"Adapt or die" is a well-worn phrase in business, but payday lender QC Holdings (NASDAQ:QCCO) has chosen to follow the equally trodden motto of "do one thing but do it well." Unlike competitors such as Advance America (NYSE:AEA), EZ Corp (NASDAQ:EZPW), and Cash America (NYSE:CSH) that have pawnshop operations in addition to their payday-lending business, QC Holdings remains purely a provider of short-term loans.
In the first quarter, QC Holdings reported a 14% increase in revenues, to $38.4 million, as it added 18 new branches, to bring the total to 549 stores. Earnings, however, declined to $2.5 million, or $0.12 per share -- a 24% drop -- as expenses soared. A mix of new store openings and branch closings in North Carolina led to the drop, while legislative changes in Illinois at the end of 2005 portended future costs and lost revenues for the payday lender.
"While the difficult operating environment in Illinois is likely to reduce the company's gross profit, said CEO Don Early, the company expects to build "on the momentum generated during the last two quarters and to [channel] that energy into meaningful shareholder value."
In the second quarter, no amount of channeling was able to drive down costs enough to stop earnings from falling some 360% to just $300,000, all the way down from $1.7 million the year before. Although revenues rose 17% year over year as QC Holdings continued to expand, business was affected by the Illinois law as anticipated, resulting in a 2.5% decline in revenues at comparable branches. Believing new branches would drive revenue as they matured, Early noted, "Our 2005 branches continue to move toward profitability as a group but have not yet crossed over."
QC Holding's third quarter showed marked improvement as revenues grew 9% to $45.3 million and earnings jumped 220% to $2.5 million or $0.12 per share. While still opening new branches and carrying its shuttered North Carolina business as discontinued operations, payday-loan volumes continued to rise, and loan loss ratios dropped year over year. Despite the changing regulatory environment and increased competition, the company was still able to post 50% increases in gross profits in comparable stores.
CEO Early looked on the third-quarter changes as a positive sign: "As we move into the fourth quarter, we believe the company is poised to realize the benefits from our significant branch growth and to capitalize on the various opportunities in the short-term consumer financial services industry." The company ended the quarter with 564 branches in 25 states.
As small as QC Holdings is, with a market cap of just less than $300 million, it has not yet registered a rating in Motley Fool CAPS:
|
QC Holdings | |
|---|---|
|
CAPS Rating | No Stars |
|
Total Bulls |
2 |
|
Total Bear |
1 |
|
Bull Ratio |
66% |
|
Bear Ratio |
33% |
The payday-lending business has undergone some assaults from various corners, and while the larger players have been able to maneuver with products that work around the regulations while still complying with them -- such as Advance America's "rechargeable loans" -- or have expanded into complementary businesses such as First Cash Financial's (NASDAQ:FCFS) foray into used-car dealerships, QC Holdings has maintained its pure-play role as a payday lender. That has made for a rocky year, but it also lays the foundation for future growth as it concentrates on doing what it does best.
You can lend your opinion on how you feel about QC Holdings and the other companies in the payday-lending business by joining the CAPS community. Some 3,000 stocks have been rated, and you can have your say in the Fool's new investor-intelligence community.
Check out these related Foolish articles:
Check out the other companies included in "The Motley Fool's 2006 in Review and 2007 Preview" special.
Advance America is a recommendation of Motley Fool Inside Value . While critics may contend that payday loans are not a good value for your finances, the Fool's 30-day guest pass is, and it gives you full access to all of Inside Value's market beating selections.
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.
