Cash America International, Inc. (CSH)

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Cash America International, Inc. (CSH)

Q3 2009 Earnings Call

October 22, 2009 8:45 am ET

Executives

Daniel R. Feehan - President, Chief Executive Officer, Director

Thomas A. Bessant Jr. - Chief Financial Officer, Executive Vice President

Analysts

David Burtzlaff - Stephens, Inc.

Joshua J. Elving - Feltl and Company

Bill Armstrong - CL King & Associates

John Hecht - JMP Securities LLC

Richard B. Shane - Jefferies & Co.

Jordan Hymowitz - Philadelphia Financial

Henry J. Coffey, Jr., CFA - Sterne Agee & Leech, Inc.

John Rowan - Sidoti & Company

Gregg Hillman - First Wilshire Securities

Presentation

Operator

Ladies and gentlemen, welcome to the Cash America International third quarter 2009 earnings release conference call. During this presentation all participants are in a listen only mode and afterwards we will conduct a question-and-answer session. (Operator's Instructions) As a reminder, today's conference is being recorded on Thursday, October 22nd, 2009. It's now my pleasure to turn the conference over to Daniel R. Feehan, President and Chief Executive Officer at Cash America International Incorporated. Please go ahead, sir.

Daniel R. Feehan


Thank you. Good morning, ladies and gentlemen, and welcome to our call for the third quarter of 2009. As usual joining me this morning is Tom Bessant, our Chief Financial Officer, who will lead off with a review of our financial performance for the quarter, updated earnings guidance for Q4, and our initial earnings guidance for 2010. I will then rejoin the call and provide my perspective on the condition of our business and a preview of our strategic focus for 2010. 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 prospect of Cash America International Inc. and its subsidiaries. The actual results of the company could differ materially from those indicated in the forward looking statements because of various risk and uncertainties including, without limitation, the risk 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 the risks and uncertainties that could cause its actual results to differ materially from those indicated by forward looking statements.

When used in this call, terms such as believes, estimates, plans, expects, anticipates, and similar expressions or variations as they relate to the company or its management, are intended to identify forward looking statements. The company disclaims any intention or obligation to update or revise any forward looking statements. Now with that I'll turn it over to Tom for his financial report. Tom?

Thomas A. Bessant Jr.


Thanks, Dan. As you'll see in our third quarter press release this morning, Cash America posted a 10% increase in total revenue to $276.1 million and a 19% increase in net income to $22.5 million or $0.73 per share. The $0.73 a share number comes in slightly above the middle of our $0.70-$0.75 previously announced range for consolidated earnings per share for the third quarter, and the results of the third quarter 2009 were led by another solid performance for the pawn segment and a resurgence in our storefront cash advance business coming off the momentum evidenced at the end of the second quarter.

The cash advance segment was further supported by overall lower loss rates on the cash advanced portfolio creating an increase in cash advance segment operating income of $2.4 million, up 27% year over year and representing the first increase in the cash advance segment for fiscal 2009.

Focusing now on individual segment performance, the pawn segment, which accounts for almost three quarters of consolidated earnings, posted solid growth in total revenue and operating income as the US Pawn business continued its margin in 2009 with positive results.

US Pawn operating income was higher on the strength of a 27% increase in finance and service charges on pawn loans. As expected in the quarter, the retail sales environment was difficult, and while retail sales were up 5% in the quarter, first profit on the disposition of merchandise was flat year over year. Pawn's first profit margins were lower at 34.1% compared to 35.5% as a much higher mix of refined goal sales blend with softer retail sales and lower retail margins.

However, because we are now operating gold buying and pawn lending in our storefront cash advance business, we did pick up additional profits from those activities, leaving the company's consolidated growth profit up 5% to $39.2 million including those activities and posting a consolidated gross profit margin of 34.2% for the third quarter.


Consolidated gross profit margin and retail sales excluding refined gold sales decreased from 41% last year to 39.4% in Q3 of 2009. Refined gold profit margin was higher than the prior year at 28.4% compared to 27.6% last year. Inventory turnover was the same as the prior year at 2.6 times and inventory aging continues to show better results with only 7% of goods greater than 12 months old.

Total pawn segment finance and service charges were higher as the loan balance growth in Prenda Fácil, our Mexico City based pawn operations, continues to contribute to overall figure. The US finance and service charges were up a healthy 11% for the quarter, adding to the success of this key revenue component. Consolidated pawn loan balances rose to $190.5 million, up 20% year over year with US pawn loan balances up 6% and same store pawn loan balances up 5.4%.

The US Pawn business posted the same store net revenue growth of 6.6% in the quarter. This shows the continued momentum of the US Pawn business as we move into the fourth quarter of 2009.

As expected, the Mexico based pawn operations continue to successfully add new locations and year to date has added 45 net locations finishing the quarter at 157 locations. As we discussed in the second quarter call, this continued aggressive store opening schedule is driving higher operating expenses for the quarter due to the higher percentage in new store locations. These factors led to a $1.7 million operating income contribution from this business, but no earnings benefit after taxes and interest in the quarter. The overall pawn lending segment was up 13% in net revenue to prior year, posting an 11% increase in operating income to the prior year. Pawn activities maintained its overall dominance as a percentage of the company's consolidated operating income at 72% for the third quarter of 2009.

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