EZCORP Inc (EZPW) 2010 Q3 法說會逐字稿

Welcome to the EZCORP, Incorporated, fiscal 2010 third quarter conference call. My name is John, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

For opening comments, I'll now turn the call over to Danny Chism, EZCORP's Chief Accounting Officer and Interim CFO. Mr. Chism, you may begin.

Thanks, John, and good afternoon, everyone. This call will address our third-quarter 2010 results. We issued a press release earlier today, and it's available on our website at www.ezcorp.com.

I'd like to remind everyone that this conference call will contain certain forward-looking statements, including statements about our expected financial and operating performance in future periods. These statements are based on our current expectations. Actual results in future periods may differ materially from current expectations due to a number of risks, uncertainties and other factors, which are discussed in our press release and in our filings with the Securities and Exchange Commission.

On our call with me today are Joe Rotunda, our Chief Executive Officer; and Paul Rothamel, our President and Chief Operating Officer. Joe will make a few remarks, and then Paul will provide some more details around our business segments. I'll then cover our consolidated results before we open the line for Q&A.

I'll now turn the call over to Joe Rotunda. Joe?

Thank you, Danny, and good afternoon, everyone. I'd like to thank you all for joining us today and your interest in EZCORP.

The June quarter was another great quarter for the Company. We delivered excellent results with net income growing to $20 million, an increase of more than $5.5 million and 39% over last year. Diluted earnings per share grew to $0.40 from $0.29 a year ago, representing a similar improvement. These results clearly demonstrate strong consumer demand for our assortment of products and services and the valuing convenience they provide in today's financial marketplace.

All three of our business segments produced increases in store level operating income over the prior year quarter. Our US pawn segment led the way with increases in pawn service charge revenue, sales gross profit and new product contribution. This collectively drove a 36% increase in operating income. In addition, we grew this segment's store count with the acquisition of 13 stores during the quarter.

Empeno Facil, our pawn segment in Mexico, also delivered growth in both store count and income contribution. Mexico's operating income grew by 24%.

And last, but certainly not least, our EZMONEY segment, which includes our Canadian operations, had strong growth in revenues, primarily as a result of a broadened product offering, while maintaining attention to both bad debt and expense management. The resultant net operating income improved by 40%, even after absorbing the drag associated with the new stores in Canada.

One of the really exciting things about these results is that they have been driven by strong and high-quality growth in our earning assets, specifically our consolidated pawn and EZMONEY loan portfolios.

Pawn closed June at 19% over last year, and EZMONEY was up 28%. Our strategic affiliates Albemarle & Bond and Cash Converters also provided a nice contribution this quarter. Collectively, they contributed almost $3 million in pretax contribution, which is about three times last year, which didn't include Cash Converters.

Now, I'd like to turn the call over to Paul fir a detailed review of the results. Paul?

Thanks, Joe, and good afternoon, everyone. This indeed was a very strong quarter for EZCORP. I'd like to expand on Joe's highlight by providing some details around each of our segments. I'll begin with our US pawn segment, which you can see on Page 6 of the press release.

US pawn continued to perform extremely well during the quarter, generating store-level operating income of $35 million, an increase of 36% compared with the same period last year. This is the result of strong revenue growth, while leveraging our expense structure.

The operating income margin improved to 47% of net revenue, an impressive 700 basis point improvement over last year. I'd like to commend the operators on a truly outstanding performance. They grew their net revenues by $11 million over the prior year and brought more than $9 million of that directly down to the operating income line.

Same-store revenue increased 14% to $128 million during the period, driven primarily by an 18% increase in pawn service charge revenue. This increase was due to strong pawn loan growth, coupled with a health redemption rate.

Scrap revenue also contributed nicely, which I'll discuss shortly.

Our redemption rates improved 200 basis points to 81%, driven by our operational focus on loan values as well as significant increase in our inventory purchases. Inventory purchases during the quarter increased 44% compared to the same quarter last year. The growth in purchases is important because by qualifying our customers more accurately, we are able to sell or scrap that merchandise sooner. This improves our ability to drive revenue and turn our inventory faster.

Consistent with the overall economic environment, same-store merchandise sales or retail sales were down 4% from the prior-year quarter. Sales of general merchandise were relatively flat, while jewelry sales were down in a similar manner to recent quarters. Jewelry, in particular, are discretionary purchases, and rising gold prices have also made them more expensive to our customer base.

There's also one other relevant factor. During our March quarter, we enhanced our layaway program by lowering the deposits and extending the terms. The enhancements-- the enhancement has been well received by our customers, as indicated by the 50% increase in customer deposits on our balance sheet. While this did not increase recorded sales in the June quarter, we believe it will benefit future periods as layaways are completed since layaway sales are recognized only upon completion.

One of the obvious benefits of our pawn model is what jewelry we don't sell in the stores, we are able to scrap. Jewelry scrap revenues increased $11 million or 36%, while our scrap cost of sales increased 40%.

Our combined scrap gross profit improved $3 million or 30%, with a margin of 34%. This is a 200 basis point rate decrease from the-- this quarter last year and is due to our aggressive buying and lending programs, designed to be both competitive and maximize our overall bottom-line performance. Combining for both merchandise sales and jewelry scrap sales on a same-store basis, our total sales are actually up 11% for the quarter.

On our last call I also discussed how we looked to offer new products and services in conjunction with our merchandise, which allows us to better serve our customers, while leveraging our existing infrastructure.

Our customers have continued to respond positively. Two of these programs, our product protection and jewelry VIP programs, delivered an additional $1.4 million in revenue over last year's quarter.

As Joe already mentioned, we completed the acquisition of 13 stores in June. Eight of these stores are located in central and south Florida, and we play to operate them under the Value Pawn brand. The addition of these stores strengthens our position as the largest pawn store operator in the state of Florida.

This was followed with the acquisition of five stores in the Chicago metropolitan area, which is a completely new market for us. We plan to operate these locations under the EZPAWN brand, and we look forward to the opportunities this market presents.

Since all of these stores were acquired late in the quarter, their impact is minimal on the results of this segment. However, we do expect them to be accretive quickly as we integrate them into our pawn operations.

These acquisitions, in addition to our domestic and international greenfield expansion, are part of our strategic initiatives to grow our business worldwide. We will continue to look for acquisitions such as these to further enhance our growth by providing economic or strategic benefits.

The two US greenfield stores that we opened earlier this year continue to perform well and are on track to turn profitable by the end of our first quarter next year, which would be their first full year in operation. We also anticipate opening four more US greenfield locations during our fourth quarter. Two will operate under the EZPAWN brand and two will operate under the Value Pawn brand.

The second segment of our business, our pawn segment in Mexico, Empeno Facil, continues to be a key element of our growth strategy.

Operating income was up 24% to $1.3 million. On a constant currency basis, operating income improved 16%. This is particularly impressive considering that over one-third of our total locations have been opened within the past nine months.

We saw tremendous revenue growth, both in total and on a same-store basis. This rapidly growing segment generated 89% and 40% respectively. The 40% same-store revenue growth is driven primarily by both pawn service charge revenue and merchandise sales across our 47 top stores. Those are solid results turned in by our operators in Mexico, while also rapidly opening more stores.

Very nice pawn loan growth, coupled with an improvement in yield, generated a 64% increase in total pawn service charge revenue and a 39% increase on a same-store basis.

Same-store merchandise sales are up 26%. We saw an increase in total merchandise sales gross profit as well, driven by both volume and margin. In fact, we saw a 500 basis point improvement in gross margin over the prior-year quarter to 42%. This also represents a significant improvement for our first and second quarters where we saw reduced margins due to a concerted effort to move aged merchandise. These are the types of margins we would expect on a go-forward basis.

Scrap sales gross profit was up approximately $200,000.00 as a result of an increase in volume from our jewelry-only pawn stores. Scrap margins were 15%. This is up from 11% in the March quarter and is in line with our expectations of the jewelry-only model. In jewelry-only stores, we expect a higher cost of sales but lower operating costs due to their much-smaller footprint and staffing needs.

During the quarter, we opened 20 new stores in Mexico, 9 of which are full line and 11 are jewelry-only pawn stores. This gives us a total of 99 locations at quarter end, 70 of which are full line, 29 jewelry only. With 37 stores open year to date, we're on track to open approximately 50 new Empeno Facil locations this fiscal year.

I'm especially excited to announce that the 100th Mexico location was opened in Guadalajara on July 2. I'm very proud of all the hard work and dedication of our team members who helped make this milestone possible.

Our third major business segment is EZMONEY, which includes our signature loan operations in both the US and Canada. Operating income grew 40% to $11 million, with the operating income margin at 41%. That's a 600 basis point improvement over the same quarter last year.

These results, inclusive of the drag associated with the 33 CASHMAX stores opened in Canada this fiscal year, were driven by strong revenue growth, continued excellent bad debt management and leveraging our expense structure. Another job well done by our team members, who were able to turn $4 million of net revenue into $3 million of operating income.

EZMONEY's total revenues were up 18% or $5 million, driven primarily by an increase in auto title loan revenue as well as installment loan revenue as we continue to see these new products ramp.

Given the unemployment rates, we're quite pleased with the performance of signature loans, where we saw revenues slightly up from prior year.

As Joe already pointed out, our combined EZMONEY loan portfolio, as of the end of June, was up 28% over last June. We are pleased that with our new products, such as auto title and installment loans, we are able to offer our customers options from which they can choose to meet their specific needs.

Our bad debt performance continued to improve during the quarter. Bad debt measured as a percentage of fees was 26% versus 27% for the same quarter last year. We also opened an additional 15 stores in Canada during the quarter for a total of 35 locations at quarter end. And we are on track to open approximately 45 total CASHMAX locations this fiscal year.

We have had a few developments on the regulatory front over the last couple of minutes that I want to touch on, and I'll begin with Colorado.

In May, Colorado enacted a new law that essentially eliminates the traditional short-term payday loan product. The new requires payday loans to have a minimum term of six months and specifies the maximum interest rate of 45%. But the new law also permits certain add-on fees like finance charges and maintenance fees.

The state regulator has ruled that the new law permits a six-month installment loan, and we are in the process of finalizing a product that will fit within the new regulatory requirements and satisfy the needs of Colorado customers.

We have taken a look at all of our stores in Colorado and have decided to consolidate three of our 37 stores based on our estimates of profitability under the new regulatory rules. We are also evaluating the feasibility of additional product offerings to enhance our business in the remaining 34 stores.

A new law was also in Wisconsin in May. This new law, which goes into effect on January 1, 2011, sets the limit on the amount of payday loans a customer can have outstanding at any one time, established a statewide database system to enforce that limit and redefines payday loans to bring some installment products within the definition. The new law also completely eliminates auto title loans from Wisconsin.

We have evaluated the estimated impact of the new law on our operations in Wisconsin and have decided to consolidate or close eight of our stores. That will leave us with 35 stores in Wisconsin, all of which will be offering payday and installment loans to fit within the new regulatory framework. As in Colorado, we are evaluating a number of additional products to enhance our business in those stores.

As it currently stands, we intend to continue to operate in both Colorado and Wisconsin, with fewer stores than we have now. While the 11 store closings will occur next quarter, the charges are included in this quarter's results, and Danny will elaborate on that in a minute.

Finally, as you all know, financial reform legislation has been passed by Congress and was signed into law yesterday. The new federal law will establish a consumer financial protection bureau that will have authority regulate companies that supply consumer financial products and services, including payday loans.

We anticipate that it will be a while before the new bureau is formed, staffed and funded and new regulations are proposed. So it will probably be some period of time before they're able to assess the impact on the business. Obviously, we, along with other companies in our space, will be very focused on the bureau's rulemaking process, and we will continue to provide updates as this moves along.

Finally, I'd like to make a comment about our strategic affiliates, Albemarle & Bond and Cash Converters. Collectively, they added an incremental $2.1 million in pretax contribution over the prior-year quarter, as Joe already mentioned. I'm also pleased to mention that in May we increased our ownership of Cash Converters by 3% to approximately 33%. The additional cash infusion will assist Cash Converters with their strategic initiatives.

We continue to be pleased with the relationships we have developed with both Albemarle & Bond and Cash Converters.

Danny will now spend some time discussing our consolidated numbers.

Thanks, Paul. You can see our consolidated financial results on Page 3 of the press release. All results are discussed in comparison to the prior year's quarter unless otherwise noted. Keep in mind that I'm reviewing our consolidated financials, while Paul mainly covered our segment results, so some of the segment metrics he discussed will be different than similar metrics for consolidated results that I cover.

Total revenue increased 17% to $173.5 million. On a same-store basis, total revenues were up 16% overall, with US pawn up 14%, Empeno Facil up 40% and EZMONEY up 17%. We saw a 1% decrease in merchandise sales to $49.9 million, with same-store merchandise sales down 2%. More than offsetting this was a 200 basis point improvement in gross margin over the prior year.

Scrap gross profit increased $3.5 million or 32% to $14.5 million as a result of higher volume and higher gold values net of higher cost. We scrapped approximately $2.5 million grams of gold jewelry, up about 10% from the prior year.

Pawn service charges increased 20% to $39.4 million, with same-store pawn service charges up 18%. This resulted in an annualized yield of 157% compared to 151% a year ago.

The net revenue from our signature and auto title loans increased 18% to $27 million, mainly as a result of increased revenue from product diversification and an improvement in bad debt.

Signature and auto title loan bad debt measured as a percent of related fee revenue improved 100 basis points to 26%. As a percent of loans originated, signature and auto title loan bad debt was 5.5% for both periods.

Operating expenses and depreciation and amortization are up this quarter primarily as a result of additional greenfield stores. Acquired stores had little effect on these expenses because they were acquired so late in the quarter.

Higher administrative expense is primarily due to higher incentive compensation related to the strong performance, investments made in infrastructure to support our growth and acquisition-related costs. Our revenue growth continues to outpace our total expense increases as we further leverage our infrastructure and fixed costs. This is reflected in our 34% increase in operating income to $28.8 million, while our operating income margin improved to 27% of net revenue from 24% this quarter last year.

As Paul mentioned, we will close our consolidate three EZMONEY locations in Colorado and eight in Wisconsin during the fourth quarter in response to recent state regulatory changes but expect to continue to operate the remaining stores. The decision to close these 11 stores resulted in a total pretax charge of $700,000 in the June 2010 quarter. $500,000 of this was recorded as a loss on disposable assets, and the remaining $200,000 was included in operating expenses and covers our remaining lease and severance costs at these locations.

Next, let's look at our equity and net income of unconsolidated affiliates. Our two strategic affiliates are Albemarle & Bond in the United Kingdom, and Cash Converters based in Australia. Our equity in the income of Albemarle & Bond increased 89% to $1.6 million compared to $900,000 in the previous year.

Equity interest in the income of Cash Converters was $1.3 million, which represents a full quarter of estimated income.

In May, we acquired an additional $16.2 million newly issued shares of Cash Converters for approximately $8.2 million US. This increased our ownership to 32.8%.

After a reduction in net interest expense of approximately $200,000 and a 37% effective tax rate for the quarter, net income increased 39% to $20,000 or $0.40 per share. For the full year, we expect our effective tax rate to be approximately 36%.

Now I'll provide a quick summary of our balance sheet, as seen on Page 5 of the release.

As of the end of the quarter, we had $14.9 million of cash, of which $9.8 million was non-operating. At that date, we had $27.5 million of debt-- of term debt outstanding and no borrowings outstanding on our revolving line of credit.

Our pawn loan balance was $112.8 million, a 19% increase over the same time last year. Pawn loan balances increased 16% on a same-store basis.

The US pawn segment had total pawn loan growth of $16 million or 17% with 15% same-store growth. The same-store increase was primarily driven by an increase in average loan size in both general merchandise as well as jewelry.

Empeno Facil had growth of $2 million or 69%. On a same-store basis, Empeno Facil's (inaudible) balance grew $1 million or 32%.

Consolidated signature and auto title loans combined on our balance sheet as $11.7 million. Not included in this balance are $27.4 million of loans brokered with unaffiliated lenders. Taken in total, these loans, including those brokered to unaffiliated lenders, increased 27% over the prior year to $39.2 million at June 30, 2010.

Inventory was $61.2 million at quarter end after a valuation allowance of $5.4 million or 8%, which is 100 basis points improvement over the prior year. Inventory over 12 months old also improved to 12% from 15% this time last year.

On a same-store basis, the quarter ending inventory increased 2% to $58.2 million or $140,000 per store. We turned our inventory 4.1 times versus 3.6 times this quarter last year.

Our strategic initiatives-- strategic investments in Albemarle & Bond and Cash Converters are carried on our balance sheet at $99.8 million. Collectively, they had a June 30 market value of $115.7 million. This represents unrecognized appreciation of nearly $16 million.

Let me wrap up with a quick recap of our store counts. As of the end of the third quarter, we have 482 pawn locations, including 99 in Mexico, and 497 signature loan locations, including 35 in Canada; Fifty-eight of our US pawn locations and 398 of our US signature loan locations offer auto title loans, while 197 of our US signature loan locations offer installment loans.

I'll now turn the call back over to Paul for some closing remarks. Paul?

Thanks, Danny. I'll finish our prepared remarks with an update to our earnings guidance for the balance of the year, and then we'll move on to questions. We're very pleased with the outstanding performances so far this year from each of our business segments.

As a quick recap, our new price contributed an incremental $6 million in net revenues this quarter over last quarter, and our team members did a phenomenal job of dropping nearly all of this revenue to operating income.

Our commitment to domestic and international growth is demonstrated by the 72 stores open so far this year, including 35 this quarter, and the plans to open approximately 30 more before yearend.

In addition, the acquisition of 13 stores during the quarter added incremental earning assets of almost $4 million and provided us entry into attractive markets where we are confident we can grow and development further.

We will continue to drive earnings growth with an intense focus on product and geographic diversification, new store growth and superior customer service.

With that, we expect our full year earnings per share for fiscal 2010 to increase 35% to approximately $1.92 compared to $1.42 in fiscal 2009.

And with that, we're ready for questions.

Thank you. We will now begin the question-and-answer session. (OPERATOR INSTRUCTIONS) Our first question comes from John Hecht from JMP Securities. Please go ahead.

Afternoon. Congratulations. The first question is just your observations on margin trends and volume of merchandise sales trends, is there anything you could point to in terms of regional trends with respect to the consumers, or is the I guess the slowing of jewelry purchasing more of a broad-based trend?

And do you think this is economic, or is this purely price sensitive based on where gold has gone? And the final question on that front would be is do you think this is more of a secular change given where gold price has gone, or do you think that the-- once the economy recovers in full scale that the customer will come back and begin to buy jewelry from the retail side in a more aggressive fashion?

Yes, I guess I'd answer that this way, John. This is Paul by the way. You know, clearly the economic environment is having an impact on our pawn customers' behavior, and we're certainly seeing, you know, the tightening of credit, the higher unemployment having a, you know, an impact in a positive way, frankly, PLO, because more and more people are being squeezed and not-- and don't have access to traditional credit, which pushes them our way.

You know, I think that's why you see our PLO balances growing. I think that's why you see our redemption rates growing as well, and I think that's why you see more difficult sales. When you think about jewelry as a percentage of our inventories and our PLO balances and our sales historically, they've been higher than 50% in the 60% to 65% range. So as jewelry has gotten more expensive and as the economic environment has gotten tougher, certainly it has a negative impact on sales. We do think it's obviously positive to our business on the lending side, which is the majority of our business.

You asked about regionality. You know, jewelry sales are tough in-- certainly in our US business, and to some degree-- yes, in Mexico as well. You know, we have seen, interestingly enough, in-- when you look at our regional businesses, we're moving in a fairly narrow vein, meaning all of our states that we do business in the United States perform quite well. We're happy with all of the performance.

And in fact, we reported probably two quarters ago that our business in Florida and in Nevada were very difficult. And that has turned around tremendously in Nevada, by the way, one of our strongest states in the quarter and for the year. And Florida, in fact, while sales-- retail sales are still difficult and down lower single digits, our loan growth has been very good year over year in the low single digit plus range. And, in fact, our operating incomes in the state of Florida are significantly improved over previous years.

So, and then finally I'd make a comment that, you know, we view our business as fairly insulated, not that it's countercyclical. So we do benefit in some degree when the economy is tougher, but we also think when business gets better, you mentioned and we think it's true, that our customers will, in fact, go back to buying jewelry when it becomes either more affordable or their station in life gets a little better than it is today. And we'll be in a position to sell it to them.

So, you know, our whole goal here on jewelry right now is to be the preferred provider to them, whether they need a loan, whether they need to sell it or whether they need to buy it. There's a significant focus, particularly at the storefront, for us to be there good times and in bad and no matter what transaction you want to do with us.

Thanks for the color. Follow-up question is understand it's, you know, the transitions, the strategic changes in Wisconsin and Nevada are early now in terms of the business change in reflection of the regulatory changes, but can you give us sort of an early sense of will the store closures and expense savings offset the revenue changes there based on where you think things are going, or is there other adjustments we should be thinking about?

I would answer that in that, you know, we think that we'll be, you know, profitable in those remaining stores. As we mentioned, we took about a $700,000 hit in the third quarter related to the closing stores. But clearly we think, based on our interpretation of the regulatory changes and the changes that we can make to our products, the customers' need is certainly not going away with the stroke of a pen.

So we think there's plenty of business to be done there, plenty of customers who need and select us and appreciate what we bring to the market. And we think we'll be prof-- very profitable, frankly, in the remaining locations.

Okay. Thanks.

Just so we're on the same page there too, John, you had mentioned Wisconsin and Nevada when you asked the question. Just so--

I'm sorry. Colorado. I meant Colorado. Actually, thanks for qualifying that.

And a final question, and thank you for taking all of my questions, is did-- forgive me if you mentioned this, but did you discuss forward sales in the final quarter here and at what level you did that and at what volume you might have done that?

We did touch on it, that, you know, in the-- we expect fourth quarter sales, frankly, to improve from the negative-- the retail sale side to improve from the negative 4% that we just delivered in the third quarter. And it's primarily we're looking at the changes we made to our layaway program back in the first quarter of the year, late in the first quarter of the year. And there's 50% more customer deposits on a balance sheet right now, which would tell us that we should see an improving trend.

And in fact, in the third quarter when we posted a negative 4%, June was down 1%. So the trend looks and feels like we should have an improvement there.

Okay. I appreciate that reiteration, but what I was referring to is for gold sales and, I guess, hedging activities in this quarter.

Sorry about that.

Yes. The-- we'd like just under 50% of the volume that we anticipate delivering to the refinery in Q4 at about $1,220 per ounce, and the remainder, at least for the guidance that we've put out, we've assumed a price-- an average price of $1,200 per ounce.

Okay. Thank you guys so much.

Thanks, John.

Our next question comes from David Burtzlaff from Stephens. Please go ahead.

Good afternoon, guys. Good quarter.

Thank you.

Thank you.

I just have one question really pertaining to Mexico. What is your experience with the jewelry-only stores? And how are they perf-- or how are they performing relative to your expectations?

Sure. Well, as you know, we have-- I mentioned it earlier. We have 99 stores open at the end of the quarter; 29 of those are jewelry only, none of which are a year old yet. I think we opened our first one I want to say seven or eight months ago of jewelry only. We're very-- frankly, very happy with their performance. We're happy with our strategy in Mexico.

If you remember, our three-year return on invested capital pro forma for both models is about a 40% return on invested capital. Early returns in both of our models, full service and in jewelry only. We'd say that we will-- you know, we're early in the process, but it's positive.

You know, we've certainly-- if you think about the two prototypes, the full size and the jewelry only, you know, jewelry only would certain run a thinner margin, and you heard me talk about 15%, but that's what our model contemplates. We think 15% to 20% over time. But the-- you know, it's a very inexpensive model. Your capital requirements are very low, and the real estate is much easier to do.

Having said all that, if you sit back and you say today we operate 100 stores, and in three to five years we wanted to operate 500 stores, your store count (inaudible) could very easily be, you know, 300 full size and 200 (inaudible) only. And if that was the case, your operating income would still be 75%, driven by your full-size stores.

So we like both models today. We know the (inaudible) only is, you know, fairly competitive right now. There's a lot of mom-and-pops that have opened up down there, but we still like-- right now today they're outperforming their pro forma, number one. And number two, we like our long-term prospects because we think we can compete very well in both general merchandise and in jewelry only.

Okay. And what's kind of the-- I guess the advance rate then is about 40-- 85%, if that's your cost of goods is 15%?

That's right.

Okay.

Yes, that was it this quarter, although margins going forward may range between probably 15% to 20% is about what we expect.

Okay. All right. Thank you very much.

You bet. Thanks, David.

Our next question comes from John Rowan from Sidoti & Company. Please go ahead.

Good evening.

Hi, John.

Hi, John.

Danny, I think you gave the numbers before, and I didn't have a chance to write them all down. But you gave some same-store sales numbers and you broke it out by segment. Can you just give me those again?

Yes, the-- give me just a second. Yes, same-store sales in this quarter for US pawn was down 4%. And for Empeno Facil was up 26% overall. Our-- on same-store and consolidated sales was down 2%.

Okay. But I thought you said there was-- something was up 16% on a same-store basis.

PLO.

PLO growth on a consolidated basis. PLO growth on a consolidated basis was up 16%.

Okay. I just want to talk-- touch on the redemption numbers. You guys said that redemption rates up to 81%. Is that chain wide?

That's on a consolidated basis.

Does that reflect any change in LTVs or what's driving that increased, you know, redemption rate? And does that affect your inventory management? And obviously your inventory per store was down.

Right. A couple of things. So in the US we saw about a 200 basis point improvement in redemption rates. And I-- you know, we think, you know, fundamentally, our purchases are up, so we're doing a better job of qualifying the customer at the counter to understand whether they do in fact want to sell that item outright or if they want a loan.

And we think, you know, by doing a better job of that upfront, and clearly it appears that we are because our purchases are up, that it's causing-- if you do in fact take out a loan, your redemption rate, you're-- you'll actually pay off and redeem. So it's up in the US.

Actually, our redemption rates are down slight in Mexico and it's because of the mix. So we were tracking in the low 80%s and right now in Mexico we're in the mid 70%s, meaning about 75%, 76%, I think, for the quarter. And we actually expect it to remain there in Mexico, again, because of the gold today, the mix that we didn't have a year ago, the gold or only stores versus the full-size stores.

So we're not concerned at 81%, and you know, we-- we're constantly-- are reviewing our underwriting and our loan values. We're constantly looking at those to make sure that, you know, we're loaning well. But 81% would be, you know, near the high end of where we'd like to be.

Okay. Can you just-- I'm trying to tie back a few things to the cash number. What were the acquisitions costs in the quarter?

Yes, it was about $19 million in total.

Okay. And then one last question. I'm just-- I'm trying to tie back all the information about closing some stores and, you know, opening some more stores. Can you just maybe give me what your model shows for the total number of pawn stores and the total number of payday stores by the end of the year?

By the end of the year?

Yes, so just to the end of the September quarter.

Yes, we've got-- we haven't put out specific numbers for expectations at yearend, but we did say that I believe expected total store openings in Mexico were going to be about-- what, about 45 stores or so.

Actually, Mexico is around 50 locations, so we'd have 50 at the end of the year, 50 new stores in Mexico by the end of the year, which would put us in about the 112 range. And CASHMAX, we said we'd have about 45 by yearend. So and then we told four greenfields, four US greenfield sites.

Okay. So totals year over year on each store-- for-- is-- a little-- actually, it's a little over 90. It's like 94. But then you're closing 11 stores, right?

We're closing 11 related to Colorado and Wisconsin. We have closed a handful of other payday stores just as a normal course of business throughout the year.

Okay. So it's just up about net 80 by the end of the year, end of fiscal year, roughly.

That's ballpark. Right. That's-- yes, that's right, John.

Okay. All right. Thank you very much.

Thank you.

Our next question comes from Henry Coffey from Sterne Agee. Please go ahead.

Good afternoon. I wanted to ask just if-- what the specific contribution was of Canada to your payday loan revenue product.

Yes, we've not broken that out separately, Henry. That's included in the EZMONEY operations. But they're continuing to attract kind of on the pro forma we expect of opening up. And we expect that they'll-- as we continue to open new stores, they'll probably continue to create a drag through 2011 before they start to hit the breakeven point.

Got you.

Before they start contributing.

Okay. And I think this dovetails nicely with the last question, but I didn't get a specific answer. Did you break out your PLO trends between the US and Mexico?

Yes. Let me get-- give me just a second. Yes, on a same-store basis, the pawn loans in the US were up 15%, and on-- for Empeno Facil it was up 32%, and so overall it was up 16%. Again, that was on a same-store basis. On a consolidated basis, including new stores, it was up 19%.

Okay. Thank you.

Thank you, Henry.

And by the way, on John's question just a minute ago, John, you had asked the acquisition totals. I gave you the total for the pawn stores that we acquired, but what I'd left out was also the $8.2 million or so that we invested in Cash Converters during the quarter as well. That was one of the significant investments this quarter.

Our next question comes from Liz Pierce from ROTH Capital Partners. Please go ahead.

Hey. Good afternoon. Congratulations. Nice job.

Thank you, Liz.

I just wanted to circle back, and maybe I missed this for a second, but the margin on Mexico, if you could just go over that again. I just was surprised by the drop.

The--

The 42.1% to 30.2%. Am I reading that correctly?

If you're looking at overall margins for Mexico, for the quarter it was 42%, up from 35% last quarter and 28% the quarter before.

I guess I'm looking at the operating income margin.

Right. And that's got the new store-- it's the new-store drag.

Is that what it is? I just wanted to make sure, Paul, that's what it is, new-store drag.

Yes, that's exactly what it is. I actually (inaudible).

Sorry?

No, that's it. That's exactly, new-store drag.

So how should we think about that as we move into fiscal '11 in terms of since I presume you'll be continuing to open more new-- I mean, obviously more new stores in Mexico. But do you see that at some point coming back up, or how should we be modeling that?

Yes, well, we're in the process right now of laying those out. So-- but-- to answer your question we're running several scenarios. But the answer is yes, we would expect our operating margins to improve, particularly because of the crossover on the stores that we just opened. We'll be approaching crossover dates on a bunch of those. So, yes, we'll expect it to continue, but we haven't finalized our view on next year yet.

Is this kind of the low that you think it would go, like a 30%? Could it go lower, all other things being equal?

Yes, we would not expect it. We-- we would not expect it to go lower. I'm-- as I said, we're running sensitivity. We run the spectrum. But, you know, we have improving margin rates. We've got improving lever-- leverage across our expense structure. So it would not seem-- you know, it would seem to us that that should not occur.

And it-- is the bigger drag the full one, the full stores?

Sure, yes. Yes. The crossovers are about the same in the 9 to 12-month range, but there's more investment upfront.

_(Inaudible). And then were you just kind of speculating on when you said 300 full and 200 jewelry? Were you just throwing that out as an example?

Yes, I was throwing that out as an example, yes.

Okay. All right. And you did say something, and I'm kind of piggybacking off of David's question about the competition on the jewelry-only side, are you seeing a lot more besides perhaps the obviously, you know, your US competitors, but the mom-and-pops, they are opening up?

Yes. Yes. And I think, frankly, they-- the mom-and-pops have been there for a period of time. But as the competition is getting heavier, you see some, you know, I would call it one-off behavior or something where they're posting a price in the window, and you're dealing with one mom-and-pop who is paying 90% of the value. And we don't play that game. We just deal with it on consistency and customer interaction and those things. But in the short term it can cause you some headaches.

But, again, Mexico is still a very fragmented market, and there are a lot of jewelry-only players. And like I said, we feel pretty confident. We've shown the ability to do that in the US and compete very well against the independent operators. And we-- our early returns in Mexico tell us the same thing.

Have the people on the ground there noticed that some of these independents, mom-and-pops, I mean, are they also-- while some are sprouting up, are others going away that just don't have the capital?

Or-- exactly, Liz. Or they're still there, but they loan very inconsistently because their capital constraints.

Okay. That's all I have. Best of luck. Thanks.

Thank you.

Our next question comes from Bill Armstrong from CL King & Associates. Please go ahead.

Good afternoon. Most of mine have been answered. But in the Mexico stores, could you remind us of the physical size, the footprint of the full-line stores jewelry-only stores?

Yes, the full-line stores are about 4,500 to 5,000, depending on the real estate we can find. And then the RO-only are about 400 square feet.

Okay. So if, you know, at some point you decide that the jewelry-only concept isn't working so well, you really don't have the option to expand the RO stores into anything larger.

Well, we have-- here's-- let me see. How do I want to answer that, Bill? We think we have many options in our RO-only stores. So you can do a lot-- let me just say we could do a lot in 400 square feet.

Okay. Like what?

Well, look, today we do, you know, our business is primarily gold jewelry. There are other small electronics. There are silver products. There are many-- you know, there are things that you can do in 400 square feet that you don't have to balloon up to a full-service store.

Okay. Okay. That's what I was kind of getting at. Okay. Thanks.

Our next question comes from Chuck Ruff from Insight Investments. Please go ahead.

Hi. Thanks for all the information. The Wisconsin and Colorado stores, can you give us some idea of what kind of impact that's going to have to-- in your profitability? Obviously you're closing some stores. The remaining stores I would guess would not be as profitable. I'm trying to get a bigger-than-a-breadbox feel for what that means.

Well, you know, again, we've run sensitivities around both those states. We've run them around individual locations. In fact, with the change in law, the 11 stores that we were able to exit, frankly, all were dragging our income in those states today. So there's certainly-- the change in law certainly creates yield pressures on the products that we deliver.

But, you know, there are scenarios that we've run based on more transactions at lower yields, additional products, those kind of things that we just don't want to get into that they would, frankly, tell us that we will be as profitable if not more profitable. So the proof is in the pudding and the execution of the ability to deliver that to the customers.

So the demand-- one thing I keep going to, the demand didn't change with the stroke of a pen. So those customers are still there. They need access to capital. And frankly, it's incumbent on us to figure it out, and that's what we're going to do.

Is it fair to say that if we just looked at those two states, fiscal '09, '10 profitability and fiscal '09, '11 profitability will not be materially different?

Yes.

Yes. I would say you're not going to see a significant difference there.

Okay. And have there been any-- is there any regulatory threat in the UK with Albemarle & Bond?

Nothing out of the ordinary or new, no.

The only difference in the UK today is that in this next year, the bank guaranteed card that's frequently used to assist consumers with getting a payday loan will no longer be available to them because of changes in banking regulation. That's the only difference or regulatory change there. But in and of itself, it may create a significant opportunity for some.

Okay. And with the consumer financial product agency, I understand until they actually form it and start doing something, it's impossible to know what impact that's going to have. In that legislation, do you know whether something called the Snowe-Pryor Amendment was passed? And that's the amendment that says basically it requires that agency to engage with industry before they pass regulations?

I don't have it in front of me, if that was in there or not. And to your point, we have several written opinions on how that's-- how that could or could not come to pass. So good question. We don't have the answer for, you frankly.

Okay. Okay. That's all I had. Thanks.

Okay.

We have no further questions at this time.

Okay. Thank you very much.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.