First Cash Financial Services (FCFS) Tops Q1 EPS by 9c, Revenues Beat; Withdraws Previous FY20 Guidance

First Cash Financial Services (NASDAQ: FCFS) reported Q1 EPS of $0.98, $0.09 better than the analyst estimate of $0.89. Revenue for the quarter came in at $467.6 million versus the consensus estimate of $465.28 million.

• Diluted earnings per share decreased 20% on a GAAP basis and 1% on an adjusted non-GAAP basis in the first quarter of 2020 compared to the prior-year quarter.
  • Tax-effected non-GAAP adjustments to earnings per share during the quarter included a $0.07 non-cash foreign currency loss related to the remeasurement of U.S. dollar denominated lease liabilities in Mexico and $0.11 of non-cash write-offs and impairments of certain intangible and other assets. For further information, see the “Reconciliations of Non-GAAP Financial Measures to GAAP Financial Measures” section.
• Year-over-year comparative earnings per share on both a GAAP and adjusted non-GAAP basis were negatively impacted by the continued and expected contraction in non-core consumer lending revenues, driven primarily by the discontinuance of consumer lending products in Ohio in April 2019.
  • First quarter 2020 earnings from non-core consumer lending operations were reduced by approximately $0.06 per share on both a GAAP and adjusted non-GAAP basis compared to the prior-year quarter as a result of the continued wind down of the non-core consumer lending business.
• While consolidated revenues for the first quarter of 2020 were essentially flat compared to the prior-year quarter, revenues from core pawn operations (retail merchandise sales and pawn fees) increased 3%. The increase was offset by an expected 87% decline in non-core consumer lending revenue. Total revenues for the trailing twelve months totaled $1.9 billion.
• For the trailing twelve months ended March 31, 2020, consolidated net income was $155 million and adjusted EBITDA totaled $302 million. Growth in trailing twelve months adjusted EBITDA was 5% compared to the prior-year period, despite the significant year-over-year decline in pre-tax earnings from consumer lending operations.
• Cash flow from operating activities for the trailing twelve months ended March 31, 2020 totaled $237 million, while adjusted free cash flow, a non-GAAP financial measure, was $238 million for the twelve months ended March 31, 2020.

Mr. Rick Wessel, chief executive officer, stated, “During these unprecedented times related to the COVID-19 pandemic, we are focused on ensuring the health and safety of our employees and customers. FirstCash also remains committed to providing essential financial services to our customers who depend on us for their short-term cash needs, especially during uncertain economic times. In addition, our stores are a source of essential merchandise, such as laptops and other electronic products, needed to facilitate remote working and learning. Our customers, many of whom are tradespeople, purchase our tools and equipment for essential maintenance and security for homes and businesses. We are doing our best to continue serving all of our customers and communities safely, with as little disruption as possible.

“At this time, approximately 98% of the Company’s 2,740 stores in the United States and Latin America remain open, where in most jurisdictions, pawnshops have been designated as essential financial institutions by federal guidelines and local regulations. We take this responsibility seriously, and are taking necessary healthcare precautions in accordance with the guidelines of the Centers for Disease Control and state and local authorities. This includes the adoption of strict social distancing and hygiene protocols in our stores and promoting remote work solutions for corporate and support staff where feasible. We are very proud and appreciative of our dedicated employees who are working under challenging circumstances.

“FirstCash’s balance sheet and liquidity remain strong. As of April 21, we have over $80 million of cash on hand and $200 million of available borrowing capacity under our unsecured lines of credit. Additional working capital also includes over $500 million in fully collateralized, short-term pawn loans and highly liquid, fast-turning inventories. Year-to-date operating and free cash flows remain very strong and are running well ahead of the prior year. While we are temporarily suspending our share buyback program, we currently intend to continue paying our quarterly dividend.

“Our first quarter earnings results were better than expected, driven in large part by an acceleration of retail demand in March that has continued thus far in April. Even so, the outlook for the rest of the year is clearly less predictable due to the impact of COVID-19. Based on historical patterns for tightened consumer credit and increased customer liquidity needs during times of economic uncertainty, we anticipate demand for pawn loans will build given the expected economic volatility. At the same time, there are still significant uncertainties around the effects of government stimulus programs and new retail spending patterns in general. The amount and timing of such impacts on both pawn lending and retail demand over the balance of the year is difficult to predict. Adding to the uncertainty is the volatility of foreign currencies, including the Mexican peso. Although the Company reinvests its LatAm earnings in-market, currency volatility will have a significant impact on our earnings when translated into U.S. dollars. The degree and timing of these combined impacts make it impractical at this time to provide accurate earnings guidance for 2020, and for this reason we are withdrawing the guidance we gave in our fourth quarter 2019 earnings release.

“In short, while COVID-19 has created challenging times, we believe FirstCash is very well-positioned to continue meeting the needs of our customers and the communities in which we operate,” concluded Mr. Wessel.

2020 Outlook

Due to the uncertainty around COVID-19 and the associated volatility of the Mexican peso, the Company is withdrawing its previous earnings guidance given on January 29, 2020. As the Company evaluates its 2020 earning results, the following factors could or are expected to impact its comparisons to prior-year results:

• Impact of COVID-19: The extent to which COVID-19 impacts the Company’s operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration, severity and scope of the outbreak and impact on customer retail traffic and borrowing demand, among others. There can be no assurance that the Company will remain designated as an essential service or that government officials will not expand business closures, which would have a material adverse effect on the Company’s operations and financial condition. In addition, the operation of the Company’s stores is critically dependent on its employees who staff each location, and COVID-19 could impact the Company’s ability to safely staff its stores. The direct impacts of COVID-19 could also significantly change consumer behavior and shopping patterns in each country in which the Company operates, which could materially impact demand for the Company’s pawn loan and retail products, as could actions taken to limit the economic impact of COVID-19, such as the robust government stimulus programs enacted in the U.S.
• 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. The current peso to dollar exchange rate of approximately 24 to 1 compares to an average rate of 19.2 to 1 and 19.9 to 1 for the first quarter of 2019 and 2020, respectively. 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 to the Company.
• Wind-down of unsecured consumer lending operations: The Company continues to strategically reduce its consumer lending operations. Earnings associated with consumer lending declined approximately $0.06 per share during the first quarter compared to the prior-year quarter.
• Income tax rate: The effective income tax rate is expected to range from 27.0% to 28.0% for 2020 compared to the actual rate of 26.7% in 2019, which represents approximately $0.02 to $0.07 of earnings per share headwind.
• New store openings: In connection with its previous, now withdrawn guidance, the Company had announced that it intended to open approximately 90 to 100 new locations in 2020. A total of 31 stores were opened in the first quarter and there is a strong pipeline of new stores under lease and in development. While we are currently on pace to meet the full year target, future store openings are subject to uncertainties related to the COVID-19 pandemic, including but not limited to, the ability to continue construction projects and obtain necessary licenses, permits, utility services, store equipment, supplies and staffing. As a reminder, the average investment in new Latin American stores is relatively small. At current exchange rates, the average capital expenditure to open a new store in Latin America is approximately $150,000 USD per store.

For earnings history and earnings-related data on First Cash Financial Services (FCFS) click here.

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