H&R Block Inc. said its fiscal first-quarter loss narrowed by 2 percent as it reduced staffing and other expenses.
The Kansas City, Mo.-based tax preparer posted a net loss of $130.7 million, or 41 cents per share for the three months ended July 31, compared with a loss of $133.6 million, or 40 cents per share, last year.
Adjusted for $21.2 million in charges related to closing 400 offices and eliminating 400 jobs, the company said its loss was 36 cents per share.
The number of outstanding shares was reduced by 4 percent through company repurchases, which had the effect of increasing the loss per share for the recent quarter.
Revenue slipped slightly to $274.5 million, from $275.5 million last year.
Analysts polled by Thomson Reuters, on average, expected an adjusted loss of 41 cents per share, on $265.1 million revenue. Analysts usually exclude one-time charges from their estimates.
The nation's largest tax preparer typically sees losses in its first two fiscal quarters, which are outside the normal tax season.
Revenue in its tax services division rose 4 percent to $91.6 million. Block's RSM McGladrey consulting unit saw a 2 percent revenue decline, to $174.7 million.
Operating expenses dropped by 1 percent to $485 million for the quarter.
"Our first quarter results demonstrate the progress we have made in reducing embedded costs, and we believe we can achieve more in this area," said Alan Bennett, who took over as president and CEO in July after the sudden departure of Russ Smyth.
In an interview, Bennett said the company is continuing to look at its office alignment, and may be able to further reduce the number of outlets, particularly in areas where they are close together, without losing a proportional number of clients.
Bennett also intends to refocus the company on attracting new customers and getting back some of the two million its lost in the past two years.
One concern in this regard comes from an announcement last month by the Internal Revenue Service that it will no longer tell tax preparers if an individual's tax refunds will be reduced by outstanding taxes owed or judgments — information provided in the past using a code known as the "debt indicator."
Block and other tax prep companies that provide customers with refund anticipation loans — often called "rapid refund" loans — have based their lending decisions on the IRS-provided information. The IRS has said it aims to reduce the number of high-cost refund loans by not releasing the debit indicator.
"We are very concerned about this decision because th debt indicator is an important underwriting tool," Bennett said. Block is pressing the IRS to provide the information to individuals, noting that the IRS move will "not eliminate clients' demand." Block will still offer refund-backed loans, and plans to increase its marketing in this area for the 2011 tax season, but Bennett said they may cost more because of the higher risk involved with the debt indicator gone.
Under Smyth, the company de-emphasized such loans in 2010 and saw a sharp dropoff in customers who use them, despite disruption in the market caused when a major competitor lost funding for its loans. These customers are often low-income individuals who file early in the tax season, where Block has seen a good portion of its customer losses.
In aftermarket electronic trading, H&R Block shares gained 53 cents, or 4.2 percent, to $13.10. They closed the regular session down 37 cents, or 2.9 percent at $12.57.
The stock hit a 52-week intraday low during the trading day of $12.51, after the Treasury Department said it is starting a pilot program to offer people without bank accounts prepaid debit cards to receive their tax refunds. Eventually, the program could be expanded to reach the 9 million American households that don't have bank accounts, the agency said.
The cards could cut into Block's Emerald Card business, which sells prepaid cards to customers who don't have bank accounts. Bennett identified the business as an important growth target, calling it "an increasingly valuable asset." The company had 2.5 million Emerald Card users last year, with over $8 billion in deposits, but that is less than 20 percent of Block's retail tax clients.
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