FirstCash Holdings, Inc. (FCFS) is the leading international operator of retail pawn stores and a leading provider of technology-driven retail point-of-sale (POS) payment solutions. With over 3,000 pawn store locations across the U.S. and Latin America, and a vast network of merchant partners for its retail POS payment solutions, FirstCash has established itself as a dominant player in the consumer financial services industry.
Business Overview and History FirstCash was founded in 1988 in Fort Worth, Texas, and has grown to become the largest pawn store operator in the United States and Latin America. The company's pawn store business model is focused on providing small, non-recourse pawn loans to customers, using personal property as collateral. This allows cash-constrained consumers to access needed funds, while also generating retail sales from the merchandise acquired through loan forfeitures and over-the-counter purchases.
In the late 1990s, FirstCash expanded its operations into Latin America, recognizing the growth potential in emerging markets. The company began acquiring pawn stores in Mexico, Guatemala, and other Latin American countries, which allowed it to diversify its geographic footprint and customer base. This international expansion has been a key factor in FirstCash's growth and success over the years.
Throughout its history, FirstCash has faced various challenges, including navigating the complex regulatory environment in the pawn industry. In 2013, the company's predecessor, Cash America International, entered into a consent order with the Consumer Financial Protection Bureau (CFPB) regarding alleged violations of the Military Lending Act. This event laid the groundwork for the CFPB's 2021 lawsuit against two of FirstCash's subsidiaries, which is currently ongoing. The company is defending the lawsuit and believes it has meritorious defenses.
Another challenge the company has successfully overcome is adapting to changes in consumer behavior and shopping patterns. As the retail landscape evolved, FirstCash has had to adjust its operations to meet the evolving needs of its customers, such as offering more digital and mobile-friendly services.
In 2016, FirstCash expanded its business by acquiring American First Finance (AFF), a leading provider of lease-to-own (LTO) and other retail POS payment solutions. AFF partners with a network of over 13,500 merchant locations across the U.S. to offer financing options for consumer goods and services. This acquisition has allowed FirstCash to diversify its revenue streams and capitalize on the growing demand for alternative financing solutions.
Financial Performance and Metrics Over the past three years, FirstCash has demonstrated strong financial performance. In 2023, the company reported total revenue of $3.15 billion, a 15.4% increase from 2022. Net income for the year was $219.3 million, with a net profit margin of 7.0%. The company's balance sheet remains healthy, with $127.0 million in cash and cash equivalents as of the end of 2023 and a current ratio of 3.91.
The pawn lending segment, which accounted for 77.3% of total revenue in 2023, has been a consistent driver of growth, with pawn loan fees increasing 18.0% year-over-year. The retail POS payment solutions segment, which contributed 22.7% of revenue, has also shown resilience, with leased merchandise income and interest and fees on finance receivables rising 5.0% and 1.0%, respectively, in 2023.
Key Financial Metrics: - Revenue (2023): $3.15 billion - Net Income (2023): $219.3 million - Net Profit Margin (2023): 7.0% - Cash and Cash Equivalents (2023): $127.0 million - Current Ratio (2023): 3.91 - Pawn Loan Fees Growth (2023): 18.0% - Leased Merchandise Income Growth (2023): 5.0% - Interest and Fees on Finance Receivables Growth (2023): 1.0%
Financials FirstCash's financial performance has been robust, with steady revenue growth and consistent profitability. The company's diversified business model has helped maintain stability even in challenging economic environments. The pawn lending segment continues to be the primary revenue driver, while the retail POS payment solutions segment provides additional growth opportunities.
For the most recent fiscal year (2023), FirstCash reported: - Revenue: $3.15 billion - Net Income: $219.30 million - Operating Cash Flow (OCF): $416.14 million - Free Cash Flow (FCF): $355.99 million
In the most recent quarter (Q3 2024), the company reported: - Revenue: $837.32 million (6.5% year-over-year growth) - Net Income: $64.83 million - Operating Cash Flow (OCF): -$228.72 million - Free Cash Flow (FCF): -$176.30 million
The decrease in OCF and FCF in Q3 2024 compared to the prior year quarter was primarily due to increased investment in working capital to support growth initiatives.
FirstCash operates in three reportable segments:
1. U.S. Pawn Segment: As of September 30, 2024, this segment included 1,200 pawn store locations across 29 U.S. states and the District of Columbia. Key Q3 2024 metrics include: - Retail merchandise sales: $235.04 million (up 15% year-over-year) - Pawn loan fees: $128.39 million (up 13% year-over-year) - Segment pre-tax operating income: $98.29 million (up 16% year-over-year)
2. Latin America Pawn Segment: As of September 30, 2024, this segment operated 1,820 pawn stores across Mexico, Guatemala, Colombia, and El Salvador. Key Q3 2024 metrics include: - Retail merchandise sales: $129.08 million (down 3% year-over-year, up 7% on a constant currency basis) - Pawn loan fees: $58.17 million (down 4% year-over-year, up 6% on a constant currency basis) - Segment pre-tax operating income: $38.47 million (down 6% year-over-year, up 2% on a constant currency basis)
3. Retail POS Payment Solutions Segment: This segment consists of AFF's operations, providing solutions through approximately 13,500 active retail merchant partner locations as of September 30, 2024. Key Q3 2024 metrics include: - Leased merchandise income: $188.56 million (down slightly year-over-year) - Interest and fees on finance receivables: $61.20 million (down slightly year-over-year) - Segment pre-tax operating income: $30.19 million (down 23% year-over-year)
Liquidity FirstCash maintains a strong liquidity position, with $106.32 million in cash as of September 30, 2024. The company's current ratio of 4.00 and quick ratio of 3.23 indicate a healthy ability to meet short-term obligations. Additionally, FirstCash has access to $527.80 million in available credit under its revolving unsecured credit facilities as of September 30, 2024.
The company's debt-to-equity ratio stands at 0.87 as of September 30, 2024, indicating a balanced capital structure. FirstCash's strong cash flow generation allows it to fund operations, pursue growth initiatives, and return capital to shareholders through dividends and share repurchases.
Expansion and Growth Strategies FirstCash has employed a multi-pronged growth strategy, focusing on both organic expansion and strategic acquisitions. In the pawn lending segment, the company has opened 55 new de novo stores in 2024 and acquired 28 pawn stores in the U.S. The company also continues to selectively purchase real estate from landlords at existing pawn store locations.
In the retail POS payment solutions segment, AFF has been actively promoting and expanding its relationships with new and existing merchant partners, while also investing in its customer and merchant support operations, technology platforms, and proprietary decisioning processes. This has allowed AFF to grow its active merchant partner locations from approximately 10,800 in 2023 to 13,500 as of September 2024.
Risks and Challenges Despite its strong market position and diversified business model, FirstCash faces several risks and challenges that investors should be aware of. The company operates in a highly regulated industry, with pawn lending and retail POS payment solutions subject to various federal, state, and local laws and regulations. Changes in these regulations could impact the company's operations and profitability.
Additionally, the company's international operations, particularly in Latin America, expose it to risks related to currency fluctuations, political and economic instability, and changing macroeconomic conditions. The COVID-19 pandemic also had a significant impact on the company's operations, though it has since demonstrated resilience and the ability to adapt to changing market conditions.
Industry Trends and Outlook The pawn industry has experienced steady growth in recent years, with a compound annual growth rate (CAGR) of approximately 5-7% over the past 3 years. The retail POS payment solutions segment has also seen strong growth, benefiting from the increase in consumer demand for alternative financing options.
Looking ahead, FirstCash remains well-positioned to capitalize on the growing demand for alternative financial services and payment solutions. The company's diversified business model, strong market presence, and ongoing investment in technology and innovation are expected to drive continued growth and profitability.
In its most recent guidance, FirstCash projected full-year 2024 revenue in the range of $3.25 billion to $3.35 billion and diluted earnings per share between $4.60 and $4.80. The company also remains committed to returning capital to shareholders through quarterly cash dividends and share repurchases, underscoring its confidence in the long-term outlook for the business.
Overall, FirstCash's established market leadership, diversified revenue streams, and strategic growth initiatives position the company as a compelling investment opportunity in the consumer financial services industry. With its strong financial performance, robust liquidity position, and continued expansion in both the pawn lending and retail POS payment solutions segments, FirstCash is well-equipped to navigate future challenges and capitalize on growth opportunities in the evolving financial services landscape.