First Cash Financial Services Inc. (FCFS), a leading provider of specialty consumer financial services and related retail products, reported first quarter 2011 earnings of 50 cents per share, which surpassed the Zacks Consensus Estimate of 48 cents and shot up 52% from the year-ago quarter.
The better-than-expected result was driven by strong pawn operations in both Mexico (up 33%) and the United States (up 22%). The company also witnessed improved margins in the reported quarter.
Quarter Highlights
The Arlington, Texas-based company reported total revenues of $121.0 million, up 28% year over year driven by higher same-store revenue (up 19%).
On a product basis, Retail merchandise sales (65% of the total revenue) rose 33%, resulting from a 13% and 50% growth in the United States and in Mexico, respectively. Pawn service fee climbed 27% due to solid demand for pawns in both the U.S. and Mexico. Wholesale jewelry sales improved 20% attributable to strong growth (45%) in the U.S. Short-term loan and credit service fee spiked 11% and 25%, respectively.
The company's operating income increased 52.5% to $24.5 million and operating margin expanded 330 basis points to 20.2%.
Store Update
The company vigorously pursued its expansion strategy in the quarter and opened 26 new pawn stores mostly in Mexico. The company currently operates more than 627 stores, of which 514 are pawn stores.
The company plans to open approximately 70 to 80 pawn stores in 2011, mostly in Mexico. First Cash is focusing more on the pawn business based on huge demand, particularly in Mexico, where it has 404 stores.
The company also intends to shrink its U.S. payday business and has announced the sale of its ten payday lending stores in Illinois, as of March 2011.
Financial Position
The company ended the quarter with cash and cash equivalent of $98.2 million, up from $47.3 million in the year-ago period. As of March 31, 2011, stockholders' equity was $326.4 million compared with $231.0 million as of March 31, 2010. Additionally, First Cash has no outstandings under its $25 million unsecured revolving credit facility.
Free cash flow and cash flow from operating activities at the end of reported quarter were $33.0 million and $78.7 million, respectively. During the quarter, the company also repurchased 35,300 shares at an average price of $35.73 approximately.
Outlook
For 2011, First Cash Financial expects earnings from continuing operation in the range of $2.12 to $2.20 per share, up 28% to 33% year over year. The Zacks Consensus Estimate for 2011 is pegged at $2.20.
First Cash expects majority of its 2011 revenue to be driven by its pawn operations, with only 9–11% of revenue coming from its U.S. short-term loan and credit services operations.
Our Take
The company reported better-than-expected results and we expect estimates to move up in the coming days.
First Cash has a Zacks #1 Rank, implying a short-term Strong Buy rating. We also reaffirm our long-term Outperform recommendation on the stock.
One of First Cash Financial’s primary competitors, EZCORP Inc. (EZPW“>EZPW) reported second quarter 2011 earnings of 63 cents per share, which surpassed the Zacks Consensus Estimate of 57 cents. The better-than-expected results were driven by double-digit growth in the top line.
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