fourth quarter momentum and the significant increase in store count should position us for further revenue and earnings expansion from core pawn operations in 2019."

This release contains adjusted earnings measures, which exclude, among other things, merger and other acquisition expenses, and are non-GAAP financial measures. Please refer to the descriptions and reconciliations to GAAP of these and other non-GAAP financial measures at the end of this release.

  Three Months Ended December 31,
  2018   2017
  As Reported   Adjusted   As Reported   Adjusted
In thousands, except per share amounts (GAAP)   (Non-GAAP)   (GAAP)   (Non-GAAP)
Revenue $ 481,208     $ 481,208     $ 480,205     $ 480,205  
Net income $ 48,075     $ 49,201     $ 67,734     $ 44,181  
Diluted earnings per share $ 1.09     $ 1.12     $ 1.43     $ 0.94  
EBITDA (non-GAAP measure) $ 81,404     $ 84,987     $ 75,213     $ 81,111  
Weighted-average diluted shares 43,936     43,936     47,212     47,212  


  Twelve Months Ended December 31,
  2018   2017
  As Reported   Adjusted   As Reported   Adjusted
In thousands, except per share amounts (GAAP)   (Non-GAAP)   (GAAP)   (Non-GAAP)
Revenue $ 1,780,858     $ 1,780,858     $ 1,779,822     $ 1,779,822  
Net income $ 153,206     $ 158,290     $ 143,892     $ 131,225  
Diluted earnings per share $ 3.41     $ 3.53     $ 3.00     $ 2.74  
EBITDA (non-GAAP measure) $ 274,999     $ 284,156     $ 249,983     $ 273,159  
Weighted-average diluted shares 44,884     44,884     47,888     47,888  
                       

As a reminder, in the fourth quarter of 2017, the Company recorded a provisional net income tax benefit of $27 million, or $0.57 per share, as a result of the passage of the Tax Cuts and Jobs Act ("Tax Act"). In the fourth quarter of 2018, the Company finalized certain estimates and tax positions used in the analysis of the 2017 provisional net income tax benefit and recorded an additional income tax benefit of $1.5 million, or $0.03 per share. The Company has excluded the non-recurring net income tax benefits realized during fiscal 2018 and 2017 as a result of the Tax Act in its adjusted earnings measures.

Earnings Highlights

  • As noted above, comparable fourth quarter and full-year diluted earnings per share and net income on a GAAP basis were impacted in particular by the Tax Act and the resulting $27 million non-recurring tax benefit recorded in the fourth quarter of 2017. As a result, diluted earnings per share, on a GAAP basis, decreased 24% in the fourth quarter of 2018 and increased 14% for fiscal 2018 compared to the prior-year periods. Net income, on a GAAP basis, for the fourth quarter of 2018 decreased 29% compared to the fourth quarter of 2017 and increased 6% for the full year compared to the prior-year period.

  • Adjusted diluted earnings per share increased 19% for the fourth quarter and 29% for the full year compared to the respective prior-year periods. Adjusted net income increased 11% for the fourth quarter and 21% for the full year compared to the respective prior-year periods. Non-GAAP adjusted earnings per share and net income exclude the non-recurring tax benefits as described above, and certain merger, acquisition, consumer lending impairment expenses and debt extinguishment costs, which are further described in the reconciliations to GAAP earnings measures at the end of this release.

  • Consolidated revenues for 2018 totaled $1.8 billion, while net income was $153 million and adjusted EBITDA, a non-GAAP financial measure, totaled $284 million.

  • Cash flow from operating activities for 2018 totaled a record $243 million, an increase of 10% compared to $220 million in 2017. Adjusted free cash flow, a non-GAAP financial measure, was $225 million for 2018 compared to $242 million in 2017.

  • The pre-tax profit margin for the fourth quarter of 2018 increased to 13.1% compared to 11.9% in the prior-year quarter, and for the full year increased to 11.5% compared to 9.7% last year. The adjusted pre-tax profit margin, a non-GAAP financial measure, increased to 13.9% for the quarter and 12.0% for the full year, compared to 13.1% and 11.0% for the respective prior-year periods.

  • The net income margin, on a GAAP basis, for the fourth quarter of 2018 was 10.0% compared to 14.1% in the prior-year quarter and was 8.6% for the full year of 2018 compared to 8.1% last year. Prior-year quarter and full-year net income margin on a GAAP basis included the non-recurring benefit from the Tax Act. The adjusted net income margin, a non-GAAP financial measure, improved to 10.2% for the quarter and 8.9% year-to-date, compared to 9.2% and 7.4% for the respective prior-year periods.

  • Other items of note which impacted the comparability of both GAAP and adjusted earnings measures included a $4 million, or $0.10 per share, benefit from the lower U.S. corporate tax rate as compared to the fourth quarter of 2017 and a $14 million benefit, or $0.32 per share, for the full year. This tax benefit was largely offset by the contraction in non-core consumer lending operations, which negatively impacted earnings per share by approximately $0.07 for the quarter and $0.26 for the full year, as compared to the same prior-year periods.  In addition, the impact of a weaker Mexican peso in 2018 negatively impacted comparative dollar-denominated earnings per share by $0.02 in the fourth quarter and full-year periods.

Acquisition and Store Opening Highlights

  • The Company continued to grow its store base, completing four separate multi-store acquisitions during the fourth quarter of 2018, which combined, added an aggregate total of 33 full-service pawn stores. The acquisitions included nine stores from two transactions in Texas and 24 stores from two transactions in Mexico. In total, for the full year of 2018, the Company completed aggregated acquisitions of 393 stores, which included 366 stores in Latin America and 27 stores in the U.S., for a total purchase price of $125 million.

  • The Company opened nine new locations in Latin America during the fourth quarter. For the year, 52 de novo stores were opened in three countries, which included 42 stores in Mexico, six stores in Guatemala and four stores in Colombia.

  • In total, the Company opened and acquired 445 store locations across four countries in 2018, increasing the number of pawn stores more than 20% for the year. Approximately 94% of the stores added in 2018 were located in Latin America.

  • As of December 31, 2018, the Company operated 2,473 stores, with 1,379 stores in Latin America, representing 56% of total store base, and 1,094 stores in the U.S., representing 44% of the store base. The Latin American locations include 1,323 stores in Mexico, 39 stores in Guatemala, 13 stores in El Salvador and four stores in Colombia while the U.S. stores are located in 24 states and the District of Columbia. 

Note: Certain growth rates in "Latin America Operations" below are calculated on a constant currency basis, a non-GAAP financial measure defined at the end of this release and reconciled to the most comparable GAAP measures in the financial statements in this release. The average Mexican peso to U.S. dollar exchange rate for fiscal 2018 was 19.2 pesos / dollar, an unfavorable change of 2% versus the comparable prior-year period, and for the fourth quarter of 2018 was 19.8 pesos / dollar, an unfavorable change of 5% versus the prior-year period.

Latin America Operations

  • Revenues for the fourth quarter of 2018 totaled $162 million, an increase of 13% on a U.S. dollar translated basis and 18% on a constant currency basis, as compared to the fourth quarter of 2017. For the full year,  revenues totaled $557 million and increased 14% on a U.S. dollar translated basis and 16% on a constant currency basis.

  • Core pawn revenues, which are composed of pawn fees and retail merchandise sales, increased 14% for the quarter on a U.S. dollar translated basis, driven by a 22% increase in pawn fees and a 12% increase in retail sales compared to the prior-year quarter. On a constant currency basis, core pawn revenues for the quarter increased 20% with pawn fees and retail merchandise sales increasing 28% and 17%, respectively, as compared to the prior-year quarter.

  • Segment pre-tax operating income for the quarter increased 10%, or 14% on a constant currency basis, compared to the fourth quarter of 2017 and increased 10%, or 12% on a constant currency basis, during the full year compared to the prior year. Pre-tax profit margin growth in 2018 was partially impacted by the significant acquisition and integration activity in 2018 and the discontinuance of non-core, unsecured consumer lending products in Mexico.

  • Reflecting the 5% decline in the value of the Mexican peso compared to the prior-year quarter, same-store core pawn revenues declined 2% on a U.S. dollar translated basis, consisting of a 2% decrease in same-store retail sales and a 1% decrease in same-store pawn fees compared to the prior-year quarter. On a constant currency basis, same-store core pawn revenues increased 3%, composed of a 3% increase in same-store retail sales and a 4% increase in same-store pawn fees compared to the prior-year quarter.

  • Pawn loans outstanding totaled $91 million at December 31, 2018, an increase of 34% on both a U.S. dollar translated and constant currency basis versus the prior year. The significant growth was driven by a combination of the acquisitions, new stores and a 7% increase in same-store pawn loans (both on a U.S. dollar translated and constant currency basis), compared to the prior year. The same-store increase as of year end represented a significant sequential improvement over the second and third quarters, when adjustments made to loan-to-value ratios and macro demand factors contributed to slower same-store loan growth.

  • While the overall environment in Latin America remains highly competitive, segment retail margins were 36% in the fourth quarter, which equaled the prior-year quarter and improved sequentially compared to 35% in the third quarter of 2018.

  • Inventories at December 31, 2018 increased $15 million to $75 million compared to $60 million a year ago. The increase was driven by the net addition of 408 pawn stores during the year and continued maturation of existing stores. As of December 31, 2018, inventories aged greater than one year remained extremely low at 1% and inventory turns in Latin America for the year ended December 31, 2018 remained strong at 3.9 times.

U.S. Operations

  • Segment pre-tax operating income for the quarter increased 5% compared to the fourth quarter of 2017, driven primarily by increased retail margins and store-level expense reductions. The increase in the segment contribution was partially offset by an expected reduction in non-core consumer lending operating profits. Excluding locations whose revenues are generated primarily from non-core consumer lending products (primarily small stores located in Ohio), segment pre-tax operating income increased 11% in the fourth quarter compared to the prior-year.

  • The segment pre-tax operating margin improved to 22% for the fourth quarter of 2018 as compared to 20% in the prior-year quarter. For the full year of 2018, the margin improved from 19% to 20%.

  • Total revenues for the fourth quarter were $319 million, a decrease of 5% compared to the fourth quarter of 2017, and included the expected impact of a 27% decline, or $5 million, in non-core consumer loan and credit services fees and a 45% decline, or $12 million, in non-core scrap jewelry sales.

  • While gross revenue declined, net revenue (or gross profit) for the fourth quarter of 2018 increased 1%.  More importantly, net revenue from core pawn operations increased 5% compared to the prior-year quarter as a result of the continued improvements in retail sales margins and pawn yields as highlighted below.

  • Total retail sales decreased 2% compared to the fourth quarter of 2017, while same-store retail sales declined 3% compared to the prior-year quarter. The quarter-over-quarter decline in top line retail sales was impacted by higher than normal retail sales in the fourth quarter of 2017 when there was a significant focus on the liquidation of excess and aged inventories in the Cash America locations. 

  • Although total retail sales declined, net revenue (or gross profit) from retail sales increased 8% compared to the fourth quarter of 2017 as retail sales margins improved to 37% for the current quarter compared to 34% in the prior-year quarter. The margin improvements were driven primarily by the legacy Cash America locations as new employee compensation plans were implemented in the second quarter and aged inventory levels normalized during 2018.

  • Pawn loans outstanding at December 31, 2018 totaled $272 million, a decrease of 2% in total and 3% on a same-store basis. The decrease was partially due to the continued focus on increasing the volume of direct purchases of goods from customers in the legacy Cash America stores, which resulted in a 17% increase in the percentage of such direct purchase transactions for the quarter as compared to the prior-year quarter. Although these transactions negatively impacted pawn loan growth, the Company believes that offering to purchase goods directly from customers who do not necessarily want or intend to repay their pawn loan improves redemption rates and yields on loans written, and improves inventory turns at better retail margins.

  • Despite the slight decline in pawn loans outstanding, total pawn fees increased 3% and same-store pawn fee revenues increased 2% in the fourth quarter compared to the prior-year quarter as pawn yields improved by 4% quarter-over-quarter.

  • Segment expenses as a percentage of net revenue declined from 62% in the fourth quarter of last year to 61% in the fourth quarter of 2018, primarily due to continued efforts to integrate and optimize domestic store operations.
     
  • Inventories at December 31, 2018 declined $17 million, or 8%, to $200 million compared to $217 million a year ago and declined 29% compared to $283 million at December 31, 2016, following the Cash America merger. The declines are primarily a result of strategic reductions in overall inventory levels, including focused liquidation of aged inventories in the legacy Cash America stores. As of December 31, 2018, U.S. inventories aged greater than one year were 4%, which was a significant improvement over the 6% aged level at December 31, 2017 and the 11% aged level at December 31, 2016, following the merger.

  • Inventory turns in the U.S. for the year ended December 31, 2018 were 2.7 times, which represents the fifth sequential quarterly increase and compares to 2.3 times for the year ended December 31, 2017. Inventory turns in the U.S. are slower than in Latin America due to the larger jewelry component in the U.S. compared to a greater general merchandise inventory component in Latin America. 

Consumer Lending Contraction and Asset Impairments

  • The Company further contracted its U.S. consumer lending operations during the fourth quarter of 2018 by closing an additional 13 stand-alone consumer lending locations and discontinuing ancillary unsecured consumer loan products in 39 domestic pawn locations.

  • For the full year, the Company closed 55 stand-alone consumer lending locations, including 27 in the U.S. and the remaining 28 in Mexico. In addition, consumer lending products were discontinued in 45 U.S. pawnshops and 49 pawnshops in Mexico, which previously offered them as ancillary products. The Company no longer offers an unsecured consumer loan product in Latin America.

  • In the original fiscal 2018 guidance issued on February 1, 2018, the earnings drag from the contraction of consumer lending operations was estimated to be between $0.14 and $0.17 per share. As a result of the Company more aggressively closing consumer loan stores and discontinuing ancillary unsecured consumer loan products in certain pawnshops, the actual fiscal 2018 earnings drag from consumer lending operations was approximately $0.26 per share when compared to fiscal 2017.  Consolidated revenues from consumer lending products declined by 27% for the full year of 2018 and by 29% in the fourth quarter as compared to the prior-year period. Consumer lending represented 3% of total revenues in the fourth quarter and the full year of 2018 versus 4% in the prior-year respective periods.

  • The provisions of the Ohio Fairness in Lending Act (the "Ohio Act") passed in 2018 are to become effective on April 26, 2019 and are expected to significantly impact the consumer loan industry in Ohio. The Ohio Act essentially eliminates most single pay consumer loan products and the use of credit service organizations (CSOs) in Ohio, both of which are elements of the Company's current consumer lending product
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