Another Payday Loan/Pawn Shop Breaks Out on Higher Guidance - A Trend Seems to be Afoot

This is the second name this week to breakout off of higher guidance; earlier in the week we saw Cash America (CSH) [Jul 7: Missed Opportunity in Cash America] The past 2 days we have an incredible technical breakout (on the chart) of EZCORP (EZPW) on increased guidance. This is despite closing 11 stores in Florida. It looks like a trend, long awaited, has now arrived. 56% year over year growth certainly fits into my wheelhouse.

• EZCORP, Inc. (Nasdaq: EZPW - News) announced today that it expects earnings for the quarter ended June 30, 2008 to be approximately $0.25 per share, $0.04 per share better than its previously provided guidance of $0.21 and 56% greater than the $0.16 per share earned for the June 2007 quarter.


• For the fourth quarter and fiscal year ending September 30, 2008, EZCORP is raising earnings per share guidance to approximately $0.35 and $1.19.


• Commenting on these expected results, President and Chief Executive Officer, Joe Rotunda, stated, “In our June quarter, we realized stronger than expected sales gross profit in our U.S. EZPAWN operation and lower than expected levels of signature loan bad debt in our EZMONEY operation. While our pawn and signature loan portfolios grew during the quarter, their rate of growth was less than we typically see during this period — leaving our loan balances at a lower than anticipated level going into our September quarter. All of these factors were influenced to some degree by the economic stimulus checks received by our customers during May and June.”

Time to take a second scrub of the entire group - again, other names include First Cash Financial Services (FCFS), Dollar Financial (DLLR), and Advance America (AEA).

The AP has a news story on this development as well… (always a bull market somewhere) Since I believe this is the early part of a much longer developing trend we need to look at these just as closely as we’d investigate Walmart (WMT) or Big Lots (BIG) - all playing off the same Pooring of America trend. Once the rebate checks run out, these guys should really see business take it to yet another level. Once again we are faced with the dilemna of do we buy the breakout or hope for the pullback that may never come. I waited on a host of natural gas plays to fall back yesterday and they are each up 5-9% today. Bah.

• Cash-strapped consumers desperate for deals are increasingly turning to pawn shops and payday lenders instead of the local mall and neighborhood bank. With credit drying up and gas and food prices rising, most retailers are seeing sales decline as shoppers cut back on discretionary spending. But for pawn shops, which offer used goods at low prices and allow consumers to sell their possessions for cash, consumers’ pain has translated into big revenue and profit gains.


• Texas-based pawn shop operators Ezcorp Inc. and Cash America International Inc. both boosted their profit outlooks for the upcoming quarter this week. The companies also offer “payday loans,” or short-term, high-interest cash advances to consumers on their paychecks. As more people struggle to cover the rising cost of gasoline and groceries, they are turning to payday lenders to help them bridge the days between paychecks.


• Cash America said it was helped by more merchandise sales, strong revenue from its online cash advance service and better-than-expected revenue in its pawn lending business. Pawn shops offer loans in exchange for goods that can then be sold if the customer doesn’t redeem them.


• High gold prices may also be spurring shoppers to pawn their jewelry for extra cash, she said. At $927.30 on the NY Mercantile Wednesday, prices are down somewhat from their record-high of $1,000 in March, but still up sharply from last year’s $650 an ounce.


• Roth’s Elizabeth Pierce said even if the economy strengthens, pawn shops may continue to be popular. With more shoppers venturing into pawn shops, she said, consumers are seeing that the stores aren’t necessarily the dodgy domains of the desperate that many perceived them to be. “If you need to replace something and you’re looking for the cheapest alternative, you might be willing to put aside some of those preconceived notions about those businesses,” she said. “It might raise awareness.

The human being in me really hates reading these tales, but the cold hearted capitalist says “opportunity”. I’m just pretending its another Walmart outlet…

No positions (yet)