A scorching year marked by economic instability and the payment of a damaging class action lawsuit saw retailer and payday lender Cash Converters heading for a loss.
In a pre-earnings release, Cash Converters revealed to investors that it expects to achieve a net profit loss of between $ 2 million and $ 4 million after tax. The announcement comes just a year after the iconic pawnshop franchise posted a profit of $ 22.5 million.
Collective action on cash converters
By far the most important factor impacting Cash Converter’s projected loss was a Settlement of $ 16.4 million class action lawsuit, paid in November 2018.
While the class action lawsuit has been justified, another lawsuit still hangs over the pawnshop and the payday lender. In its pre-earnings release, Cash Converters revealed that it continues to incur legal fees associated with defending the action, with expenses reaching $ 3.2 million.
Despite the large impact on profits, Cash Converters reported that its revenue grew 8% in fiscal 2019 to reach $ 283 million. However, the growth of auto loan and personal loan portfolios has also been accompanied by an associated increase in bad debt expenses.
With demand for fast-approved loans steadily increasing, Cash Converter’s foray into the market has sparked some controversy.
In December last year, a Senate hearing examined Cash Converters’ same-day loan offer, suggesting it could have taken advantage of vulnerable consumers.
It was not the first time that charges were raised. In 2016, Cash Converters was hit by a binding commitment from the corporate regulator, which demanded a review of the lender’s practices.
With new CEO Brendan White now at the helm, it looks like some milestones have been reached, but it may be some time before Cash Converters sees a return. In its latest statement, the brand revealed that management conducted a review of its credit cards in the second half of the year, tightening approval criteria.
At an approximate cost of $ 5 million, Cash Converters hired outside consultants to perform book reviews of unsecured personal financial loans, with some loans being written off.
“Since joining the company in March 2019, I have had the opportunity to review business operations and meet many of our loyal customers and colleagues,” White said.
“Cash Converters enjoys a unique position in the community, serving over 750,000 active customers across all of our business segments. As evidenced by a strong Net Promoter Score, our customers remain at the heart of our business and we continue to strive to deliver a customer experience that exceeds expectations.
Future Cash Converters
As the costs associated with Cash Converters’ ongoing restructuring process continue to rise, now reaching $ 1.4 million, the CEO revealed that the focus on technology initiatives would help drive the future progress of the 150 sites. Australian channel.
“By further leveraging our technology platform, digital channels and extensive store network, we will continue to leverage the revenue growth and operational efficiency momentum in 2019, delivering value to all stakeholders in the coming year, ”he said.
“I look forward to updating the market on our emerging business strategy when the full year audited results are delivered towards the end of August. “