EZCORP (NASDAQ:EZPW) Chief Financial Officer Tim Jugmans said the pawn retailer’s latest quarterly results reflected both favorable consumer conditions and operational improvements, including store expansion, pricing discipline and acquisitions.
Speaking at Canaccord’s 46th Annual Growth Conference, Jugmans said the company reported a record quarter, with adjusted EBITDA rising 48% and adjusted earnings per share increasing 47%. He said EZCORP is building roughly 40 stores annually, up from about 30 previously, and indicated the company could expand its new-store development further next year.
Customer Demand and Merchandise Trends
Jugmans said EZCORP serves customers across income levels, rather than only low-income, unbanked or underbanked consumers. He described pawn loans as a fast option for customers facing short-term cash needs, requiring an identification card and an item of value rather than credit checks or conventional collections processes.
On the merchandise side, he said luxury goods and sneakers have been among the company’s fastest-growing categories, while laptops have declined in value and demand. EZCORP adjusts its lending practices based on the resale outlook for particular merchandise, he said.
“On a luxury handbag, we’re lending it slightly higher because we know there are consumers out there that want to buy them,” Jugmans said. “We lend a little bit more aggressively on the items that we know are hot commodities that we can easily sell in our stores.”
Regulation and Gold Lending
Jugmans characterized regulation in EZCORP’s markets as stable and said licensing requirements can create barriers to entry. He pointed to Texas and Las Vegas as markets where licenses can be difficult to obtain, supporting established operators. He also said compliance costs can be more manageable for larger operators than for smaller chains.
In Illinois, Jugmans said the state introduced pawn-specific provisions when establishing consumer lending caps, including a sliding-scale approach intended to reduce rates on larger loans. He said the changes had little impact on EZCORP because its average loan size is about $200 to $250.
Addressing gold-price volatility, Jugmans said EZCORP does not reprice gold loans daily. Instead, the company takes a longer-term view, potentially adjusting lending standards about every three months. He said higher gold prices do not necessarily translate directly into higher average loan sizes because customers typically seek a specific amount of cash and can pledge fewer grams of gold when prices rise.
Growth Outlook and SMG Integration
Jugmans rejected the notion that EZCORP may be approaching peak earnings. He said U.S. same-store pawn-loan-outstanding growth was 13%, while same-store core pawn gross profit, excluding scrap, also rose 13%.
He said the company expects consumer conditions to remain supportive of demand for pawn services over the next 12 to 24 months. Higher pawn-loan-outstanding growth and average loan-size growth suggest consumers are “hurting a little bit more” than they were a year earlier, he said.
The company recently acquired SMG, a 108-store business operating across 12 countries. Jugmans said roughly 60 of the acquired stores are in Florida and Puerto Rico, with the remaining locations including Caribbean markets, Panama, Costa Rica and the Dominican Republic.
EZCORP is integrating SMG onto its point-of-sale, finance and human-resources systems. Jugmans said the process will take time, but management sees opportunities to deploy more capital into lending, improve merchandise operations, reduce scrap activity and revise incentives. He said more of those benefits could become evident by this time next year, once the business is fully integrated.
Latin America Remains Key M&A Market
Jugmans said the U.S. acquisition strategy will likely focus on smaller operators because many larger pawn businesses have already been acquired by EZCORP or its larger public competitor. The U.S. industry remains populated by “mom and pops” operating one or two stores, he said.
Latin America, particularly Mexico, offers more sizable acquisition candidates, according to Jugmans. He said the company is opening more than 40 stores annually and sees an active pipeline of chains with more than 50 stores.
EZCORP has also applied in Latin America the operating approach it used to improve its U.S. business, including a focus on inventory turnover, reducing aged general merchandise and aligning employee incentives. Jugmans said Latin America is now about 12 to 18 months behind the U.S. in the implementation of that strategy, compared with an estimated two to three years behind previously. He also noted that jewelry rose to 50% of the Latin American portfolio from 40% a year earlier.
About EZCORP (NASDAQ:EZPW)
EZCORP, Inc is a specialty consumer finance company that provides pawn loans and retail merchandise programs primarily through its EZPAWN and Cash Converters brands. The company offers collateral-based loans secured principally by jewelry, electronics, musical instruments and other personal items, alongside check-cashing, money-transfer and bill-payment services. In addition to its pawn lending operations, EZCORP acquires previously pawned or consumer merchandise for resale through its “Sell-It-Now” platform and retail storefronts.
Founded in 1989 and headquartered in San Antonio, Texas, EZCORP operates in two principal geographic markets: the United States and Mexico.
