First Cash Financial Services, Inc.
First Cash Financial Services, Inc.
Incorporated: 1988 as First Cash Inc.
Sales: $118.8 million (2002)
Stock Exchanges: NASDAQ
Ticker Symbol: FSFS
NAIC: 453310 Used Merchandise Stores
First Cash Financial Services, Inc. operates one of America’s largest chains of pawnshops and check cashing/short-term advance stores, found in 11 states and Mexico. The Arlington, Texas company (as of March 2003) owns 137 pawnshops, located mostly in Texas and Mexico, and 62 check cashing/short-term advance stores, of which 24 are in Texas. In addition, First Cash is half-owner of a venture that operates kiosks in convenience stores to provide check cashing, money orders, wire transfers, and “payday loans.” Although pawnshops are well established in the United States, mom-and-pop enterprises generally suffer from a seedy reputation. First Cash and other publicly traded chains are trying to consolidate the industry as well as improve the image. For its part, First Cash pawnshops are designed very much like convenience or video stores, featuring well-lit parking and exteriors, and neatly arranged merchandise. A large share of the company’s profits come from the sales of items that borrowers have forfeited, and by creating a more attractive atmosphere management hopes to attract a higher volume of bargain-hunting consumers.
Incorporation of First Cash in 1988
First Cash was founded by John R. Payne, who became involved in the pawnshop business after selling a Dallas bank he owned in 1979. He traded some Colorado property for a pawnshop in Dallas and operated it with his wife, Edith, until 1985 when they sold it and built two more modern-looking stores in Fort Worth. In July 1988 he incorporated First Cash Inc. in order to launch a chain of pawnshops. In that same month First Cash completed its first acquisition, buying two pawnshops from L.G.’s Pawn Shop, Inc. for $100,000. In January 1989 First Cash spent $500,000 to acquire more operations from L.G.’s. To run the chain Payne hired Phillip “Rick” Powell, the company’s current chairman and chief executive officer. Like Payne, Powell had experience in the banking industry. Before coming to First Cash he had been the chairman of First Savings Bank in Arlington.
In the late 1980s pawnstore operators began to take their businesses public in order to fuel expansion; the first was Fort Worth-based Cash America, which went public in May 1987. First Cash, a six-store chain at this point, took the step in 1991. It reincorporated in Delaware and completed its initial public offering in April of that year. By the end of July, First Cash had grown by 50 percent, paying $1 million in cash for three stores in the Dallas/Fort Worth area. Later in 1991 the chain made its first out-of-state acquisitions, paying $550,000 in cash to buy Happy Hocker and Granny’s Pawn in Oklahoma City. With 11 units, First Cash was now the nation’s third largest public pawnshop chain.
In early 1992 First Cash made some changes in its management structure. Powell, who had held the title of president, now replaced Payne as chief executive officer and would soon take over the chairmanship as well. Payne became chairman emeritus, responsible for scouting new store sites and potential acquisitions. To help in assimilating its recent acquisitions, the chain also hired its former auditor from Price Waterhouse, Rick Wes-sell, to serve as chief financial officer. Moreover, First Cash took steps to beef up its computer system in order to better track loans and purchases at its stores. First Cash continued its aggressive expansion in the early months of 1992. Instead of paying cash the company now adopted a strategy of using company stock and notes payable. In this way, it added seven pawnshops in south Texas, acquired from American Pawn and Jewelry, Inc. It also signed a letter of intent to buy Regent Jewelry & Loan Co., a five-store chain, but this deal fell through when the two parties failed to come to a final understanding on payment terms, thus highlighting the difficulties of using such an acquisition financing approach. At this point First Cash owned 23 stores, some of which were new start-ups, but it remained a distant third among publicly traded pawnstore chains: Cash America owned 187 stores in the United States and another 26 in the United Kingdom, while number two EZCORP operated 93 stores. Although there was no lack of acquisition candidates, First Cash simply lacked the funds to grow as quickly as management would have liked. Nevertheless, the company was well positioned in the industry. According to a 1992 Dallas Morning News article quoting analysts, First Cash had “the critical mass it needs to survive in the next few years as larger chains use technology, expertise and economies of scale to nip away at the mom-and-pop shops that dominate the pawn industry today.”
Change in Leadership; Resumption of Acquisition Activities: Mid-1990s
First Cash spent the balance of 1992 digesting its recent acquisitions. It was a good time for the pawnshop industry, which was prospering during a difficult period for the nation’s economy. Pawnshop operators, on the other hand, maintained that the changing image of pawnshops was chiefly responsible for a wider swath of people visiting them. First Cash made no acquisitions in 1993, likely the result of differences among board members about how to grow the business. By the end of the year Payne and four other directors resigned “amicably to pursue personal and professional matters,” as explained in a company statement.
First Cash resumed its acquisition activities in June 1994, when it paid nearly $4 million in cash and notes to buy Famous Pawn, a seven-store chain operating in the Baltimore/Washington, D.C. area. Famous Pawn was launched as a single store in 1988 by Mark Rothman, who agreed to stay on to run the operation for First Cash and to look for further acquisition and start-up possibilities in the area. Due to usury laws in the District and neighboring Virginia, pawnshops were permitted to charge only 5 percent interest a month. Because Maryland did not have such legislation, Famous Pawn concentrated its stores in Maryland suburbs close to the District and charged 10 percent a month. Technically, none of the stores in this market made loans. To abide by laws in all three states, the shop bought the merchandise (which in Texas would have been collateral) from the customer, who retained the right to buy back the item at a marked-up price, which in essence represented the principal of the loan plus interest.
In 1995 First Cash upgraded its computer infrastructure to improve both inventory control and loan evaluations. Employees could tap into the system to see what price an item had commanded in the past and were in this way able to make faster loan evaluations. In addition, each customer’s transaction history was readily available, and the company’s headquarters was now better able to track the operations of each store. First Cash also garnered a lot of positive publicity in 1995 when it became the first pawnshop chain to stop selling handguns. Although this decision was in keeping with management’s desire to improve the image of pawnshops and broaden their appeal, the main goal was to lower the company’s risk of legal liability, should a handgun purchased at a First Cash store be used in a crime. Moreover, handgun sales required the completion of extensive paperwork in order to comply with both state and federal legislation. Because these sales accounted for less than 1 percent of First Cash’s revenues, management opted to simply exit the business. First Cash would, however, continue to sell rifles and shotguns used for hunting and other sports, and would also continue to accept handguns as collateral. Any unredeemed weapons would then be sold to wholesale gun dealers outside of Texas.
First Cash renewed its acquisition activities in 1996 and 1997. It bought three Baltimore pawnshops in May 1996 at a cost of nearly $2.5 million in cash. A month later it bought three more pawnshops in the city at a cost of $1.6 million. Both deals were accomplished through the company’s line of credit. Altogether in 1996, the First Cash chain grew by seven stores. Further, in 1996 First Cash began to manage and operate the 11-store pawnshop chain of JB Pawn, Inc., a Texas company owned by an investor group that originated in Georgia, with stores located in Texas and Maryland. First Cash then added another seven stores in 1997.
First Cash underwent a number of changes in 1998. It bought JB Pawn for $2 million, and then later in the year bought five pawnshops in El Paso and another 12 in South Carolina, both new markets for the company. Also in that year First Cash entered the Missouri market. Altogether, First Cash added 29 stores in 1998. The company also took major steps toward diversification when it acquired Miraglia Inc., involved in the check-cashing business. As part of the deal, First Cash picked up the 11-store, West Coast check-cashing chain, Cash & Go. In addition, it acquired Miraglia subsidiary Answers, etc., the country’s top provider of software used in the check-cashing industry to evaluate risks associated with cashing checks and issuing payday loans. The software was also capable of storing and recalling a wide range of information, including customer photographs, signatures, and histories. It was able to handle other types of transactions, as well, such as money orders, wire transfers, and utility bill payments. First Cash then added to its slate of check-cashing stores by acquiring 11 outlets in the Chicago area, a new market for the company. In another bid to diversify, First Cash in 1998 became the first major pawnbroker to sell its merchandise on the Internet. After beefing up its technology, First Cash was able to post items from all of its stores on its web site. The company already had a real-time system and was keeping track of the necessary information, so taking the next step and making the items available online was a natural progression. The chain also began auctioning off some items: If a bid higher than a minimum price was received the item would be sold. Again, by selling online the company was attempting to appeal to customers who never thought to visit a pawnshop in person because of the stigma attached to such establishments.
First Cash Financial Services, Inc. is a leading provider of specialty consumer finance products.
Name Change in 1999: First Cash Financial Services
In 2000 First Cash continued efforts to bolster its balance sheet by signing a deal with Pawnbroker.com, making some 250,000 items of merchandise available through its partner’s web site. The venture also provided online financial and support services to the pawnshop industry. Although the online selling idea would not pan out, Pawnbroker, com expanded the type of financial services it offered to pawnshops and consumers.
As the U.S. economy soured in the early years of the new century, First Cash prospered. In 2001 it added ten new, freestanding stores, followed by 32 more outlets in 2002. In 2002 the company posted record revenues of $118.8 million and net profits just shy of $11 million. First Cash disposed of its check-cashing software business but overall was pleased with the strategy it had adopted of controlling costs while pursuing diversification, confident that the future held even greater promise.
American Pawn and Jewelry, Inc.; JB Pawn, Inc.; Capital Pawnbrokers, Inc.; First Cash, S.A. De C.V.; First Cash, Inc.; Cash & Go, Inc.
Ace Cash Express, Inc.; Cash America International, Inc.; EZCORP, Inc.; PawnMart, Inc.
- First Cash Inc. is formed by John R. Payne.
- Rick Powell is hired as president.
- First Cash is taken public.
- Payne and four other board members resign to pursue other interests.
- Handguns are no longer sold.
- Check-cashing stores are added.
- First Cash enters Mexico.
Files, Jennifer, “First Cash on the Move in Growing Industry,” Dallas Morning News, May 24, 1992, p. 3M.
McManus, Kevin, “Consolidation Trend Hits Area Pawnshops,” Washington Post, August 29, 1994, p. F5.
Mitchell, Jim, “First Cash Pawnshops Banning Handgun Sales,” Dallas Morning News, March 28, 1995, p. ID.
“Stock Offering a Pawn in First Cash’s Growth Plan,” Dallas Business Journal, May 28, 1993, p. 15B.
Stringer, Kortney, “Best of Times Is Worst of Times For Pawnshops,” Wall Street Journal, August 22, 2000, p. Bl.