With the payday-lending industry still under assault here at home, the growth of its international operations is keeping things buoyant. Pawnshop operator and payday lender First Cash Financial (Nasdaq: FCFS) said that even as consolidated revenue rose 17% in the second quarter, operations south of the border were soaring 47%.
Regulators, politicians, and activists are doing their utmost to shut payday lenders down domestically. Florida is forcing First Cash Financial rival EZCORP (Nasdaq: EZPW) to shutter its EZMoney stores, alleging that they impose usurious rates, and the FTC leveled some fairly specious charges against diversified services company CompuCredit (Nasdaq: CCRT).
In Mexico, though, these diversified financial services are finding greater acceptance, and as a result, the Motley Fool Hidden Gems Pay Dirt recommendation saw its rate of growth accelerate. First-half revenue grew 46%, compared to the 28% in the year-ago period. So far this year, it has opened 24 new stores there.
While payday lending is facing a tough future, pawnshops are not. First Cash Financial, EZCORP, and Cash America (NYSE: CSH) are all reporting strong results thanks to their pawn-shop operations. I expect that Advance America (NYSE: AEA), the country's largest payday lender, which lacks any pawnshop exposure and reports its earnings this afternoon, will have a tougher go of it than most.
The pawn business has been a pretty heady affair lately, in part because the price of gold has had a huge run-up. With the tight economy, people short of cash will pawn their jewelry for the gold, allowing the pawn shops to sell it and enjoy some hefty premiums.
For example, First Cash's gross margin on retail pawn merchandise sales increased to 46% in the second quarter, compared with 44% in the prior year. Wholesale scrap jewelry margins were 38% versus 34% a year ago.
That's a welcome development for First Cash, because its AutoMaster buy here/pay here used-car division continues to drive off the road, even though this quarter's results showed improvement over the first quarter. Defaults were still too high, but loss provisions have shrunk, and First Cash believes that if the trend continues, they should reach acceptable levels later this year.
Since the economic stimulus checks have already hit consumers' mailboxes, that improvement might only have been a temporary fix as people used the cash to pay bills. Congress is talking about a second giveaway program, but First Cash can't continue to rely on taxpayer largesse to get its car program on the road again.
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