FirstCash Reports Third Quarter Results; Company Sees Continued Improvement in Pawn Lending and Retail Margin Trends; Store Count Reaches 2,750 Location Milestone

Rhea-AI Summary

FirstCash reported Q3 2020 financial results, indicating ongoing profitability despite challenges from COVID-19. Revenue fell 20% YoY to $359.9 million, with net income at $15 million, a 57% decline. Diluted EPS dropped to $0.36. The firm opened 104 new pawn stores, raising its total to 2,750. A $0.27 per share dividend was declared, reflecting a commitment to shareholder returns. Notably, pawn loan activity improved, reducing the decline in origination volumes to 17% in September. The company remains cautious about future earnings due to the pandemic's impact and currency volatility.

Positive

• 104 new pawn stores opened in 2020, increasing total to 2,750.
• Declared a quarterly cash dividend of $0.27 per share for Q4 2020.
• Operating cash flow of $245 million for the trailing twelve months ended September 30, 2020.
• Retail margins improved to 44% in Q3, up from 38% in the prior year.

Negative

• Revenue decreased by $92.6 million year-over-year, a decline of 20%.
• Net income fell by 57% from the previous year to $15 million.
• Diluted earnings per share decreased by 56% on a GAAP basis and 30% on a non-GAAP basis.

FORT WORTH, Texas, Oct. 21, 2020 (GLOBE NEWSWIRE) -- FirstCash, Inc. (the “Company”) (Nasdaq: FCFS), the leading international operator of 2,750 retail pawn stores in the U.S. and Latin America, today announced financial results for the three and nine month periods ended September 30, 2020 and an update on the impact of COVID-19 on its business. The Company also announced that its Board of Directors declared a $0.27 per share quarterly cash dividend to be paid in November 2020.

Mr. Rick Wessel, chief executive officer, stated, “FirstCash’s third quarter results reflected continued profitability and resiliency despite the sharp second quarter decline in pawn receivables related to the impacts of COVID-19. The Company saw steady recovery in pawn lending activity and near-record levels of retail margins. At the same time, we continue to invest in long-term growth, with 104 pawn stores opened or acquired year-to-date which drove the total store count to 2,750 locations.

“Given FirstCash’s continued profitability and strong cash flows, we are pleased to again pay our regular cash dividend this quarter of $0.27 per share, or $1.08 annualized. The Company also completed a $500 million bond offering during the third quarter that enabled us to redeem and replace $300 million of previously issued bonds at a more favorable rate and over a longer term, pay down a significant portion of the revolving credit facility and provide additional long-term funding for growth and future shareholder returns.”

This release contains adjusted earnings measures, which exclude debt extinguishment costs and certain other extraordinary and/or non-cash expenses, 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 September 30,
	As Reported (GAAP)						Adjusted (Non-GAAP)
In thousands, except per share amounts	2020			2019			2020			2019
Revenue	$	359,890		$	452,459		$	359,890		$	452,459
Net income	$	15,062		$	34,761		$	24,453		$	36,246
Diluted earnings per share	$	0.36		$	0.81		$	0.59		$	0.84
EBITDA (non-GAAP measure)	$	34,174		$	68,131		$	46,333		$	70,173
Weighted-average diluted shares	41,536			43,167			41,536			43,167

	Nine Months Ended September 30,
	As Reported (GAAP)						Adjusted (Non-GAAP)
In thousands, except per share amounts	2020			2019			2020			2019
Revenue	$	1,239,126		$	1,366,077		$	1,239,126		$	1,366,077
Net income	$	73,853		$	110,464		$	90,620		$	114,064
Diluted earnings per share	$	1.77		$	2.55		$	2.17		$	2.63
EBITDA (non-GAAP measure)	$	152,760		$	209,203		$	174,869		$	213,959
Weighted-average diluted shares	41,691			43,358			41,691			43,358

Consolidated Earnings Highlights

• Due primarily to the combined impacts of COVID-19, debt extinguishment costs, lower foreign exchange rates and the wind-down of consumer lending operations, diluted earnings per share decreased 56% on a GAAP basis and 30% on an adjusted non-GAAP basis in the third quarter of 2020 compared to the prior-year quarter. For the nine month year-to-date period, diluted earnings per share decreased 31% on a GAAP basis and 17% on an adjusted non-GAAP basis. Key factors affecting the comparability of 2020 earnings results to 2019 include:
  
  • Third quarter and year-to-date 2020 GAAP net income was reduced by the loss on extinguishment of debt related to the senior notes refinancing which was $9 million, or $0.22 per share, on a tax-effected basis. This loss is excluded from the Company’s non-GAAP adjusted financial measures (see detailed reconciliation of non-GAAP financial measures provided elsewhere in this release).
  
  • The COVID-19 related impact on lending demand resulted in pawn fee revenues declining $43 million, or 30%, in the third quarter compared to the prior-year quarter. The impact of the decline was significantly offset by combined store-level and administrative expense reductions of $24 million during the quarter as compared to the prior-year quarter.
  
  • While total merchandise sales (from retail and wholesale scrap jewelry sales) were down 15% compared to the prior-year quarter, due primarily to lower beginning inventory levels, gross profit from merchandise sales was down only 2% on a U.S dollar basis and up slightly (under 1%) on a constant currency basis, in each case compared to the prior-year quarter, a result of significantly increased retail and scrap jewelry margins.
  
  • Foreign exchange rates in Latin America were also negatively impacted by COVID-19, affecting U.S. dollar-reported earnings per share and represented approximately $0.03 of earnings drag in the third quarter and $0.08 year-to-date.
  
  • Contraction and termination of non-core unsecured consumer lending operations during the first half of the year reduced earnings per share on a GAAP basis by $0.02 in the third quarter of 2020 and $0.07 per share year-to-date. Adjusted non-GAAP earnings per share were impacted by $0.03 in the third quarter and $0.13 year-to-date compared to the respective prior-year periods.
  
  • Income tax rates for the third quarter and the year-to-date periods were lower than prior-year periods, primarily due to the Internal Revenue Service finalizing regulations in July 2020 for the global intangible low-taxed income tax (“GILTI tax”) provisions for foreign operations in the U.S. federal tax code. The GILTI tax became effective in 2018, and based on preliminary IRS guidance, the impact to the Company has been included in its tax provisions since 2018. The finalized regulations issued in July effectively eliminated the impact of the incremental GILTI tax for the Company’s 2018, 2019 and current tax years and permitted retroactive application which results in a reduction in 2020 tax expense of approximately $3 million, or $0.07 per share.
  
  
• Net income for the third quarter totaled $15 million on a GAAP basis and $24 million on an adjusted non-GAAP basis. For the trailing twelve months ended September 30, 2020, consolidated net income was $128 million on a GAAP basis and $144 million on an adjusted non-GAAP basis, while adjusted EBITDA totaled $265 million.
  
  
• Cash flow from operating activities was $245 million for the trailing twelve months ended September 30, 2020. Adjusted free cash flow, a non-GAAP financial measure, for the trailing twelve months was $390 million.

Acquisitions and Store Opening Highlights

• A total of 13 de novo locations were opened in Latin America during the third quarter, which included 10 locations in Mexico, two in Guatemala and one in Colombia. Several expected third quarter openings were impacted by pandemic-related delays in obtaining various operating permits.

• Year-to-date, a total of 104 stores have been added in Latin America, including 64 de novo stores and 40 acquired stores.

• The total store count at September 30, 2020 stands at a record 2,750 locations, of which, 63% or 1,720 are in Latin America and 1,030 are in the United States.

U.S. Pawn Operations

• During the third quarter, all of the current 1,030 U.S. stores were operational, excluding a very limited number of temporary closures primarily related to the Company’s COVID-19 safety protocols.

• As previously reported, with the onset of COVID-19 related lock-downs and subsequent federal stimulus response, pawn loan originations in the U.S. fell significantly in April, declining almost 60% for the month. Pawn loan originations began improving in May and continued to rebound throughout the third quarter and thus far into October. Same-store pawn loan origination volumes were down only 17% in September as compared to the same prior-year period and were down only 8% during the past two weeks of October. During the same two week period, the volume of “buys,” which is merchandise purchased directly from customers, has increased 16% on a same-store basis compared to last year and total same-store customer fundings, which are pawn loan originations plus buys, are down just 5% compared to last year’s same two week period.

• Pawn balances at September 30 were down 30% compared to the prior year in total and on a same-store basis, resulting in a 30% reduction in total and same-store pawn fee revenues compared to the prior-year quarter, which compares favorably to the 40% decrease in pawn balances at the end of June. As of October 20, same-store pawn loans are down 26% compared to the prior year, and given the accelerating recovery in pawn originations, we believe could improve even more rapidly in the fourth quarter.

• Pawn loan forfeiture rates in the third quarter were again lower than historical levels, driven by customer liquidity and more active buying of general merchandise items. The resulting average monthly yield of 12% on the pawn loan portfolio for the third quarter represented an improvement of approximately 30 basis points compared to the yield in the prior-year comparable quarter.

• Inventory levels at the beginning of the third quarter were lower than normal following record second quarter domestic retail sales and fewer forfeited pawn loans due to the impacts of COVID-19 on lending activity. Partially offsetting the impact of lower beginning inventories was an increase in the percentage of merchandise purchased directly from customers. Purchased inventories can be put up for sale faster and typically at better margins than forfeited collateral. Resulting inventory levels at the end of the third quarter remained consistent with the previous sequential quarter, while retail sales decreased a modest 10% compared to the prior-year quarter, both in total and on a same-store basis.

• Despite the decline in top-line retail sales, total gross profit from retail sales for the third quarter increased 4% over the prior-year quarter driven by a 600 basis point improvement in retail margins. The third quarter retail margin of 44% was significantly higher than the 38% margin in the same quarter last year and greater than the 42% margin in the previous sequential quarter. The continued strength in retail margins reflect continued retail demand for value-priced pre-owned merchandise, increased buying of fresh merchandise from customers and lower levels of aged inventory, all of which limited the need for normal discounting. Aged inventories were 2% of total inventories at September 30, which improved compared to 3% a year ago.

• Net revenue from non-core scrap jewelry sales increased 10% for the quarter and 8% year-to-date compared to the respective prior-year periods. The improvement was driven primarily by increased gold prices and resulted in a 19% third quarter margin on scrap jewelry sales compared to 12% in the prior-year quarter.

• Store operating expenses decreased 10% on both a total and same-store basis compared to the prior-year quarter, reflecting the continued expense optimization efforts from reduced staffing levels through normal attrition, reduced store hours and other store-level cost saving initiatives.

U.S. Consumer Lending Operations

• Consistent with the Company’s strategy to focus on pawn operations, the Company ceased offering unsecured consumer loan and credit services products, which include all payday and installment loans, in the U.S. effective June 30, 2020.

• Revenues from consumer lending operations in the third quarter were from loans and credit services transactions originated prior to June 30, 2020 and totaled only $57,000 compared to $3 million in the third quarter of last year. The Company anticipates no revenue and minimal earnings contribution from the remaining wind-down of its consumer lending operations in the fourth quarter of 2020.  

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. The average Mexican peso to U.S. dollar exchange rate for the three month period ended September 30, 2020 was 22.1 pesos / dollar, an unfavorable change of 14% versus the comparable prior-year period, and for the nine month period ended September 30, 2020 was 21.8 pesos / dollar, an unfavorable change of 13% versus the prior-year period.

Latin America Pawn Operations

• All of the Company’s stores in Latin America are currently open and operating. During the third quarter, operations were nominally impacted by restricted operating days/hours in Colombia, El Salvador and Guatemala, mass transit closings and other short-term closings due primarily to safety protocols related to the COVID-19 pandemic.

• Latin America saw second quarter declines in economic activity and personal spending related to COVID-19. The impact on pawn originations was significant, with year-over-year origination volumes declining approximately 50% in Mexico during May. This decline, while considerable, was less severe than in the U.S., likely due to limited government stimulus programs in Latin America in response to the pandemic. Pawn loan origination volume in Latin America improved steadily during the third quarter, with same-store origination volumes in Mexico down 19% in September and 15% over the past two weeks of October compared to the prior-year periods.

• Pawn loans outstanding at September 30 were down 29% on a U.S. dollar translated basis and 19% on a constant currency basis compared to the prior year, while same-store pawn loans at quarter end decreased 31% on a U.S. dollar translated basis and 21% on a constant currency basis compared to the prior-year quarter. As of October 20, currency adjusted pawn loans were down 18% compared to the prior year.

• Pawn fees in the third quarter decreased 30% in total, or 21% on a constant currency basis, as compared to the prior-year quarter. On a same-store basis, pawn fees decreased 32% on a U.S. dollar basis and were down 23% on a constant currency basis. Similar to U.S. results, pawn redemptions in Latin America were strong and drove improved yields during the quarter.

• Retail sales were impacted by a combination of lower beginning inventory levels and a more limited economic recovery in the third quarter versus the U.S. Resulting retail sales for the third quarter decreased 26%, or 17% on a constant currency basis, compared to the prior-year quarter. Same-store retail sales decreased 29% on a U.S. dollar basis and were down 20% on a constant currency basis.

• Partially offsetting lower sales, retail sales margins improved to 37% in the third quarter compared to 34% in the prior-year quarter and 36% in the previous sequential quarter due to the increased focus on loan-to-value ratios. Aged inventories remained low at less than 2% of total inventories.

• Net revenue from scrap jewelry sales was $3 million for the quarter compared to less than $1 million in the prior-year period as a result of increased margins and higher volumes. Scrap jewelry sales margins were strong at 25% during the third quarter versus 12% in the prior-year quarter, driven by increased dollar-denominated gold prices.

• Store operating expenses decreased 15%, or 5% on a constant currency basis, and same-store operating expenses decreased 19%, or 10% on a constant currency basis, compared to the prior-year quarter. The reduction in operating expenses reflects the continued expense optimization efforts from reduced staffing levels through normal attrition, reduced store hours and other store level cost saving initiatives.

Liquidity and Shareholder Returns

• In August 2020, the Company successfully completed an offering of $500 million of 4.625% senior unsecured notes due in 2028. The Company used the proceeds from the offering to redeem all $300 million of its 5.375% senior notes due in 2024, to significantly pay down the outstanding balance on the Company’s revolving unsecured credit facility and to pay fees and expenses related to the redemption and offering. In addition to the lower interest rate and the extended term, the new notes provide greater flexibility for opportunistic acquisitions, strategic real estate purchases and shareholder payouts in the form of dividends and share repurchases.

• The Company’s strong liquidity position at September 30, 2020 includes cash balances of $79 million and significant availability under its $500 million domestic bank line of credit.

• The net debt ratio improved to 1.7 to 1 for the trailing twelve months ended September 30, 2020, compared to 1.9 to 1 a year ago. See non-GAAP financial measures elsewhere in this release.

• The Board of Directors declared a $0.27 per share fourth quarter cash dividend on common shares outstanding, which will be paid on November 27, 2020 to stockholders of record as of November 13, 2020. This represents an annualized cash dividend of $1.08 per share. Any future dividends are subject to approval by the Company’s Board of Directors.

• Effective October 20, 2020, the Company lifted the temporary suspension of its share repurchase program put in place in April at the onset of the COVID-19 pandemic. Future share repurchases will remain subject to expected liquidity, debt covenant restrictions, alternative acquisition opportunities and other relevant factors. Year-to-date, the Company repurchased 981,000 shares at an aggregate cost of $80 million and $48 million remains under the current share repurchase authorization. 

2020 Outlook

• Due to the uncertainty around COVID-19 and foreign currency volatility, the Company withdrew its initial 2020 earnings guidance on April 22, 2020. Given the ongoing uncertainties regarding the pace of the recovery in pawn receivables and inventories and ongoing currency volatility, the Company has not reinstated earnings guidance for the balance of the year. However, as the Company continues to evaluate its 2020 earnings results, the following factors are expected to impact its comparisons to prior-year results:
  
  • Impact of COVID-19: The extent to which COVID-19 continues to impact the Company’s operations will depend on future developments, which are uncertain and cannot be predicted with confidence, including the ongoing duration and severity of the outbreak and government responses to the pandemic and the resulting impact on borrowing demand and retail operations. For example, the normalization of demand for pawn loans could be delayed in the short-term by reduced personal spending if businesses and schools cannot reopen or remain open and by additional government stimulus payments and benefit programs.
  
  Based on the currently improving growth trends for pawn receivables, the Company expects a smaller percentage decline in pawn fees in the fourth quarter as compared to the third quarter. While inventory levels have generally stabilized in the third quarter, especially in the U.S., fourth quarter sales will be impacted by lower inventory levels compared to the prior year. Despite the effects of the pandemic and currency volatility, full-year retail sales for 2020 are still expected to be down less than 10% to the prior year. The Company expects the continuation of improved retail margins in the fourth quarter, which will partially offset lower sales volumes, and expects to realize total expense savings at a rate similar to third quarter results.
  
  • Currency volatility: Global economic uncertainty due to the COVID-19 pandemic has strengthened the relative value of the U.S. dollar and negatively impacted developing market currencies, including the Mexican peso, which is the primary currency for the Company’s foreign operations. The current peso to dollar exchange rate of approximately 21.5 to 1 compares to an average rate in the first nine months of 2020 of 21.8 to 1 and an average rate of 19.3 to 1 during all of 2019. For the fourth quarter of 2020, the Company estimates that each full Mexican peso change in the exchange rate to the U.S. dollar represents approximately $0.08 to $0.10 per share of annualized earnings impact to the Company.
  
  • Income tax rate: For the full-year of 2020, the effective income tax rate is exp

FAQ

What were FirstCash's financial results for Q3 2020?

FirstCash reported a revenue of $359.9 million for Q3 2020, down from $452.5 million in Q3 2019.

How did COVID-19 impact FirstCash's earnings?

COVID-19 caused a significant decline in pawn loan origination volumes, resulting in a 30% decrease in pawn fee revenues in Q3 2020.

What is the stock symbol for FirstCash?

The stock symbol for FirstCash is FCFS.

When will FirstCash's dividend be paid?

The dividend of $0.27 per share will be paid on November 27, 2020.

What is the total number of FirstCash stores as of September 30, 2020?

FirstCash operated a total of 2,750 pawn stores as of September 30, 2020.