Business Context and Reporting Period
FirstCash, Inc. filed an unaudited Form 10-Q for the quarter and six months ended June 30, 2021. The company operates more than 2,800 retail pawn stores in the United States and Latin America, generating revenue primarily from merchandise sales, pawn loan fees and wholesale scrap jewelry sales. As of June 30, 2021, the company operated 2,804 stores: 1,071 in the U.S. and 1,733 in Latin America.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 |
|---|---|---|---|---|
| Total revenue | $389.6 million | $412.7 million | $797.5 million | $879.2 million |
| Net revenue | $224.2 million | $223.1 million | $457.8 million | $482.4 million |
| Income before income taxes | $38.8 million | $37.2 million | $85.1 million | $82.9 million |
| Net income | $28.4 million | $25.9 million | $62.1 million | $58.8 million |
| Diluted earnings per share | $0.70 | $0.62 | $1.52 | $1.41 |
| Operating cash flow | Not separately provided | Not separately provided | $113.7 million | $143.3 million |
| Adjusted EBITDA | $57.5 million | $53.9 million | $123.1 million | $128.5 million |
Second-quarter revenue declined 6%, while net income increased 10%. For the six-month period, revenue declined 9% and net income increased 6%. The effective tax rate was 26.7% in the quarter and 27.0% year to date, compared with 30.4% and 29.1%, respectively, in the prior-year periods.
Second-quarter net revenue margin was approximately 58%, compared with 54% in the prior-year quarter. Reported segment pre-tax operating margins were 19% for U.S. operations and 20% for Latin America, compared with 18% and 17%, respectively, in the prior-year quarter.
Financial Position, Debt and Liquidity
- Cash and cash equivalents were $50.1 million at June 30, 2021, compared with $65.9 million at December 31, 2020.
- Pawn loans were $312.2 million and inventories were $217.0 million at June 30, 2021.
- Total debt was $656.3 million on a carrying-value basis, consisting of $163.0 million under revolving credit facilities and $493.3 million of senior unsecured notes.
- The company had $363.9 million of available and unused revolving credit capacity, subject to covenants, and reported compliance with its credit facility covenants.
- Working capital was $401.2 million; the current ratio was 2.7 to 1 and the liabilities-to-equity ratio was 0.9 to 1.
- The reported net debt ratio was 2.6 to 1, compared with 1.5 to 1 at June 30, 2020, primarily reflecting higher debt and lower trailing adjusted EBITDA.
Material Changes Versus the Prior Comparable Period
- U.S. second-quarter revenue decreased 15% to $247.0 million and segment pre-tax operating income decreased 10% to $47.1 million. Retail sales and pawn fees declined because the prior-year period benefited from unusually high pandemic-related retail sales and customer liquidity effects.
- U.S. retail merchandise margin improved to 45% from 42%, and the segment pre-tax operating margin improved to 19% from 18%, aided by stronger merchandise margins and lower operating expenses.
- Latin America second-quarter revenue increased 17% to $142.5 million and segment pre-tax operating income increased 36% to $28.1 million. On a constant-currency basis, revenue increased 2% and segment pre-tax operating income increased 20%.
- Consolidated revenue was pressured by lower retail merchandise and wholesale scrap jewelry sales and by the discontinuation of the U.S. unsecured consumer loan product effective June 30, 2020.
- Operating cash flow declined $29.6 million year to date, while investing cash flow shifted from a $130.4 million source in 2020 to a $107.9 million use in 2021. The change reflected increased pawn-loan funding, $49.3 million of acquisition spending, $21.0 million of capital expenditures and $29.1 million of real estate purchases.
- The company acquired 28 U.S. pawn stores for aggregate consideration of approximately $50.7 million, including $48.4 million paid at closing. The acquisitions generated $3.7 million of 2021 revenue and an approximately $0.1 million loss since acquisition dates, including transaction and integration costs.
- The company repurchased 536,000 shares for $38.0 million during the first six months and had approximately $83.9 million remaining under its repurchase authorization.
- Cash dividends paid were $23.4 million during the first six months. The board subsequently declared a $0.30 per-share third-quarter dividend.
Guidance, Outlook, Commentary and Risks
The filing does not provide explicit full-year earnings or revenue guidance. Management expects to continue expanding through new store openings, primarily in Latin America, opportunistic acquisitions and selected purchases of store real estate.
Management stated that pawn loan demand was recovering toward pre-pandemic levels in the U.S. and improving in Latin America. However, COVID-19, government stimulus programs, potential virus variants, vaccination rates, government restrictions and changes in consumer behavior remain material uncertainties. Government stimulus may reduce demand for pawn loans by improving customer liquidity.
Other key risks include foreign currency movements, particularly the Mexican peso; interest-rate changes; gold prices and scrap margins; regulatory changes affecting pawn operations; customer traffic and loan balances; inventory levels; acquisition integration; and leverage covenant capacity. The company noted that a prolonged reduction in earnings or EBITDA could restrict future borrowing under its leverage covenants.
There were no material changes to previously reported legal proceedings or risk factors. Management concluded that disclosure controls and procedures were effective as of June 30, 2021.
Important Facts for Investors to Verify
- Whether post-pandemic U.S. retail sales and pawn demand normalize without the unusually favorable comparisons or stimulus effects affecting 2020 and early 2021.
- The sustainability of higher merchandise margins and whether lower inventory aging continues.
- Latin America performance on a constant-currency basis, excluding the favorable Mexican peso translation effect.
- Debt reduction capacity and compliance with the 2.75-to-1 net debt ratio threshold relevant to restricted payments under the senior notes.
- The financial contribution, integration progress and potential additional capital needs associated with the 28 acquired U.S. stores.
- The effect of COVID-19 developments, regulatory actions, foreign exchange rates, gold prices and consumer liquidity on pawn loan volumes, merchandise sales and cash flow.
- The filing identifies the registrant as FirstCash, Inc.; investors should verify the applicable corporate name and security identifier against the requested Firstcash Holdings, Inc. reference.