When you work in a business with a reputation like one that a pawnshop operator has, you have to respond nimbly to the changes that are going to be occurring in the marketplace just to maintain your position. First Cash Financial
In the first quarter, First Cash Financial reported 28% earnings growth on 18% growth in revenues, while also announcing an aggressive new-store opening plan and raising guidance for the full year. Although Fools know that stock splits don't mean much other than management confidence in its business plan, First Cash's CEO announced the company's second split in two years, saying it reflected the "success in enhancing shareholder value and management's confidence in future growth."
In the second quarter, the pawnshop operator continued to set record revenue and earnings marks, posting a 22% jump in revenues for a 25% rise in earnings, and once again raised guidance for the full year, to a high of $0.95 per share. Gross margins continued to improve, primarily on the strength of jewelry sales because of the high price of gold, growing from 22% last year to over 33% this quarter. It also maintained its expansion in Mexico, where it primarily operates pawnshops
Marking its 23rd consecutive quarter of earnings growth, First Cash reported a 32% increase in third-quarter earnings to $0.25 per share on revenues that grew 28%, to $69 million. Fueled in large part by a torrid pace of expansion (it opened 63 new stores in the first nine months), margins improved while its loss provisions for bad loans in its payday lending sector remained unchanged from last year. Yet factoring in one-time benefits First Cash realized in 2005, its loss provisions were actually an improvement this time around. It also moved into a wholly new business, acquiring the Auto Master chain of "buy here, pay here" car dealerships -- a seemingly incongruous, but completely logical extension of its business designed to help financially strapped consumers.
Though first-quarter results won't be reported for another month, First Cash surprised investors with the announcement in November that the CEO abruptly resigned to "pursue other business opportunities outside of the consumer finance industry." Although the company was able to simultaneously announce a successor and there didn't seem to be any adverse effect registered from the change, it remains a curious development that should leave shareholders scratching their heads. Companies want smooth transitions and usually plan for and announce them well ahead of schedule to ensure that it happens. A hiccup like this has to make you wonder if there will be other shoes dropping soon.
It's been a pretty good year for First Cash and its shareholders, considering the constrained regulatory environment on the payday lending side of things. The pawnshop operator, though, has taken on new opportunities with its car dealerships that seem to be a hand-in-glove fit, an opinion apparently echoed by our Motley Fool CAPS community members:
|
CAPS Rating |
5 Stars |
|---|---|
|
Total Bulls |
114 |
|
Total Bear |
2 |
|
Bull Ratio |
98% |
|
Bear Ratio |
2% |
You can see that even in spite of the challenges pawnshops and payday lenders, First Cash is seen as a star performer. Said CAPS player deej8888, "Used vehicles sales are much more profitable than new vehicle sales for auto dealers &The fact that the auto business might expand "South of the Border" makes it even more interesting. This acquisition should augment FCFS' already great growth story."
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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. The Motley Fool has a disclosure policy.
