FirstCash Inc., the Fort Worth operator of more than 2,600 retail pawn stores in the U.S. and Latin America, announced May 3 that it has discontinued offering unsecured consumer loan and credit services products in Ohio.
The company said it does not expect the decision to impact its previous forecast of adjusted net income and adjusted earnings per share for the remainder of 2019 and is reiterating its previous guidance of $3.80 to $4 for adjusted earnings per share.
FirstCash operates 113 Cashland locations and six Cash America Pawn locations in Ohio.
The recent change in Ohio law for unsecured consumer loans and related credit extensions utilizing the credit services model went into effect on April 26, 2019, the company news release said.
The new law placed significant additional restrictions on unsecured consumer lending products, and after an extensive evaluation of alternative products meeting the new legal requirements, FirstCash opted to cease offering any unsecured consumer lending products in all 119 of its Ohio locations, the company said.
Over the next few months, the company is expecting to close an estimated 54 Cashland locations whose revenue was derived primarily from unsecured consumer lending products. The new law does not affect pawn lending operations, and the remaining 65 locations in Ohio have significant pawn revenues and are expected to continue operating as full-service pawnshops.
The company said a significant reduction in revenues and earnings resulting from the expected change in Ohio law was already factored into its most recent earnings guidance for 2019.
As a result of the Ohio store closures, the company said it expects to incur non-recurring wind-down charges of approximately $1 million to $2 million, net of tax, for the quarter ending June 30, 2019, which will be excluded from adjusted net income and adjusted earnings per share.
These charges include employee severance costs, lease termination expenses, unsecured consumer loan and credit services loss provisions and other asset impairments.
The incremental reduction in revenues from the decision to fully eliminate unsecured consumer lending products in Ohio is expected to be offset by approximately $7 million to $8 million in pre-tax cost savings from the expected store closures and reductions in remaining store expenses, collection processing and other administrative costs over the remainder of 2019.
Beginning in the second half of 2019, the company will only offer unsecured consumer loans and credit services in approximately 81 U.S. locations, of which 75 are pawnshops providing them as an ancillary product and the company now expects second half revenues from unsecured consumer lending products to be in the range of $3 million to $4 million, the news release said.
“Our primary operating focus continues to center on the tremendous growth of our core pawn business as we continue to open and acquire new locations in both the U.S. and Latin America. During the month of April alone, we added 23 pawn stores in Latin America through acquisitions and new store openings and also acquired 10 U.S. pawn stores,” Rick Wessel, chief executive officer, said in the release.
“Given the significant growth opportunities in pawn, we have methodically reduced revenues from non-core unsecured consumer lending and credit services operations over the past several years,” he said.
When FirstCash merged with Cash America in September 2016, it had 448 locations offering unsecured consumer loans and credit services products generating approximately $93 million in unsecured consumer loan and credit services revenue in 2016 on a pro- forma basis, the release said.
“With today’s announcement, we will now have closed or discontinued offering unsecured consumer loan products in 367 store locations since the merger,” Wessel said.
“Going forward, we have only 81 remaining locations offering unsecured consumer loan products, most of which are full-service pawnshops offering these as ancillary products to their core pawn business. The projected revenues of $3 million to $4 million from consumer lending products in the second half of 2019 will be less than one-half of 1% of expected consolidated revenue,” Wessel said.
– FWBP Staff