Market Overview

FirstCash Reports Record First Quarter Results; Announces Acquisitions and Openings Totaling 164 Stores; Declares Quarterly Dividend of $0.25 per Share; Increases 2019 Earnings Guidance

Share:

FORT WORTH, Texas, April 24, 2019 (GLOBE NEWSWIRE) -- FirstCash, Inc. (the "Company") (NASDAQ:FCFS), the leading international operator of more than 2,600 retail pawn stores in the U.S. and four countries in Latin America, today announced operating results, including earnings per share and store additions, for the three month period ended March 31, 2019. The Company also announced an increase in its 2019 earnings guidance at both the top and bottom ends of its previous range by $0.05 per share. Additionally, the Board of Directors declared a $0.25 per share quarterly cash dividend.

Mr. Rick Wessel, chief executive officer, stated, "We reported strong first quarter performance driven by record revenue growth in Latin America and continued improvements in U.S. operating margins. A total of 128 stores were acquired in the quarter, primarily in Latin America where the Company also opened a record 36 de novo stores in three countries. With the addition of these 164 stores, we now have approximately 20,000 employees in over 2,600 locations as we continue to lay a foundation for continued long-term revenue and earnings growth."

This release contains adjusted earnings measures, which exclude merger and other acquisition expenses and certain non-cash foreign currency exchange gains and losses, which 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 March 31,
    As Reported (GAAP)   Adjusted (Non-GAAP)
In thousands, except per share amounts   2019   2018   2019   2018
Revenue   $ 467,604     $ 449,800     $ 467,604     $ 449,800  
Net income   $ 42,655     $ 41,635     $ 42,521     $ 41,819  
Diluted earnings per share   $ 0.98     $ 0.90     $ 0.97     $ 0.90  
EBITDA (non-GAAP measure)   $ 76,883     $ 72,279     $ 76,692     $ 72,518  
Weighted-average diluted shares   43,658     46,479     43,658     46,479  

Earnings Highlights

  • Diluted earnings per share increased 9% on a GAAP basis in the first quarter of 2019 compared to the first quarter of 2018, while increasing 8% on a non-GAAP adjusted basis.

  • Net income for the first quarter of 2019 increased 2% compared to the first quarter of 2018 on both a GAAP and non-GAAP adjusted basis. EBITDA and adjusted EBITDA, which are non-GAAP financial measures, increased 6% in the first quarter of 2019 compared to the prior-year quarter.

  • For the trailing twelve months ended March 31, 2019, consolidated revenues totaled $1.8 billion, net income was $154 million and adjusted EBITDA, a non-GAAP financial measure, totaled $288 million.

  • Cash flow from operating activities for the trailing twelve months ended March 31, 2019 totaled $224 million, while adjusted free cash flow, a non-GAAP financial measure, was $186 million for the twelve months ended March 31, 2019.

  • Pre-tax profit margin for the first quarter of 2019 was 12.6% while the adjusted pre-tax profit margin, a non-GAAP financial measure, was 12.5%.

  • Items which impacted the comparability of year-over-year earnings per share for the first quarter of 2019 included the following:

      °  Further contraction in non-core consumer lending operations in 2019 negatively impacted earnings per share by approximately $0.03 for the quarter as compared to the same prior-year period.

      °  An increase in the effective tax rate to 27.5% for the first quarter of 2019, compared to 25.4% during the first quarter of 2018, negatively impacted comparative earnings per share by approximately $0.03.

      °  An increased step up in the level of administrative expenses in Latin America, due primarily to the extraordinary level of store growth over the past twelve months, negatively impacted comparable earnings per share by approximately $0.04. As additional acquisition synergies begin to be realized in the latter part of the year, the Company believes the growth rate in administrative expenses will moderate.

      °  The impact of a weaker Mexican peso in 2019 negatively impacted comparative dollar-denominated earnings per share by $0.01.

Acquisition and Store Opening Highlights

  • The Company completed four acquisitions during the first quarter of 2019, which added a total of 128 full-service pawn stores. The total purchase price of the acquisitions was $24 million which included 118 former Prendamex franchise locations in central and southern Mexico and 10 full format locations in Texas.

  • During the first quarter, the Company opened a record 36 new locations in Latin America, which included 24 stores in Mexico, 11 stores in Guatemala and one store in Colombia.

  • In total, the Company opened and acquired 164 store locations across four countries during the first quarter of 2019.

  • Over the twelve-month period ended March 31, 2019, the Company has added 469 locations, increasing its number of pawn stores 22%. Over 90% of the stores added in the last twelve months are located in Latin America.

  • As of March 31, 2019, the Company operated 2,630 stores, with 1,530 stores in Latin America, representing 58% of the total store base, and 1,100 stores in the U.S. The Latin American locations include 1,462 stores in Mexico, 50 stores in Guatemala, 13 stores in El Salvador and five stores in Colombia while the U.S. stores are located in 24 states and the District of Columbia.

  • In early April 2019, subsequent to quarter end, the Company completed three additional multi-store acquisitions adding a total of 18 stores, 10 of which are in Texas and eight in Mexico, which are not included in the first quarter totals above.

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 the three-month period ended March 31, 2019 was 19.2 pesos / dollar, an unfavorable change of 2% versus the comparable prior-year period.

Latin America Operations

  • Revenues for the first quarter of 2019 totaled a record $150 million, an increase of 22% on a U.S. dollar basis and 25% on a constant currency basis, as compared to the first quarter of 2018.

  • Core pawn revenues, which are composed of pawn fees and retail merchandise sales, increased 20% for the quarter on a U.S. dollar basis, driven by a 29% increase in pawn fees and a 16% increase in retail sales compared to the prior-year quarter. On a constant currency basis, core pawn revenues for the quarter increased 23% with pawn fees and retail merchandise sales increasing 32% and 19%, respectively, as compared to the prior-year quarter. 

  • Segment pre-tax operating income for the quarter increased 19%, or 21% on a constant currency basis, compared to the first quarter of 2018, driven by increased store additions and increased same-store revenues.

  • Pre-tax segment margin for the first quarter of 2019 was 22% and consistent with the prior year despite the impacts of the significant acquisition activity last year and in the first quarter of 2019, the earnings drag from the increased pace of new store openings in 2019 and the discontinuance of non-core unsecured consumer lending products in Mexico in June of 2018.

  • Pawn loans outstanding totaled a record $112 million at March 31, 2019, an increase of 30% on a U.S. dollar translated basis and 38% on a constant currency basis versus the prior year. Same-store pawn loans at quarter end increased 3% on a U.S. dollar translated basis, while they increased 9% on a constant currency basis, compared to the same prior-year quarter.

  • Despite a 2% decline in the value of the Mexican peso compared to the prior-year quarter, same-store core pawn revenues increased 1% on a U.S. dollar translated basis, consisting of a 5% increase in same-store pawn fees and flat same-store retail sales compared to the prior-year quarter. On a constant currency basis, same-store core pawn revenues increased 4%, composed of an 8% increase in same-store pawn fees and a 3% increase in same-store retail sales compared to the prior-year quarter.

  • Segment retail margins increased to 37% in the first quarter, compared to 36% in the prior-year quarter, driven primarily by focused efforts on merchandise valuation and lending practices. 

  • Inventories at March 31, 2019 increased $16 million to $83 million compared to $67 million a year ago. The increase was driven by the net addition of 425 pawn stores over the past twelve months and continued maturation of existing stores. As of March 31, 2019, inventories aged greater than one year remained extremely low at 1% and inventory turns in Latin America for the trailing twelve months ended March 31, 2019 remained strong at 3.8 times.

  • Total store operating expenses increased 27% for the quarter, or 30% on a constant currency basis, due primarily to store additions. Same-store operating expenses increased only 2% in the first quarter of 2019, or 4% on a constant currency basis.

U.S. Operations

  • Segment pre-tax operating income for the quarter increased 5% compared to the first quarter of 2018, driven primarily by increased pawn fees, retail margins and continued store-level expense reductions. The increase in the segment contribution was partially offset by an expected reduction in non-core consumer lending operating profits.

  • Segment pre-tax operating margin improved to 21% for the first quarter of 2019 as compared to 20% in the prior-year quarter primarily due to improved retail margins, pawn loan fees and operating efficiencies.

  • Total revenues for the first quarter were $318 million, a decrease of 3% compared to the first quarter of 2018, and included the expected impact of a 30% decline, or $5 million, in non-core consumer loan and credit services fees and a 23% decline, or $7 million, in non-core scrap jewelry sales. Core revenues from pawn fees and retail sales increased by 1%.

  • Net revenue (or gross profit) for the first quarter of 2019 increased 1%, despite the declines in non-core revenues. More importantly, net revenue from core pawn operations increased 3% compared to the prior-year quarter as a result of the continued improvements in retail sales margins and pawn yields as highlighted below.

  • Retail sales margin increased to 37% for the quarter compared to 35% in the prior-year quarter. The increase in margins has been driven primarily by optimizing loan-to-value ratios and reduced aged inventory levels in the legacy Cash America stores. Despite continued growth of online retailing in general, the Company's retail sales, which are all store-generated, were flat compared to the first quarter of 2018 and same-store retail sales declined only 1% compared to the prior-year quarter.

  • Pawn fees increased 2% and same-store pawn fee revenues increased 1% in the first quarter compared to the prior-year quarter as pawn yields improved by 3% quarter-over-quarter.

  • Pawn loans outstanding at March 31, 2019 totaled $234 million, a decrease of 1% 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 21% increase in the percentage of such direct purchase transactions for the quarter as compared to the prior-year quarter.

  • Inventories at March 31, 2019 declined $12 million, or 7%, to $175 million compared to $188 million a year ago, primarily from strategic reductions in overall inventory levels. As of March 31, 2019, U.S. inventories aged greater than one year were 4%, which was an improvement over the 5% aged level in the prior-year comparable quarter.

  • Inventory turns in the U.S. for the trailing twelve month period were 2.7 times, which represents the sixth sequential quarterly increase and compares to 2.5 times for the twelve month period ended March 31, 2018. 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.

  • Total store operating expenses for the quarter were flat, while on a same-store basis they declined 1% in the first quarter of 2019, primarily due to continued efforts to realize purchasing synergies and optimize labor efficiencies.

Consumer Lending Contraction and Asset Impairments

  • As expected, U.S. consumer lending revenues declined $5 million in the first quarter, or 30%, compared to the same quarter a year ago as the Company continues to de-emphasize consumer lending operations in light of increasing regulatory constraints and internet-based competition, with plans for further contraction in the future.

  • As previously disclosed, 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. Once the Ohio Act becomes effective, the Company will continue to look for opportunities to service customers seeking loans. Any services offered will likely result in reduced revenues in the Ohio locations compared to the prior year. While most of the Company's Ohio stores also offer pawn products, the decrease or elimination of consumer lending revenue or other customer services could cause one-third or more of its Ohio stores to become unprofitable or inoperable. Further discussion of the projected results is provided in the "2019 Outlook" section of this release.

Cash Dividend and Stock Repurchases

  • The Board of Directors declared a $0.25 per share second quarter cash dividend on common shares outstanding, which will be paid on May 31, 2019 to stockholders of record as of May 15, 2019. Any future dividends are subject to approval by the Company's Board of Directors.

  • During the first quarter, the Company repurchased 343,000 shares at an aggregate cost of $29 million and an average per share cost of $85.17, leaving $114 million available for future repurchases under the current share repurchase programs. Future share repurchases are subject to expected liquidity, debt covenant restrictions and other relevant factors.

  • Since the merger with Cash America in September 2016 and through the first quarter of 2019, the Company has repurchased a total of 5.3 million shares at an average repurchase price of $74.83 per share, resulting in an 11% reduction from the number of shares outstanding immediately following the merger.

Liquidity and Return Metrics

  • The Company generated $224 million of cash flow from operations and $186 million in adjusted free cash flow during the twelve months ended March 31, 2019 compared to $248 million of cash flow from operations and $259 million of adjusted free cash flow during the same prior-year period. Current period free cash flow includes the impact of accelerated store expansion activities, while the prior-year comparative amount included a $21 million cash inflow from a non-recurring tax refund related to the merger and larger than normal cash inflows related to the liquidation of excess inventories in the legacy Cash America stores.

  • The Company continues to maintain excellent liquidity ratios while funding share repurchases totaling $198 million, dividends of $41 million and acquisitions of $133 million during the trailing twelve months ended March 31, 2019. The net debt ratio, which is calculated using a non-GAAP financial measure, for the trailing twelve months ended March 31, 2019 was 1.8 to 1.

  • On January 1, 2019, the Financial Accounting Standards Board's new lease accounting standard ("ASC 842") became effective requiring lessees to recognize a liability for the present value of future minimum lease payments (the lease liability) and an asset representing its right to use the underlying leased property for the lease term (the right of use asset). The adoption of ASC 842 resulted in a $298 million right of use asset, an $85 million current lease liability and a $189 million non-current lease liability as of March 31, 2019. The adoption did not have a material impact to the consolidated statements of income, consolidated statements of cash flows or any of the Company's financial debt covenants.

  • Return on assets for the trailing twelve months ended March 31, 2019 was 7.3%, while return on tangible assets was 14.4% for the same period, which compared to 7.4% and 13.5% returns, respectively, for the comparable prior-year period. The return on assets for the trailing twelve months ended March 31, 2019 was negatively impacted by the first-time inclusion of the right of use asset, arising from the implementation of ASC 842, which was not included on the balance sheet prior to January 1, 2019. Return on tangible assets is a non-GAAP financial measure and is calculated by excluding goodwill, intangible assets, net and the right of use asset from the respective return calculations.

  • Return on equity was 11.5% for the trailing twelve months ended March 31, 2019, while return on tangible equity was 43.1%. This compares positively against returns of 10.4% and 28.5%, respectively, for the comparable prior-year period. Return on tangible equity is a non-GAAP financial measure and is calculated by excluding goodwill and intangible assets, net from the respective return calculations.

2019 Outlook

  • The Company is raising its full-year 2019 guidance for diluted earnings per share to be in a range of $3.80 to $4.00 compared to the previous guidance of $3.75 to $3.95.

  • The revised guidance range represents an increase of 8% to 13% over the prior-year adjusted earnings per share of $3.53. As described below, the guidance for 2019 includes the impact of an expected net reduction in earnings from U.S. unsecured consumer lending operations of approximately $0.25 to $0.30 per share, a forecast foreign currency drag of approximately $0.08 to $0.10 per share and a $0.04 to $0.07 per share impact from a higher blended effective income tax rate. Excluding these impacts at their midpoint estimates, estimated earnings per share in 2019 would increase in a range of 20% to 25% compared to 2018.

  • The estimate of expected earnings per share for 2019 includes the following assumptions:

      °  An anticipated earnings drag of approximately $0.25 to $0.30 per share during 2019 primarily due to the impact of the Ohio Act and further strategic reductions in consumer lending operations outside of Ohio. The Company is currently modeling total consumer lending revenues for 2019 to be in a range of $25 million to $31 million, which represents a 45% to 56% reduction compared to 2018 consumer lending revenues. Consumer lending operations are expected to contribute less than 2% of total revenue in 2019.

      °  Given recent currency volatility and the potential for further volatility, the Company continues to use an estimated average foreign currency exchange rate of 20.0 Mexican pesos / U.S. dollar for the remainder of 2019 compared to the average exchange rate of 19.2 Mexican pesos / U.S. dollar for 2018. The projected change in the exchange rate represents an earnings headwind of approximately $0.08 to $0.10 per share for 2019 when compared to 2018 results. Each full Mexican peso change in the exchange rate to the U.S. dollar represents approximately $0.10 to $0.12 per share of annualized earnings impact.

      °  An expected blended effective income tax rate of between 26.5% and 27.5% for 2019. This represents an increase over the 2018 effective rate of 26.1% (adjusted for the $1.5 million non-recurring tax benefit as a result of the Tax Act) due in part to the increasing share of earnings from Latin America, where corporate tax rates are higher, and an increase in certain non-deductible expenses resulting from the Tax Cuts and Jobs Act which combined represents an additional earnings headwind of approximately $0.04 to $0.07 per share as compared to 2018 results.

      °  Plans to open approximately 80 to 85 new full-service pawn stores in 2019 in Latin America, which includes targeted openings of 55 to 60 stores in Mexico and approximately 15 stores in Guatemala and 10 stores in Colombia.  The Company is on target to open at least 30 full service pawn stores during the second quarter. The increased number of projected store openings in 2019 combined with the first half frontloading of new store openings will cause an expected additional drag to earnings of approximately $0.02 to $0.03 per share compared to last year. The Company expects to complete additional acquisitions in 2019, primarily in Latin America, which are not reflected in the guidance

      °  The Company expects to continue repurchasing shares in 2019, with a targeted shareholder payout ratio, which includes share repurchases and dividends, of approximately 100% of net income.

Additional Commentary and Analysis

Mr. Wessel further commented, "We are very pleased with the first quarter results highlighted by strong revenue and earnings growth in Latin America. Pawn receivables, a leading indicator of future revenue growth, increased an impressive 30% on a U.S. dollar basis and 38% on a local currency basis due to the store growth and strong same-store increases. On a same-store basis, pawn receivables grew 3% in U.S. dollars and 9% in local currency, representing a rapid rebound from slower growth rates experienced in the middle of 2018 due primarily to what we believe were macro factors related to the 2018 election cycle in Mexico.

"We now operate over 1,500 stores in four countries in Latin America, having grown the Latin America pawn store base by 38% over the past twelve months through a combination of acquisitions and new store openings in three countries. We believe there is meaningful long-term revenue and earnings upside in both the new and acquired stores.

"All of the stores acquired to date have been fully migrated onto the FirstPawn IT platform. While most of the Prendamex stores acquired over the past year are smaller footprint locations, we believe over time these stores have the opportunity to increase retail sales and margins through our superior point of sale system and other retail strategies. Additionally, as we look at the entire Latin American marketplace, we are optimistic about the potential for additional acquisitions.

"We are also excited about the increased pace of de novo, or new store, openings this year in Latin America. Last year, we opened 52 stores over the entire year. Our first quarter openings this year totaled 36 locations alone, and with 30 stores expected to open in the second quarter, we believe we are on track to open 80 to 85 locations for the full year. Our strategy is to front load the store openings this year to get them established before the fourth quarter holiday season and minimize distractions to our existing operations during our busiest season of the year.

"As expected, our U.S. operating results continue to improve as well, highlighted by growth in segment earnings despite expected declines in non-core consumer lending earnings. This marks the second sequential quarter we have posted an increase in same-store pawn fees. The increase in pawn fees is driven primarily by improving the quality of our pawn receivable portfolio and optimizing loan-to-value ratios, which has resulted in higher cash yields from the performing loans. Our focus on retail margins is also paying off with 37% retail margins during the quarter versus 35% in the same prior-year period. Additionally, we continue to see opportunities to drive store level operating efficiencies with same-store operating expenses declining versus the same quarter a year ago.

"We believe that there are also additional opportunities to further expand U.S. operations, as evidenced by the announced acquisitions of 10 stores in Texas in the first quarter and an additional 10 stores in Texas in April. Although the U.S. remains an extremely fragmented market, we are focused on identifying strategic opportunities for tuck-in locations within our existing footprint, especially in states with favorable customer demographics and growing populations.

"Cash flows remain strong, as evidenced by a $40 million reduction in outstanding debt during the quarter even after our investment of $55 million in acquisitions, capital expenditures and store real estate and returning $40 million to shareholders in the form of dividends and share repurchases. Over the trailing twelve months, these numbers are even more impressive with $212 million in store

View Comments and Join the Discussion!
 
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com