AUSTIN, Texas, April 30, 2013 /PRNewswire/ -- EZCORP, Inc. (NASDAQ: EZPW), a leading provider of instant cash solutions for consumers, today announced results for its second fiscal quarter ended March 31, 2013.
For the quarter, total revenues were $272 million, a record for the Company. Net income was $34 million, and earnings per share were $0.63, within the Company's previously announced guidance range of $0.60 to $0.65.
EZCORP continued to execute its growth strategy of developing new stores, new channels and new products:
New Stores —During the quarter, the Company opened 39 de novo locations, bringing total de novo stores opened in the first half of fiscal 2013 to 114. Including the 32 stores acquired during the first quarter, the Company has added 146 new locations so far this fiscal year. Combined, these locations, as well as the 153 other de novo locations opened in fiscal 2011 and 2012, are performing ahead of the Company's pro forma expectations.
New Channels —The Company continues to develop and grow its payroll withholding lending business in Mexico through its Grupo Finmart subsidiary (doing business under the names "Crediamigo" and "Adex"), where total loans outstanding were up 37% year-over-year. And in the first full quarter since acquisition, the Company's U.S. online lending business more than doubled its total loans outstanding and is now offering loan products in five states. At quarter end, over 70% of the Company's non-pawn loan balances were attributable to payroll withholding and online lending.
New Products —The Company continues to develop new short-term loan products to respond to customer demand and preferences and to address regulatory changes. In addition, the Company is now offering Western Union services in almost 650 locations in the United States and Canada, with roll-out to the remaining locations to be completed in the third quarter.
Consolidated Financial Highlights — Second quarter of fiscal 2013 vs. prior year quarter
Total revenues were $272 million, up 6%, largely attributable to the acquisition of controlling interests in Grupo Finmart at the end of January 2012 and Cash Genie in April 2012 and the inclusion of 100% of their revenues in EZCORP's consolidated revenues.
Net income was $34 million, down 9%, primarily attributable to the continuing challenging gold and jewelry environment. Excluding the impact of gold scrap, net income was up 6% compared to prior year quarter. The Company estimates the change in gold metrics (price and volume) from the prior year quarter caused a deterioration of approximately $10 million in consolidated net revenues. The Company has provided supplemental information regarding the impact of the gold environment in the Investor Relations section of its website (www.ezcorp.com).
This decrease in net income follows a 22% year-over-year net income decline in the first quarter, and reflects expected improvement in trajectory largely attributable to the following:
The drag associated with the 111 de novo stores opened during the nine months ended December 31, 2012 improved during the quarter, as these stores approach profitability in line with the pro forma operating model.
Investments in IT and other infrastructure improvements, including decision science models and tools, led to direct improvements in bad debt and inventory management and other operational efficiencies, and contributed to the Company's ability to develop new products and services.
Aggressive expense management led to significant quarter-over-quarter improvement in corporate administrative expenses.
The Company ended the quarter with $389 million in earning assets, an increase of 25%, driven primarily by increases in consumer loans in Mexico, as well as inventory and pawn loans in the U.S. and Mexico. Earning assets consist of pawn loans, consumer loans and inventory on the balance sheet, combined with CSO loans not on the balance sheet.
Cash and cash equivalents, including restricted cash, at quarter-end were $43 million, with debt of $172 million, including $98 million Crediamigo third party debt, which is non-recourse to EZCORP.
U.S. & Canada — Strong Growth in Loan Balances
De Novo Growth — During the quarter, the Company added 12 new locations in the U.S. & Canada segment. During the first half of fiscal 2013, the Company added a total of 75 locations in the U.S & Canada segment, consisting of 22 pawn stores and 53 financial services locations.
Pawn — The Company's U.S. Pawn & Retail business, consisting of 499 stores in 21 states, continued to perform well in a challenging gold and jewelry environment. Excluding the impact of expected declines in the gold scrapping business, the core pawn loan and merchandise sales business posted solid year-over-year gains.
Pawn loan balances were $120 million at quarter end, reflecting 10% growth in total and 3% on a same store basis. The overall pawn loan portfolio continues to reflect the ongoing shift to general merchandise collateral, with general merchandise loan balances up 12% in total and 9% on a same store basis. Even in the challenging gold and jewelry environment, jewelry loan balances increased 3% in total and 1% on a same store basis, and jewelry continues to constitute approximately two-thirds of the total loan portfolio.
Pawn service charges increased 8% in total and 3% on a same store basis. This increase is largely attributable to operational efficiencies driven by infrastructure investments the Company has been making for the past several quarters.
Redemption rates were 84%, up from 83% a year ago. The jewelry redemption rate increased 100 basis points to 87%, while the general merchandise redemption rate decreased 100 basis points to 78%.
Merchandise sales increased 2% in total, but decreased 4% on a same store basis. These results reflect the continuing softness in the jewelry retail market, as well as the delay in this year's federal tax refunds. Gross margin on merchandise sales was 41%, which was flat to the same quarter last year.
Financial Services — The U. S. financial services business now consists of 490 storefront locations in 16 states and online lending in five states. The Company is now offering financial services products, in storefronts, online or both, in a total of 17 states.
Total loan balances were $38 million, up 13%. Customers continued to shift from first generation loan products (traditional payday and installment loans) to second generation single payment, multiple payment and auto title loan products. Balances related to these products increased approximately 57%, driven by auto title loans. In a challenging regulatory environment, loan balances in Texas grew 7%. Total loan balances outside of Texas grew 17%, driven by new locations and new products.
Fees were $42 million, up 3%, reflecting loan growth in new states and the addition of online lending, somewhat offset by the shift to lower-yielding products and the challenging regulatory environment in Texas.
Bad debt as a percentage of fees was 15%, up 150 basis points, driven by the growth in new stores and new products, as well as higher bad debt experience from online generated loans.
The profitability of the financial services business was negatively impacted by approximately $1 million during the quarter as a result of ordinances enacted in Dallas, San Antonio and Austin.
Online Lending — As expected, the U.S. online business negatively impacted earnings per share by $0.03 during the second quarter. The Company expects a similar earnings drag in the third quarter, but expects that the business will cross over to profitability by the end of the fiscal year. During the second quarter, the U.S. online business more than doubled its loan book and increased its average loan size. The Company is now offering online loans in five states and is on track to be offering online loan products in 12 to 15 states by the end of the fiscal year.
Latin America — Strong Increase in Segment Contribution
Contribution from the Latin America segment increased 133% and now accounts for over 10% of consolidated segment contribution, up from less than 4% a year ago.
Pawn — Empeno Facil, the Company's Mexico pawn operation, continued its strong performance. At the end of the quarter, the Company operated 277 pawn stores in Mexico, 72 of which have been open less than 12 months. Full-line format locations (which make up 81% of all Empeno Facil locations), regardless of age, are running well ahead of the Company's investment model.
During the quarter, Empeno Facil added 23 new de novo locations for a total of 47 during the first half of the fiscal year.
Pawn loan balances grew to $19 million, up 39% in total and 21% on a same store basis. General merchandise loan balances grew 48% in total and 25% on a same store basis, while jewelry loan balances decreased 11% in total and 24% on a same store basis. General merchandise loans now comprise 84% of Empeno Facil's pawn loan portfolio, up from 79% last year.
Pawn service charges increased 36% in total and 17% on a same store basis, reflecting significant operational improvements from the Company's increasingly experienced Mexican storefront teams.
Merchandise sales increased 37% in total and 12% on a same store basis. Gross margin on merchandise sales was 41%, down 190 basis points from a year ago, reflecting more aggressive pricing.
Payroll Withholding Lending — Grupo Finmart, the Company's Mexico payroll withholding lending business (now doing business under two names, Crediamigo and Adex), continues to gain market share through the addition of new contracts and increased contract penetration.
Total loan balances at the end of the quarter were $91 million, up 37%.
Grupo Finmart added four new employer contracts during the quarter, and has increased its contract penetration rates by 500% since March 31, 2012.
Net revenues were $13 million in the quarter, with bad debt as a percentage of fees less than 1%.
Other International — Highlighted by Cash Converters International's Strong Performance
In February, Cash Converters International Limited, the Company's strategic affiliate in Australia, announced that it had achieved a 39% increase in net income during the first half of its fiscal 2013 (ended December 31, 2012), which resulted in a 43% contribution increase to EZCORP's results in its second quarter (ended March 31, 2013). The net income increase was due principally to strong growth in Cash Converters International's personal loan business in Australia and the U.K.
Albemarle & Bond Holdings PLC, the Company's strategic affiliate in the U.K., announced a 31% decrease in net income during the first half of its fiscal 2013 (ended December 31, 2012), mainly due to a reduction in gold buying profits. In addition, Albemarle & Bond recently announced that it expected profits for the full year (ending June 30, 2013) to be materially below current market expectations, citing further reductions in gold buying profits and pressure on its pawn loan business due to the challenging gold environment and increased competition.
The Company's combined equity investments in Cash Converters International and Albemarle & Bond generated a 10% decrease in earnings attributable to EZCORP for the quarter, as compared to the same period last year.
Paul Rothamel, EZCORP's President and Chief Executive Officer, stated: "The second quarter shows the trajectory that we originally planned this year. Our year-over-year earnings decline moderated significantly during the quarter, and we expect to deliver year-over-year earnings growth by the end of the year and to return to double-digit earnings growth next year. This improvement is the direct result of investments we have made to deliver new stores, new channels and new products, and we believe those investments will continue to pay off in the form of net income growth."
The Company affirms its fiscal 2013 earnings per share guidance of $2.55 to $2.80, and currently expects earnings per share for the third quarter of fiscal 2013 to be between $0.47 and $0.52. The Company believes its performance, in year-over-year comparison terms, will improve each quarter for the rest of fiscal 2013, and expects to return to year-over-year earnings growth in the second half of the year. A continuation of the challenging gold environment and the unfavorable financial services regulatory environment in Texas will likely lead to earnings in the lower end of the guidance range.
EZCORP is a leading provider of instant cash solutions for consumers, employing approximately 7,800 teammates and operating over 1,400 Company-operated pawn, buy/sell and personal financial services locations in the U.S., Mexico and Canada. We provide a variety of instant cash solutions, including pawn loans, consumer loans and fee-based credit services to customers seeking loans. At our pawn and buy/sell stores, we also sell merchandise, primarily collateral forfeited from pawn lending operations and used merchandise purchased from customers.
EZCORP owns controlling interests in Prestaciones Finmart, S.A.P.I. de C.V., SOFOM, E.N.R. (doing business under the names "Crediamigo" and "Adex"), a leading provider of payroll deduction loans in Mexico; in Ariste Holding Limited (doing business under the name "Cash Genie"), a leading provider of online loans in the U.K.; and in Renueva Commercial, S.A.P.I. de C.V., an operator of buy/sell stores in Mexico under the name "TUYO." The Company also has significant investments in Albemarle & Bond Holdings PLC (ABM.L), one of the U.K.'s largest pawnbroking businesses with over 180 full-line stores offering pawnbroking, jewelry retailing, gold buying and financial services; and in Cash Converters International Limited (CCV.ASX), which franchises and operates a worldwide network of over 700 stores that provide personal financial services and sell pre-owned merchandise.
Special Note Regarding Forward-Looking Statements
This announcement contains certain forward-looking statements regarding the Company's expected operating and financial performance for future periods, including expected future earnings and growth rates. These statements are based on the Company's current expectations. Actual results for future periods may differ materially from those expressed or implied by these forward-looking statements due to a number of uncertainties and other factors, including changes in the regulatory environment, changing market conditions in the overall economy and the industry, fluctuations in gold prices or the desire of our customers to pawn or sell their gold items, and consumer demand for the Company's services and merchandise. For a discussion of these and other factors affecting the Company's business and prospects, see the Company's annual, quarterly and other reports filed with the Securities and Exchange Commission.