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F1Q 2013 Earnings Conference Call

January 22, 2013 16:30 ET


Mark Kuchenrither - Executive Vice President and Chief Financial Officer

Paul Rothamel - President and Chief Executive Officer


Bob Ramsey - FBR Capital Markets

John Rowan - Sidoti & Company

Bill Armstrong - C.L. King & Associates

Bill Carcache - Nomura Securities

David Scharf - JMP Securities

John Hecht - Stephens & Company



Welcome to the EZCORP Fiscal 2013 First Quarter Earnings Release Conference Call. My name is Larissa and I’ll be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we’ll conclude a question-and-answer session. Please note that this conference is being recorded.

Now, I’d like to turn the call over to Mark Kuchenrither. Mr. Kuchenrither, you may begin.

Mark Kuchenrither - Executive Vice President and Chief Financial Officer

Thank you and good afternoon everyone. This call will address our first quarter 2013 results. We issued a press release earlier today with supporting documents that are available on the Investor Relations portion of our website at www.ezcorp.com.

I’d like to remind everyone that this conference call will contain certain forward-looking statements, including statements about our expected financial and operating performance in future periods. These statements are based on our current expectations, actual results in future periods may differ materially from current expectations, due to a number of risks, uncertainties and other factors, which are discussed in our press release and in our filings with the Securities and Exchange Commission.

On the call with me today is Paul Rothamel, our President and Chief Executive Officer. I will review our results for the quarter and will provide our guidance. Paul will then provide some commentary regarding our overall strategy and outlook before providing an opportunity for questions.

As discussed last quarter, this is another year of significant investment for EZCORP as we transitioned from a primarily U.S.-based storefront focused company to a multi-channel leading provider of cash solutions across the world. Execution of our strategy is on track and our team delivered earnings of $0.59 per share during the quarter at the higher end of our guidance range.

I will provide forward guidance in a few minutes, but it is important to note upfront that we expect each quarter through the end of the fiscal year to improve sequentially relative to last year. Our earnings release provides consolidated financial highlights for the first quarter with accompanying financial statements. I will focus on our performance by operating segment. I would also like to call your attention to the supplemental information that we have provided on our website to assist your understanding of our business.

The U.S. and Canada operating segment now includes 1,050 stores, 496 U.S. pawn and retail locations, 486 U.S. financial service locations, and 68 buy, sell, and financial service locations in Canada. Just over one half of these storefronts utilize our store within a store concept today and we expect that penetration to grow over time.

The U.S. pawn and retail operations added 7 de novo stores during the quarter increasing our presence in existing markets. We announced earlier that we intend to open 25 to 30 de novo pawn locations this fiscal year and we are on track to meet that goal. We also entered the Arizona market through the acquisition of 12 USA pawn and jewelry stores for a combination of stock and cash. This continues our strategy of using acquisitions as a means to gain an immediate concentration in new markets. The acquired stores are expected to be immediately accretive to earnings.

The segment also ramped up its online selling presence through several third-party auction and retail sites. In the quarter, about 8% of our U.S. retail sales occurred online compared to essentially none in the first quarter of fiscal 2012. U.S. pawn and retail continues to be challenged by the impact of gold. We obtain gold by providing loans to customers, where gold and jewelry is used as collateral and by purchasing gold and jewelry directly from customers.

In dollar terms, jewelry as a percentage of the total U.S. pawn loan balance decreased 200 basis points to 65%. The jewelry redemption rate was 85% at quarter end versus 84% last year as we improved our qualification of the customer at the point of transaction. The volume of gold and jewelry purchases in the quarter decreased approximately 27% in total and 33% on a same-store basis. We dispose of gold and jewelry through retail sales to our customers and by scrapping. Jewelry sales in the U.S. decreased 5% in total and 10% same-store.

The gross margin rate on jewelry sales was 46%, essentially unchanged from the prior year quarter. For the quarter jewelry scrapping sales were down 20% in total and 23% same store from last year, while margin dollars were down 34%. The continued downward trend in rate is a function of a very competitive marketplace and our intention to gain market share. The affect of these combined factors caused this segment approximately $9.4 million in net revenue in the quarter compared to last year’s first quarter. I will refer you to our website for supplemental information regarding the historical impact by quarter that scrapping has had on our business.

Other portions of our U.S. pawn and retail business showed continued strength offsetting to some extent the challenges in the gold and jewelry environment. Sales of general merchandise increased 15% in total and 6% same store, while margins improved 130 basis points excluding the prior year one-time inventory valuation adjustment. Pawn service charges increased by 7% in total and 4% on a same store basis. Pawn loan balances grew 5% in total, but were down 1% on a same store basis driven primarily by a decrease in gold and jewelry loans. Rate changes in Nevada and operational improvements in Texas contributed to a 500 basis point increase in pawn loan yield. And this is reflected in the delta between the increase in pawn loan balances and the increase in pawn service charges.

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