Cash America (NYSE: CSH) is flush with cash. The payday loan and pawnshop operator reported strong growth in its cash advance operations, and increases in its pawn business, thanks to an influx of new customers.
First-quarter revenue rose to $223 million, a 37% increase over the $163 million the company reported last year. Much of that growth resulted from the more than 235 pawn shops and cash advance centers the company opened over the past three years, creating an entry point for a significant number of new customers. Profits, meanwhile, rose 25% to $19.2 million, or $0.63 per share. That beat analyst forecasts of $0.62 per share, coming in at the upper end of management's guidance.
That guidance had taxed investors earlier this year, after management scaled back its previous performance estimates. The share-price drop was an opportunity in the making for investors, though, since the stock had previously traded at a premium to its competitors. Shares have recovered 15% from the lows they ultimately reached last month, though they're still some 8% off the company's 52-week highs.
In the first quarter, Cash America enjoyed a tripling of its loans receivable on the cash advance side of the ledger, along with a 6% increase in the number of pawn loans written or renewed. The number of advances written has more than doubled, while the average pawn loan taken out --and the balance remaining at the end of the quarter -- has edged upward. The strength of the cash advance business was also aided by Cash America's CashNet USA online payday loan business, which the company acquired last year.
Yet all the new customers crowding into Cash America's stores also raise the risk of more frequent and plentiful defaults. In response, Cash America implemented a sevenfold increase in its loan-loss provision expense. That seems to be a prudent move; according to the company, a 10% increase in loss rates could trigger a corresponding $4 million decrease in net income, assuming cash advance volumes are written at the same rate as in 2006.
The sole tarnish on Cash America's otherwise sterling quarter came from its check-cashing operations, where revenue dropped 1% on virtually flat fees collected from customers. However, with those operations accounting for just a little more than $1.1 million in revenue, the overall impact of this shortfall was negligible.
The cash advance industry remains strong. EZCORP (Nasdaq: EZPW) just reported its own solid results in payday lending, and industry leader Advance America (NYSE: AEA) is scheduled to announce its first-quarter financials next week. Even with new entrants, like rent-to-own industry leader Rent-a-Center (Nasdaq: RCII), horning in on the payday loan business, there seems to be enough cash floating around to ensure that everyone can profit.
Advance America and Rent-A-Center are both recommendations of
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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
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