ACE Cash Express, Inc., the nation’s largest check-cashing chain and a significant provider of related retail financial services, announced that it expects to report a loss for its third quarter ended March 31, 2001. The Company expects to report revenues of approximately $59.8 million for the third quarter, with a loss for the quarter expected to range from approximately $4.1 to $4.4 million, resulting in a quarterly diluted loss per share ranging from approximately $0.41 to $0.43. The expected diluted loss per share would be less than the analysts’ estimates of $0.56 to $0.58 earnings per share for the quarter.
Jay B. Shipowitz, President and Chief Operating Officer stated, “The expected quarterly loss stems from accelerating store closures and an increased loan loss provision on Goleta National Bank (GNB) loan participations. The Company has been in a growth period for many years, especially with the recent acquisitions of 114 stores. We have concluded that, in order to continue growth and enhance the Company’s ability to be competitive, it is necessary to close several unprofitable or under-performing stores; our operations can then focus on our most productive stores. We expect our productivity, efficiency, and profitability to increase in fiscal 2002 and thereafter due to this action. We also expect to continue to pursue opening up new locations and opportunistic acquisitions. We anticipate that during the fiscal year ending June 30, 2001, we will have opened approximately 50 new locations. The consumer acceptance for the loan product (Advance Cash Express) has exceeded our expectations; during the first nine months of fiscal 2001, customers have completed over 1,000,000 loan transactions at ACE stores. The GNB loan participations have been profitable, and we expect that to continue. We believe that the loan product will continue to bring significant revenues to ACE.”
Approximately 50 percent of the difference between the analysts’ estimates and the Company’s expected quarterly results would be attributable to less- than-anticipated profits from the Company’s participations in loans made by GNB at the Company’s stores. The losses resulting from borrowers’ nonpayment of loans are expected to exceed the Company’s loan-loss allowance. That allowance was based on the Company’s prior experience with its “payday loan” product.
The remainder of the difference between the analysts’ estimates and the Company’s expected quarterly results is attributable to the Company’s plans to accelerate the closure of approximately 84 unprofitable or underperforming stores. The Company would typically close these stores at various times over the next two or three years depending on the circumstances of each store and its local market. The Company has frequently made decisions to close unprofitable or underperforming stores to coincide with the expiration of store leases. The Company has determined, however, that closing these stores in the near future would benefit its future operations. The store closings are expected to occur before June 30, 2001. A store-closing expense of up to $8.6 million is expected, which would include costs associated with lease terminations, reduction of employees, write-off of goodwill, and disposals of certain fixed assets and inventory because of store closings. Prior to these store closings, the Company owned 1,055 locations. The 84 stores planned to be closed constitute approximately 8 percent of the Company’s owned locations.
Mr. Shipowitz further remarked, “As previously disclosed, our loan loss provision relating to loan participations purchased from GNB were originally established on the assumption that loan losses would be consistent with our experience with our previous payday loan product. In this quarter, our third full fiscal quarter of purchasing loan participations, we have concluded that the new loan product has performed differently and resulted in greater losses than anticipated. GNB and ACE have had some time to see how the product has performed as it has been more extensively offered over the last year; GNB continues to refine the underwriting criteria, and we have established new procedures for collections. These methods have already begun to substantially improve our collection rate.”
Donald H. Neustadt, chief executive officer, stated, “We are disappointed that the third-quarter financial results are less than expected. Though the store closings contribute to the loss, we believe that it was prudent to take the charge to better position the Company for the future. The accelerated store closings reflect our focus on long-term productivity and better use of capital. We cannot justify any additional investment in marginal stores due to factors such as location or market suitability. We anticipate increased profitability in future years because of the closures. Moreover, with the acquisitions of 114 stores, ACE will remain on track for network growth for fiscal 2001, even with the closures.”
For the entire fiscal year ending June 30, 2001, ACE now estimates that its diluted earnings per share will range between approximately $0.03 and $0.05. For its next fiscal year, ending June 30, 2002, ACE now estimates, based on currently available information and assumed business trends, that its total revenue will range from approximately $210 million to $215 million, resulting in diluted earnings per share ranging from approximately $1.30 to $1.36.
More information will be provided when the Company announces its full financial results for the third quarter, including a “Business Outlook” during the week of April 16, 2001.
About the Company
ACE Cash Express, Inc. is headquartered in Irving, Texas and is the largest owner, operator and franchiser of check-cashing stores in the United States. Founded in 1968, the company has a total network of 1,221 stores, consisting of 1,055 company-owned stores and 166 franchised stores in 33 states and the District of Columbia. ACE also maintains automatic check- cashing machines, which provide financial services without the need for a service associate, at 71 locations. ACE offers a broad range of financial and check-cashing services and is one of the largest providers of MoneyGram wire transfer transactions. In addition, ACE offers money orders, bill payment services, and prepaid local and long distance telecommunication services. Under ACE’s agreement with Goleta National Bank (GNB), GNB currently makes small consumer loans available to customers at various ACE company-owned stores. The company’s website is found at [http://www.acecashexpress.com].