First Cash Financial Beats - Analyst Blog

First Cash Financial Services Inc. (FCFS), a leading provider of specialty consumer financial services and related retail products, announced fourth quarter 2010 earnings from continuing operation of 59 cents per share, which surpassed the Zacks Consensus Estimate of 54 cents and soared 42% from the year-ago quarter.

The company's full-year earnings per share were $1.75, above the Zacks Consensus Estimate of $1.71 and up 32% from the prior year.

Results reflect the benefits of strong loan demand attributable to a rise in unemployment in the U.S and upside in retail sales resulting in double-digit growth in total revenue.  The margins are also seen to be improving.

Quarter Highlights

The Arlington, Texas-based company's total revenue jumped 17.0% year over year to $129.6 million, driven by strong performance in the international market. The company derived 55% of total revenue from its international operations.

Pawn retail merchandise sales rose 30%, resulting from 8% growth in the United States and 44% in Mexico. Pawn service fee and short-term loan and credit service fee increased 30% and 16%, respectively, offsetting the 14% decline in pawn scrap jewelry sales.

The company's operating income increased 35.7% to $28.8 million and operating margin expanded 300 bps to 22.2%.

Fiscal Year Performance

First Cash Financial's revenues for 2010 spiked 19% year over year to $431.1 million, as revenue from international market grew 52%, while revenue from domestic market jumped 11%.

The consolidated same-store sales rose 10%, with 12% upside in Mexico and 8% in the United States. Pawn retail merchandise sales climbed 25%, resulting from 7% growth in the United States and 39% in Mexico. Pawn service fee, short-term loan and credit service fee and pawn scrap jewelry sales leaped 26%, 13% and 4%, respectively.

The company's net operating margin increased to 20% versus 18% in 2009, reflecting the benefit of same-store revenue growth and well-leveraged operating expenses.

Store Update

The company's operating pawn stores and cash advance stores continue to expand, with 19 new pawn stores opened during the quarter, resulting in 70 additional stores in 2010.

The company currently operates more than 612 stores and plans to open approximately 70 to 80 new stores in 2011, mostly pawn stores in Mexico.

Financial Position

The company ended the year with cash and cash equivalent of $67.2 million, up from $26.8 million in the year-ago period. As of December 31, 2010, stockholders' equity was $298.0 million, as compared with $212.4 million as of December 31, 2009. Additionally, First Cash Financial has no amounts outstanding on its $25 million unsecured revolving credit facility.

Free cash flow and cash flow from operating activities at the end of 2010 were $31.6 million and $73.6 million, respectively. Net working capital of the company leaped 68% year over year and totaled $170.4 million at the end of the year.

Outlook

In 2011, First Cash Financial expects earnings from continuing operation in a range of $2.02 to $2.10 per share, up 15% to 20% year over year. The Zacks Consensus Estimate for 2011 is $2.02.

The company anticipates upside in its total revenue next year, mostly driven by its pawn operations.

Our Take

The company reported better-than-expected results and we expect estimates to move up in the coming days.

We have a Zacks #2 Rank on the stock, implying a short-term Buy rating. We also reaffirm our long-term Neutral recommendation on the stock.

One of First Cash Financial's primary competitors, EZCORP Inc. (EZPW), reported first quarter 2011 adjusted earnings of 69 cents per share, which surpassed the Zacks Consensus Estimate of 62 cents. The better-than-expected results were driven by double-digit upside in the top line.

 
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