EZCorp Shanks Q3

• Posted by Danny
• on July 24th, 2012

Despite a record 3rd quarter, the pawn star misses Street estimates badly.

Well that could leave a mark.

What a whiff this evening’s report was from our favorite little pawnie EZCorp ($EZPW). Actually, on the surface it was a decent report, but as is often the case it’s all about expectations. While EZPW did have a record Q3 in many ways, missing the Street by 5 cents and revs by $10 mil is never a good thing…and guiding down a bit to boot. We were way off on our Estimize of 66c as EZPW came in at just 56c EPS. That’s 3 quarters in a row now that they’ve missed EPS estimates.

Stagnating gold prices and a big drop-off in scrap jewelry sales contributed to the lower than expected numbers. There may be a silver lining though as all this could be baked in already. EZPW’s stock is down about 25% since April when management signaled that full year EPS would be lower than previously forecasted as consumers reigned in their gold pawning.

Here’s the latest digits for Q3 (YoY):

• Revenue +13%
• Net income +7.5%
• Jewelry scrap sales -26%
• Jewelry merchandise sales -19%
• Total merchandise sales +18%
• Pawn service charges +16%
• Consumer loan fees +38%

So yeah jewelry related sales sucked, but everything else is humming right along. Strong international growth has helped broaden their base. Almost 20% of Q3 sales were generated from abroad, compared to just 9% a year ago…that’s huge. “Latin America and Other International” segments saw revenues climb 142%.

Here’s the breakdown on Mexico (YoY):

• Merchandise sales +59%
• Service charges +37%
• Jewelry scrapping +6%

EZPW also managed to bring down their bad debt as a percentage of consumer loan fees from 28.4% to 23.9% in the U.S. and Canada.

As for their full year outlook, they guided down to the lower end of their previous $2.85-2.95 EPS range. The Street was banking on $2.89.

As usual, the CEO was upbeat:

“I am pleased with our financial performance this year and the overall trajectory of our business as we continue to transition EZCORP to a multi-national provider of instant cash solutions to a growing marketplace.  Our investments in new stores, new products and new businesses continue to improve our ability to serve the sophisticated consumer.  We expect these high-return investments, funded with our conservative capital structure and balance sheet, will provide very strong shareholder value for years to come.”

 

 

Ranked 9th in the BeanScreen this month, EZPW has returned a handsome 75% during its 35 month stint on the list. This latest report shouldn’t change things much in our view. The overall fundamentals will most likely remain strong once these new numbers are digested.

We’ve owned the stock for almost 3 years now, buying shares from the mid teens all the way up to the low $30′s. Our cost basis currently stands at about $22, and it’s one of our largest holdings. We also own First Cash ($FCFS), who reported last week, and Cash America ($CSH), who reports in two days.

As EZPW’s CEO stated above, we see the leaders in this industry transitioning from primarily short term cash providers to a burgeoning global marketplace for a variety of financial instruments and solutions.

 

 

sources:  EZCORP Reports Record Third Quarter Net Income Of $28.5 Million, Driven By Strong International Growth – Y! Finance

Pawn and payday lender Ezcorp misses estimates – Reuters

Pawning, payday lending yields big profit for EZCorp. in Q3 – Austin Business Journal

disclosure:  we currently own shares in EZPW, FCFS and CSH

 

 

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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