UPDATE 2-First Cash Q2 profit beats Street, backs 2009 view

From Reuters (7/21/09)
By Supantha Mukherjee

* Q2 EPS $0.38 vs $0.23 last year
* Mexico pawn revenue rises 31 pct
* Reaffirms 2009 profit view (Adds details, background, analysts’ comments, share movement)

BANGALORE, July 21 (Reuters) – Pawn and payday lender First Cash Financial Services Inc (FCFS.O) posted a better-than-expected second-quarter profit, helped by higher revenue from its Mexico pawn operations, and reaffirmed its 2009 profit outlook.

Pawn revenue from its Mexico operations rose 31 percent to $40.2 million while U.S. pawn revenue rose 4 percent to $30.1 million.

JMP Securities analyst John Hecht said Mexico has a huge market for pawn lending as access to consumer finance is limited and, culturally, Mexico is more accepting of these type of lending arrangements.

“There is about 4,000 stores in Mexico versus 15,000 stores in the U.S. despite having a larger addressable market,” Hecht said.

U.S. payday lenders, who make small, short-term loans against the borrower’s next pay check, are investing more in their pawn operations as stricter regulations and rising unemployment make their primary business less attractive.

The company said U.S. payday loan revenue fell 10 percent for the quarter.

Compared with payday loans that carry sky-high interest rates — sometimes even more than 300 percent — pawn loans are easy on the pocket and do not have to be repaid if the borrower decides to forfeit the collateral.

Lenders like Ezcorp Inc (EZPW.O), First Cash and Cash America International Inc (CSH.N) have seen lower profits on the payday front but strong results from their pawn operations.

They all are capturing the benefits of Mexico, but First Cash has an older and more mature network so their results capture more of the growth, analyst Hecht said.

In the second quarter, the company opened 15 pawn stores in Mexico and three pawn stores in the United States.

The company said it is on pace to meet its target of 55 to 60 new store openings in Mexico during 2009. First Cash now operates 97 pawn stores in the United States and 299 stores in Mexico.

The company maintained its 2009 per-share earnings outlook of $1.36 to $1.38 from continuing operations while analysts expected earnings of $1.38 a share.

The further maturing of the company’s existing store base in Mexico will be a strong source of revenue and profit growth for the next several years, Chief Executive Rick Wessel said.

“We are looking for 12 percent to 13 percent earnings per share growth for 2010,” Sterne Agee analyst Henry Coffey said.

The company earned $11.6 million, or 38 cents a share, for the second quarter, compared with $6.7 million, or 23 cents a share, a year earlier.

From continuing operations, the company earned 31 cents a share. Revenue rose 7 percent to $84.2 million.

Analysts were looking for a profit of 30 cents a share, excluding items, on revenue of $83.29 million, according to Reuters Estimates.

Shares of the company were up 34 cents, or 2 percent, at $17.20 in morning trade Tuesday on Nasdaq.


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