Behind The Numbers – EZCORP (EZPW)
According to EZCORP CEO Lachlan Given, “The pawn demand environment remains highly favorable. Consumer credit conditions continue to remain challenged, particularly for lower and middle-income households that many traditional lenders continue to tighten underwriting standards. For consumers who need immediate no obligation access to cash, pawn remains a fast, transparent and trusted solution. At the same time, more consumers are seeking affordable, high-quality preowned goods driven by value-conscious shopping and a focus on sustainability. Both sides of our business benefit from these trends.”
On Wednesday, the company would report EPS of $0.55 vs $0.43 estimate (Beat) and Revenue of $382M vs $363.63M estimate (Beat). Q1 pawn loans outstanding (PLO) increased +14% Y/Y to $314M. Canaccord Genuity analyst Brian McNamara had said that their pawn store checks were foreshadowing a good Q1 in the U.S. as 24% of surveyed stores said they had been busier than last year, while 64% stated business was normal, a modest sequential improvement.
Meanwhile, Q1 merchandise margins came in at 36.8%, an increase of 220bps Y/Y, driven by improved pricing, execution, and product mix. Scrap margins also expanded materially, from 23% to 34%, as the company benefited from higher gold prices.
CFO Timothy Jugmans, in his prepared remarks, would add, “With respect to scrap, we’re not in the business of predicting gold prices, but we can say gold has continued to rise through the quarter. As long as that continues, we expect elevated scrap gross profit contributions. As we noted last quarter, once gold stabilizes, we’d expect approximately 2 quarters of elevated scrap gross profit margin before margins begin to normalize towards historical levels.”
U.S. average loan size increased +12% in Q1 to $231, up from $208 from a year ago, largely driven by higher prices on jewelry, which now accounts for 68% of U.S. PLO, +310 bps.
Turning to Latin America, PLO increased +36% while same-store PLO increased +23% due to strong loan demand and better operational performance. Latin America EBITDA increased +47% Y/Y. On the call, management said they are “seeing phenomenal organic growth” in Latin America and are pleased with the balance in PLO, inventory, net revenue, and profit.
Lastly, EZPW has been involved in M&A over the last month with the acquisition of a controlling interest in Founders One, LLC and then the acquisition of El Bufalo Pawn, adding 12 stores in Texas, for $27.5M. Management would say the El Bufalo Pawn acquisition brings an experienced local team and a strong presence in a rapidly growing market, and are excited to apply their operating playbook and capital to unlock additional value in this business. Following these 2 transactions, EZCORP now operates 1,500 pawn stores across 16 countries.
