EZPW

EZCORP, Inc. (EZPW)

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EZCORP, Inc. (EZPW)

F3Q09 Earnings Call Transcript

July 23, 2009 at 4:30 pm ET

Executives

Joe Rotunda - President & Chief Executive Officer

Dan Tonissen - Senior Vice President & Chief Financial Officer

Analysts

David Burtzlaff - Stephens, Inc

John Rowan - Sidoti & Company

Chuck Raff - Insight Investments

Elizabeth Pierce - Roth Capital Partners LLC

Ted Hillenmeyer - Northstar Partners

Presentation

Operator

Good afternoon, ladies and gentlemen, and welcome to the EZCORP fiscal 2009 third quarter earnings release conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Mr. Joe Rotunda.

Mr. Rotunda, you may begin.

Joe Rotunda

Thank you, Monica. Good afternoon everyone and thank you for joining us today. With me is our Chief Financial Officer, Dan Tonissen. I am going to begin with an overview of the quarter’s performance, quantify the contribution of our recent acquisitions and include some commentary on each business segment. Dan will follow and provide detail on our consolidated results. We will conclude with an update on the final quarter of the year before providing an opportunity for questions.

Quarter three was a good quarter for EZCORP. With a 16% improvement in diluted earnings per share over last year, it represents our 28 consecutive quarter of year-on-year earnings improvement.

We grew our net income by 33% to $14.4 million. It is noteworthy that this is on top of an exceptional 60% growth in earnings during the same quarter last year when our customers had the benefit stimulus checks.

On a diluted earnings per share basis, we grew to $0.29 from last year’s $0.25. This 16% increase in earnings per share is on top of last year’s 56% increase. Our results this year benefited from the successful integration of two recent acquisitions, the 11 store Pawn Plus brand in the Las Vegas metro area completed November and the 67 store Value Pawn brand which closed on New Year’s eve.

I believe these results clearly demonstrate the value of our strategy to build earning assets including the pursuit of quality pawn acquisitions. These 78 acquired stores were immediately accretive by $0.02 in the March quarter and have continued to gain momentum as they have been assimilated into EZCORP.

In the current quarter, they contributed approximately $0.04 of earnings per share. We are quite pleased with these results and we are looking forward to continued success with these stores.

Now, let us take a look by segment and I will begin with our domestic pawn operations, which are on Page 6 of our release.

On lines 15 and 35 under the column titled US Pawn Operations, you can see that we had $6.4 million increase in our store level operating income. That is 34% growth over the same quarter last year. Included in these results is approximately $6 million in store level operating income contribution from the two acquisitions I just addressed?

With so many moving parts, I am going to direct my comments to the key metrics of our US pawn operation on a same store basis. That is without the benefit of the acquisitions.

Our pawn loan portfolio reflects high quality loans as demonstrated in the portfolios yield which grew to 147% this year. This is a 300-basis point improvement to last year and demonstrates continued improvement in our redemption rates.

From a scale perspective, our pawn loan portfolio ended the quarter up 7% over last year, which was not quite as strong as we had anticipated. We did, however, realized much stronger loan growth in general merchandise loans which increased by 15% over last year. The dampening effect was with jewelry loans which trailed with only 4% growth in the quarter.

In order to accelerate our portfolio growth in the jewelry category, we just recently stepped up our loan values on gold. Jewelry accounts for more than half of our pawn loan portfolio.

Same store merchandise sales for the quarter were down 2% to last year and the sales performance reflects a merchandise category pattern that is similar to the pawn loans. General merchandise sales showed some strength with an increase of 4% in the quarter while jewelry sales decreased by 5% to last year.

Our challenge has been to build our jewelry merchandise sales and what as we believe the most discretionary of any product category that we carry in our stores. What we have done is develop marketing programs to create urgency with the consumer with regard to our jewelry offering.

The first is a well executed Christmas in July program which makes a jewelry purchase easy and affordable. The program provides a discount, low down payment and an extended layaway period. That runs in the month of July. The months of August and September will follow with different promotions focused on the jewelry category.

Our same store sales margins were 39% this year compared to 42% last year and they reflect a more aggressive discounting approach in what I would term a rather difficult sales environment.

Gold scrapping generated $6.6 million in gross profit and that compares to last year’s $7.1 million on a same store basis. Our inventory turned 3.5 times same as a year ago and our same store inventory levels have increased only 3%. This indicates that we have done a good job of selling through our inventory with no indication of a problematic buildup.

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