Cash America International, Inc. (CSH)

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Cash America International, Inc. (CSH)

Q2 2009 Earnings Call

July 23, 2009 8:45 am ET


Dan Feehan - President and CEO

Tom Bessant - Chief Financial Officer


David Burtzlaff - Stephens, Inc.

Bill Armstrong - CL King & Associates

John Rowan - Sidoti & Company

Rick Shane – Jefferies & Company

John Hecht - JMP Securities

Henry Coffey - Sterne Agee

Jason Arnold – RBC Capital Markets

Gregg Hillman - First Wilshire Securities

Jordan Hymowitz - Philadelphia Financial

Ted Hillenmeyer – Northstar Partners

Liz Pierce - Roth Capital Partners



(Operator Instructions) Welcome to the Q2 Quarterly 2009 Earnings Release Conference Call. I would now like to turn the conference over to Dan Feehan, President and CEO, Cash America International.

Dan Feehan

Welcome to our call for the second quarter call 2009. Joining me this morning is Tom Bessant our Chief Financial Officer, who will lead off the review of our financial performance for the quarter and provide updated earnings guidance for the balance of the year. I will then rejoin the call to provide my perspective on the condition of our business. We will then open the call for questions following my remarks.

Before beginning our comments, please bear with me while I read our Safe Harbor disclosure. While on this call comments made by Tom or me may contain forward looking statements about the business, financial condition and prospects of Cash America International, Inc. and its subsidiaries. The actual results of the company could differ materially from those indicated by the forward looking statements because of various risks and uncertainties including without limitation the risks and uncertainties contained in the company’s filings with the Securities and Exchange Commission.

These risks and uncertainties are beyond the ability of the company to control, nor can the company predict in many cases all of the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward looking statements. When used in this call, terms such as believes, estimates, plans, expects, anticipates and similar expressions as they relate to the company or its management are intended to identify forward looking statements.

Now I’ll turn the call over to Tom.

Tom Bessant

As you’ve seen in our press release the company reported $0.54 per share on $252 million in revenue during the second quarter. This earnings per share of $0.54 exceeded the top end of our guidance by $0.01 per share as overall the second quarter played out much as anticipated.

Recapping the second quarter, we expected and experienced soft over the counter retail sales, excluding refined gold, due to the economic environment and the fact that our customers would not have economic stimulus checks as they did in the second quarter of 2008. Refined gold volume was not as high due to the slower recovery of pawn loans which was delayed due to the timing of the Q1 tax refunds, deferring the arrival of unredeemed collateral until later in the quarter.

In the end, consolidated merchandise sales were up slightly but due to the introduction of the product in many of our Cash Advance locations. However, gross profit margins as anticipated were lower leading to lower gross profit on retail sales and a $2.7 million drop in gross profit dollars in the second quarter of 2009 compared to the prior year.

In addition, we talked about the uncertainty of loan demand as we entered the second quarter. We were pleased that pawn loan demand did rebound during the second quarter and the company ended with a healthy increase in pawn loan balances in its US locations, up about 9% year over year which combined with our Mexico based pawn loans to generate a 25% increase in pawn service charges which took some of the sting out of the difficult retail sales environment. More importantly this is a positive indicator for the upcoming quarter.

The Cash Advance business, while suffer with lower revenues due to the absence of certain profitable markets that the company was in, in the second quarter 2008, still performed admirably during the quarter and in fact exceeded our expectations. Loan losses on the Cash Advance business continued their trend of improvement year over year despite the challenging economy. The store front Cash Advance locations came in slightly above expectations which helped push us above the high end of our initial guidance for the quarter.

The consolidated loan loss provision as a percentage of loans written dropped to 5.5% in the second quarter of 2009 compared to 6.5% in the second quarter of 2008. Consolidated loan loss as a percentage of cash advance fees decreased to 34.5% compared to 37.4% in the prior year. Also, each of the businesses posted improvement in year over year losses as a percentage of fees and I encourage you to review those levels as both the pawn and store front Cash Advance business had exceptional performance in the quarter.

Our Mexico based pawn operations Prenda Facil continued their business plan of aggressive store growth but did contribute incremental profitability to our pawn operating segment. Overall it was a very solid quarter for our key lending businesses balance sheet metrics performed quite well and we experienced some positive movement in our store front Cash Advance business.

Now I’ll get into some of the specific metrics of each of the business lines. Starting off with the pawn business, as many of you know, the second quarter is more about balance sheet changes than it is about earnings but earnings is the headliner so I’ll start there.

The pawn segment reported an increase in net revenue of a little more than 5% during the quarter due to the inclusion of our Mexico based pawn operations as the US business was down slightly. The year over year slight decrease in US pawn income from operations was anticipated due to the unseasonably strong 2008 second quarter which was driven by stimulus checks. Operating income from the total pawn segment was flat year over year as the difficult comparisons in the US business was offset by the additional contribution from the Mexico based operation.

Looking at the specific components of net revenue related to the pawn business, consolidated service charges were up 25% aided by the inclusion of Prenda Facil’s operations. The US pawn business posted a healthy 9% increase in pawn service charges. This improvement came later in the quarter commensurate with the later period increase in pawn loan balance that I mentioned earlier.

As anticipated, retail sales in the pawn lending segment was down but only slightly. However, the segment experienced a lower gross profit margin coming in at 35.1% compared to 38.3% in the prior year. Similar to the first quarter results, lower gross profit margin is a function mostly of higher percentage of refined gold sales as well as active discounting to maintain inventory levels during the current quarter. Consolidated refined gold margins were 27% compared to 33% in the prior year and comprise about one third of gross profit dollars.

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