Shares of EZCORP (EZPW 0.05%) jumped 10% on Friday following the pawn shop operator's quarterly earnings release. Results were largely in line with expectations, but the company did announce a new $60 million share repurchase program.
EZCORP has been down on its luck of late, with shares down more than 40% in the last six months heading into earnings, in part due to corporate governance concerns. In September, EZCORP overhauled its board of directors, naming a new executive chairman, who, according to analysts, has a history of lucrative outside consulting relationships with the company.
After markets closed Thursday, the company reported fiscal fourth-quarter adjusted earnings of $0.19 per share on revenue of $214 million, in line with estimates. Sales were up 4% year over year on the strength of higher pawn loans, service charges, and merchandise sales.
CEO Stuart Grimshaw said in a statement that growth came despite headwinds "including newly introduced social welfare programs in Mexico reducing customers' current need for pawn loans, technology system issues resolved by mid-July, and other investments and non-recurring costs."
EZCORP also said its board had approved a three-year, $60 million share repurchase authorization. That's a substantial sum for a company with a market capitalization of $347 million and is likely the primary driver of Friday's gains.
The repurchase announcement is a plus, but the business appears to be treading water at best. Same-store pawn service charges were up 1% year over year, while same-store operating expenses increased 2% on higher labor and benefit costs. Merchandise margins declined 359 basis points year over year, largely due to liquidation of aged inventory.
The pawn shop industry is under pressure from a range of short-term lenders, including newcomers spurred by fintech innovation. EZCORP's answer to this challenge is to consolidate the industry, amassing a network of more than 500 stores in the U.S. and 470 in Latin America, on the idea that greater scale will help it weather the storm.
The buyback is a nice plus, but it is only temporary. I'd like to see the business show stronger growth before I'd consider buying in.