Executive Summary / Key Takeaways

• FirstCash Holdings, a leader in pawn and retail finance, demonstrated strong operational and financial performance in Q1 2025, driven by resilient pawn demand and growth in its retail POS payment solutions segment.
• The company's extensive store network across the U.S. and Latin America, coupled with its diversified business model including technology-driven retail finance, provides a competitive moat against more specialized or digitally-only rivals.
• Recent results highlight significant growth in U.S. pawn loans (+16% total, +13% same-store) and Latin America pawn loans (+15% constant currency), benefiting from inflationary pressures and higher gold prices.
• The Retail POS Payment Solutions segment (AFF) showed strong profitability growth (+58% segment pre-tax operating income) despite a decline in LTO revenue, fueled by robust growth in finance receivables (+28% revenue) and significant cost reductions.
• Strong operating cash flow generation ($126.6 million in Q1 2925) supports continued strategic expansion through new store openings and acquisitions, alongside meaningful capital returns via quarterly dividends ($0.38/share declared) and share repurchases ($59.6 million in Q1 2025).

A Diversified Engine for Credit-Constrained Consumers

FirstCash Holdings stands as a prominent figure in the specialized retail financial services sector, primarily serving cash- and credit-constrained consumers. At its core lies the traditional pawn business, a resilient model providing non-recourse collateralized loans and selling pre-owned merchandise. This foundational business is complemented by a growing technology-driven retail point-of-sale (POS) payment solutions segment, American First Finance (AFF), which offers lease-to-own (LTO) and retail financing options.

The company's strategic evolution has been marked by significant scale expansion. A pivotal moment arrived with the 2016 merger of equals with Cash America, creating a combined entity with a vast footprint across the United States and Latin America. This combination was explicitly aimed at leveraging complementary strengths, expanding geographic reach, and enhancing the ability to pursue growth faster than either company could individually. This historical move established FirstCash as a dominant player, creating a platform unparalleled in the industry at the time, particularly reinforcing its leading presence in Latin America, identified as a key growth vehicle.

Today, FirstCash operates over 3,000 pawn stores across the U.S. and Latin America. This extensive physical network is a significant competitive advantage, enabling broad market penetration and customer access that is challenging for smaller or purely digital competitors to replicate. The company's diversified model, blending traditional pawn with modern retail finance, positions it uniquely within the competitive landscape.

The competitive environment includes other pawn operators like EZCORP (EZPW), lease-to-own specialists such as Rent-A-Center (RCII) and Aaron's Company (AAN), and online lenders like Enova International (ENVA). While EZPW competes directly in pawn, FCFS's scale, particularly in Latin America, provides a broader base. In the retail finance space, AFF competes with RCII, AAN, and ENVA. FCFS's integrated model, combining the physical pawn presence with digital finance capabilities, offers a differentiated approach compared to the more specialized models of its rivals. While online lenders like ENVA may offer faster digital processing, FCFS's physical network provides a trust factor and accessibility for its target demographic that online-only models may lack. The company's scale also contributes to cost leadership potential and customer loyalty within its core pawn operations.

AFF's technology platform is central to the retail POS payment solutions segment. While specific quantifiable technological details beyond processing speed and efficiency are not extensively detailed, the platform is designed to facilitate LTO and retail financing at the point of sale. This technology aims to provide a streamlined application and decisioning process, contributing to operational efficiency. Compared to some traditional lease-to-own processes, AFF's integrated digital tools are noted to offer faster processing speeds, potentially leading to lower operating costs per unit in finance segments. The strategic intent behind investments in this technology is to enhance customer convenience and merchant partner relationships, contributing to the segment's growth and profitability.

Performance Reflecting Strategic Focus and Market Dynamics

FirstCash's financial performance in the first quarter of 2025 underscores the effectiveness of its diversified strategy and its ability to capitalize on prevailing market conditions. Total revenue for the quarter was $836.4 million, relatively flat year-over-year, but segment-level performance reveals key trends.

The U.S. pawn segment demonstrated robust growth, with total revenue increasing 12% to $422.7 million. This was primarily fueled by a 12% increase in pawn loan fees and a significant 89% surge in wholesale scrap jewelry sales. The underlying strength in pawn lending is evident in the 16% total and 13% same-store growth in U.S. pawn loan receivables as of March 31, 2025. Management attributes this growth to continued inflationary pressures driving demand for short-term cash needs and higher gold prices increasing the value of collateral. U.S. segment pre-tax operating income rose 17% to $113.1 million, expanding the margin to 27%. This profitability improvement reflects the strong revenue growth outpacing the increase in operating expenses, which rose 8% primarily due to higher store count and labor costs.

In Latin America, reported results were significantly impacted by a 20% unfavorable change in the average value of the Mexican peso. On a constant currency basis, however, the segment showed solid growth. Total revenue increased 10% in constant currency, driven by a 9% constant currency increase in retail merchandise sales and a 13% constant currency increase in pawn loan fees. Constant currency pawn loan receivables grew 15% in total and 14% on a same-store basis, reflecting increasing demand and larger loan sizes, partly due to higher gold prices. Despite the unfavorable currency translation, the segment's pre-tax operating income saw a 13% increase on a constant currency basis, reaching $36.2 million (constant currency) compared to $31.9 million as reported. Operating expenses in Latin America increased 8% in constant currency, influenced by store growth, accelerated openings, inflation, and minimum wage increases.

The Retail POS Payment Solutions segment (AFF) showcased a notable improvement in profitability despite revenue headwinds. Segment revenue decreased 12% to $230.3 million, primarily due to a 24% decline in leased merchandise income. This decline was directly linked to reduced originations resulting from the bankruptcy filings of two large retail furniture partners in late 2024. However, revenue from interest and fees on finance receivables grew a strong 28% to $73.4 million, driven by increased gross transaction volumes in non-furniture verticals. Critically, segment operating expenses decreased a substantial 30% to $24.2 million, reflecting the elimination of costs associated with the impacted merchant relationships and ongoing synergy realization and cost reduction initiatives. This operational efficiency drove a significant 58% increase in segment pre-tax operating income, reaching $52.3 million, and expanding the segment margin dramatically from 13% to 23%.

Consolidated net income for Q1 2025 rose 36% to $83.6 million, resulting in diluted earnings per share of $1.87, a 39% increase from the prior year. Adjusted diluted earnings per share, excluding certain non-operating items, were $2.07, up 34%. This strong bottom-line growth highlights the operating leverage in the business and the positive impact of cost management, particularly within the AFF segment.

Liquidity remains robust. As of March 31, 2025, the company held $146 million in cash and cash equivalents and had $522.3 million available under its revolving unsecured credit facilities. Net cash provided by operating activities was $126.6 million in Q1 2025. While net cash used in investing activities increased significantly to $50.1 million, primarily due to $29.2 million spent on pawn store acquisitions, this reflects the company's strategic focus on external growth. Net cash used in financing activities was $105.3 million, including $59.6 million for share repurchases and $16.9 million for dividends, demonstrating a commitment to returning capital to shareholders alongside funding growth. The company's consolidated total debt ratio of 2.60 to 1.00 as of March 31, 2025, remains within the covenants of its senior unsecured notes, providing flexibility for future capital allocation.

Outlook and Key Considerations

Looking ahead, FirstCash expects to continue its strategic expansion in 2025 through a combination of new store openings and acquisitions, particularly emphasizing growth in Latin America. The company's strong cash flow generation is anticipated to fund these initiatives while also supporting its capital return program. The recently declared quarterly cash dividend of $0.38 per share and the ongoing share repurchase program signal management's confidence in the business's ability to generate sustainable cash flows.

However, the company operates in a dynamic environment subject to several risks. Regulatory scrutiny remains a key factor. The ongoing civil action by the CFPB, alleging MLA violations and breaches of a prior consent order, introduces uncertainty regarding potential outcomes and financial impact, although the company intends to vigorously defend itself. The recent effectiveness of the SDL Rule also adds a new layer of regulatory compliance, although management currently believes it will not have a material impact. Broader changes in federal policy and the future direction of regulatory agencies like the CFPB also present potential risks.

Economic conditions, including inflation, interest rates, and trade policy, can influence consumer demand for pawn loans and retail finance products. While inflationary pressures have recently boosted pawn demand, a significant economic downturn could impact discretionary spending and loan performance. Foreign currency fluctuations, particularly involving the Mexican peso, will continue to affect the translation of Latin American results into U.S. dollars.

Despite these risks, FirstCash's core pawn business has historically demonstrated resilience across various economic cycles, providing a defensive element to the investment thesis. The strategic diversification into retail POS payment solutions, while facing recent challenges from merchant bankruptcies, offers a complementary growth avenue and the potential for enhanced profitability through operational efficiencies and expansion into new verticals.

Conclusion

FirstCash Holdings presents a compelling investment narrative built on a foundation of a resilient core pawn business, strategic scale achieved through historical mergers and acquisitions, and diversification into technology-enabled retail finance. The company's Q1 2025 performance highlights the strength of its U.S. pawn operations, the constant currency growth momentum in Latin America, and the significant profitability improvements within the AFF segment driven by operational discipline. The extensive store network provides a tangible competitive advantage in reaching its target demographic, while the integrated business model offers multiple levers for growth. Although regulatory risks and economic sensitivity warrant careful monitoring, FirstCash's robust cash flow generation and commitment to strategic expansion and shareholder returns position it favorably. The investment thesis centers on the company's ability to leverage its market leadership and diversified platform to continue delivering profitable growth, particularly as it executes on its expansion plans in Latin America and optimizes the performance of its retail finance segment, reinforcing its competitive standing against both traditional and digital rivals.