Expanding in Mexico, First Cash boosts 4Q profit

Expanding in Mexico, First Cash increases fourth quarter net income; 2013 guidance disappoints

Associated Press

ARLINGTON, Texas (AP) -- First Cash Financial Services Inc.'s net income rose by 29 percent in the fourth quarter as it bought more pawn shops in the U.S. and Mexico and dialed back its payday lending business.

The chain of pawn shops and payday lenders, based in Arlington, Texas, said Wednesday that it expanded into two new states during 2012 and now has more than 800 locations. It said payday lending, which faces harsh scrutiny from federal regulators, now contributes less than one-tenth of the company's revenue.

The company offered earnings guidance for 2013 that was slightly weaker than analysts had expected.

First Cash's net income for the three months ended Dec. 31 rose to $27.6 million, or 93 cents per share, from $21.5 million, or 70 cents per share in the same period a year earlier.

The increase came from higher volumes at its growing number of pawn shops. Since the fourth quarter of 2011, First Cash opened 68 new locations and acquired 75 existing pawn stores, while closing seven payday loan locations.

First Cash said it spent $121 million on pawn store acquisitions and $22 million on capital expenditures, a proxy for longer-term investments in the business.

That expansion boosted total revenue by 24 percent, to $179.2 million from $145 million in the fourth quarter of 2011.

Most of the new revenue came from pawn fees and sales of goods pawned by consumers. Expenses increased at a slower pace, with only modest growth since 2011 in administrative and store opening costs.

First Cash said much of its growth in 2013 will come from Mexico. In the fourth quarter, revenue from stores open at least a year rose 13 percent in Mexico, but only 3 percent in the U.S. Revenue from existing stores is a considered a key measure of retailers' financial performance, because it strips away the impact of recently opened or closed stores.

The quarterly results were better than Wall Street predicted. Analysts surveyed by FactSet had, on average, anticipated earnings of 91 cents per share on revenue of $172.1 million.

However, the company initiated guidance for 2013 that was weaker than analysts forecast. First Cash said it expects earnings per share from continuing operations to be in a range of $3.10 to $3.24, compared with an average estimate by analysts of $3.27 per share.

First Cash expects to continue its expansion in 2013, opening 75 to 85 new stores, mostly in Mexico — up to 30 of them in the first quarter. It expects revenue growth to come exclusively from pawn operations, with no increase from payday lending. Pawn is seen accounting for 92 to 93 percent of First Cash's revenue in 2013.

The company also said that its board had authorized management to repurchase up to 1.5 million shares of common stock under a new repurchase program. The company said it repurchased $61 million of common stock during fiscal 2012. Over the past eight years, under earlier repurchase authorizations, the company bought back 9.7 million shares, about one-third of the number of shares currently outstanding.

Repurchasing stock is a way of returning profits to shareholders. When the company buys back shares, each share that remains in the market represents a slightly larger slice of the company's profit.

For the full year 2012, net income was $80.4 million, or $2.70 per share, on revenue of $595.9 million.

First Cash operates store-front pawn shops and payday lenders in 12 U.S. states and 24 states in Mexico. It also owns half of a joint venture that operates lending and check cashing kiosks in convenience stores. At the end of 2012, it operated 814 locations, including 715 pawn shops and 99 payday loan stores.

All of the company's stand-alone payday loan shops are located in Texas. Some of its pawn shops also offer the high-cost, short-term loans.

First Cash reported its results Wednesday before the market opened. Its shares rose 10 cents to $51.70 Tuesday, just short of the high end of its 52-week trading range of $34.78 to $51.83.

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