Every company in the payday lending business seems to have a niche in which it excels to separate it from the competition. They all obviously make short-term loans to consumers. EZCORP (NASDAQ:EZPW) complements its payday loans with pawn shops, while First Cash Financial (NASDAQ:FCFS) dabbles in the used-car market. Still others, like Cash America (NYSE:CSH), define themselves with an online presence.
Dollar Financial (NASDAQ:DLLR), though, has reserved the international markets in which to distinguish itself.
2006 started off in the middle of Dollar Financial's fiscal year. It reported second-quarter earnings of $3 million, a nearly 200% increase on the $1.1 million it earned the year before. Based on strong growth in its international markets, the payday lender was able to offset a changing U.S. regulatory landscape that impacted everyone in the industry. International markets generated a $5.1 million, or 32%, increase in net consumer lending revenue, compared to a $2.6 million decrease in the U.S. market. Overall comparable-store sales increased 8.8%, led by a 22% jump in the U.K. and a 17% rise in Canada, offset by an 11% decrease in the United States. The strength of the foreign markets was enough for Dollar Financial to raise revenue guidance to $317 million and EBITDA to $82 million for the full year.
The third quarter saw more of the same, with operations in the United Kingdom and Canada fueling year-over-year growth. But the company continued to expand its business beyond the borders of the U.S. and agreed to acquire 13 franchised stores in Canada, while its Money Shop subsidiary acquired six stores in England. U.S. operations continued to be hurt as carryover from the devastating hurricanes continued to impact Dollar Financial's Louisiana stores. It also settled three class action lawsuits involving claims of employee exemption from state overtime laws in California and will pay $5.8 million to resolve the matter, which was costing upwards of $350,000 per quarter in legal fees.
Overseas opportunities continued to present themselves for the payday lender in the fourth quarter. Some 13 new stores were opened in the quarter, only one of them in the United States. Dollar Financial opened nine stores in Canada and three in the U.K., while also acquiring seven financial stores in England. In the U.S., the company's We the People franchise was taking it on the chin. Although six new stores opened, 16 others were closed; nine underperforming and "poorly sited" stores in New York City were shut down. For the full year, foreign operations helped propel Dollar Financial to 13% revenue growth and earnings of $7 million against a loss of $357,000 in 2005.
By the first quarter of 2007, which it reported last month, Dollar Financial was in the groove of reporting ever-higher revenues brought on by seemingly unrelenting growth and expansion in foreign markets. Quarterly revenues jumped 23% while earnings fell to a $1.7 million loss, or $0.07 per share (compared to earnings of $0.12 last year), as a result of retiring its debt early and the associated interest expenses. It opened 19 new stores, again parceling out just one to the U.S. market. There were 10 new stores opened in Canada and eight in the U.K., where it also acquired an additional five stores, primarily in Northern Ireland. Moreover, its Money Mart subsidiary acquired all the assets of 82 stores run by five franchisees in a deal valued at approximately $121 million.
The calendar year 2006 was a good one for Dollar Financial, showing the demand for its services that exists outside of the United States. Interestingly, that puts it on a firmer financial footing than its counterparts, which concentrate their operations in the U.S. because the overseas consumer is different from the American payday customer. Some 60% of Canadian customers have bank accounts, whereas only 38% of Dollar Financial's U.S. customers do. It's an astounding 80% in the U.K., which means foreign customers use the service for the convenience, whereas U.S. customers do it because they need to.
That probably explains why Dollar Financial has earned a four-star rating in the Motley Fool CAPS community.
|
Dollar Financial | |
|---|---|
| CAPS Rating | **** (out of five stars) |
|
Total Bulls |
22 |
|
Total Bears |
2 |
|
Bull Ratio |
92% |
|
Bear Ratio |
8% |
CAPS player Guin3666 sees all the overseas expansion as an opportunity to skim cash off the business if necessary. He notes that Dollar Financial is "fixing (its) corporate structure, which will lower the tax rate significantly." He also points out that it "(c)an also spin off Canadian or UK operations and pick up good value for the company."
It's certainly something I'm sure management keeps in the back of its head in the event things sour internationally, but as these foreign operations become increasingly the primary focus of its business (and considering the payday lending challenges here at home) it seems more likely we'll see further expansion rather than contraction in the near future.
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Dollar Financial competitor Advance America is a recommendation of Motley Fool Inside Value. The Motley Fool offers a30-day guest passthat gives you full access to all of Inside Value'smarket-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 .
