Bookkeeping: Adding to EZCORP (EZPW)

It is very hard to buy anything in this environment where you can be down 20% on any purchase within hours. On TV this morning a CNBC reporter said 2 hedge funds were being liquidated yesterday which caused the meltdown. So right now aside from all the other issues, we are hostage to the hedge fund liquidations - as we have said countless times. The good news is there are only 8000 hedge funds (err, were). So if we lose 2 a day that means in 4000 days we should be fine. Always a silver lining. On a serious note it is just a pathetic state of affairs where companies who execute are treated no different than those that don't. This 4-6% daily swing action is keeping everyone out because the ability to lose so much money in such a short amount of time makes it not worthwhile to participate. And when you do participate you are just throwing darts since what you buy could be liquidated by a hedge fund within hours. So your odds are no different then a casino - as I've been saying over and over. The ultimate in frustration. This is why we continue 1/3rd in cash.

Looking at today's action I see weakness in EZCORP (EZPW) which is down 8%, and it looks like its based on earnings from recent Cramer pick Cash America (CSH). [Oct 20: Cramer Jumps on Pawn Shop Bandwagon] As I've said many times I want to have limited exposure to the cash advance business due to regulatory issues, and CSH has as of this quarter nearly 40% of business in that line of work while EZPW has less than 30%. So at risk of losing more fingers I am going to buy some EZCORP as it's down 8% in sympathy with its peer, and take it from a 0.5% stake to 1.6%. EZCORP reports November 6th and I expect good things. The chart stinks but charts have lost effectiveness the past few months. If you sold each time it broke support you'd be selling at the wrong time - in fact you need to buy the breakdowns and then sell the jumps up - a very backwards time. Everything we learned about technical analysis is also being proven useless in the current market.


Another peer in this group, First Cash Financial Services (FCFS) which is more heavily into the pawn shop side had a good quarter reported earlier this week, but is in the midst of exiting some of its non "core" business. But again we're focused on the pawn shops which are now seeing mid teens same store sales growth and this will only get better as the economy worsens into 2009. If not for the auto business it is now exiting I was strongly considering FCFS as an option as well.

• First Cash Financial Services Inc. says growing revenue streams from its pawn shop operations have prompted the company to lift its earnings expectations for 2008.
• Arlington-based First Cash Financial (NASDAQ: FCFS), which operates pawn, loan and check-cashing stores, has increased its 2008 earnings per share guidance to an estimated range of $1.24 to $1.26 per share from its previous range of $1.17 to $1.20 per share. The company essentially upped its guidance by 33 percent to 35 percent after noticing an uptick in revenue growth and profitability within its pawn shop operations.
• Revenue from pawn shop operations alone made up 78 percent of the company’s total quarterly revenue, First Cash said.
• A one-time charge of $52.6 million related to the discontinuation of the company’s auto loan business also was recorded in the most recent quarter, having an impact on the company’s final net earnings.
• The company operates 495 pawn shops and short-term loan stores. It opened 18 new stores in the third quarter, including 16 in Mexico.

Now we compare to Cash America (CSH)

• Payday lender and pawn shop operator Cash America International Inc. on Thursday said its third-quarter profit fell 8 percent as expenses rose, but adjusted results topped Wall Street expectations. For the three months ended Sept. 30, Cash America said net income rose to $18.9 million, or 63 cents per share, from $20.6 million, or 68 cents per share, in the prior-year quarter. (only an AP writer could figure out that 63 cents "rose" from 68 cents - aye our education system is so bad)
• The results included $2 million, or 9 cents per share, in one-time costs associated with spending related to election ballot measures in Ohio and Arizona, plus nearly $1 million in lost revenue from Hurricane Ike. Adjusted for these items, per-share profit came to 72 cents, the company said. (ok now it "rose" after these adjustments)\
• Revenue rose 9 percent to $252.2 million from $231.5 million.
• Analysts polled by Thomson Reuters, on average, expected profit of 65 cents per share on revenue of $254.2 million.
• Cash America said the revenue increase reflected a 14 percent gain in total fees and service charges for pawn loans to $47 million, and a 15 percent boost in merchandise sales to $105.5 million. Daniel R. Feehan, president and chief executive, said pawn loan balances were up 16 percent year over year.
• The company also narrowed its outlook range for full-year earnings, and offered a fourth-quarter guidance range mostly above Wall Street estimates.
• The company said it expects additional expenses in the fourth quarter on election-related spending regarding ballot initiatives in Ohio and Arizona, after spending $2 million on such activities in the third quarter.
• The company said it has adjusted its fourth-quarter loan products "for a negative result in the Ohio election," and "has de-emphasized" cash advance lending, or payday loans, in Pennsylvania and Minnesota as a result of expected regulatory changes in early 2009 and late 2008, respectively. Due to the regulatory changes in those states and Florida, where the company said payday loans were profitable in 2008 but will either be unavailable or "available only at significantly reduced economics in the coming year," the company said it expects 2009 earnings between $3.35 and $3.55 per share. (again, reasons to avoid the cash advance side of the business)
  

The only reason I see for the stock to sell off is the narrowed full year guidance or comments on 2009 regarding payday loans which should come as a surprise to no one paying attention? And/or this is a bear market and everything falls. They "missed" but due to Ike and spending on trying to stop their cash advance practices from being curtailed in a few states... anyhow we don't own it but I'm throwing it up there for information purposes.

One more sad story of the pooring of America

• PORTLAND, Ore. (AP) -- At All That Glitters Jewelry and Loans, aesthetic and sentimental values get checked at the door. Here, patrons line up to pawn their memories for money. "Once upon a time, I didn't know people who would hock their things," said Sheli Johnson, 56, who is married to a construction worker and has been out of work since breaking her pelvis five years ago. Now she's one of the growing number of Americans looking to sell a ring or loan a bracelet, just to get by. In recent weeks, jewelry buyers and gold brokers across the nation have seen a sharp increase in customers -- of all economic backgrounds -- trading in their possessions for cash.
• Cash for Gold USA, an Internet site that offers customers a chance to mail in pieces of gold -- anything from class rings to dental fillings -- in exchange for a check, has seen business quadruple in recent months thanks to high gold prices, (I've seen these guys advertising even on CNBC!)
• In Midtown Manhattan, Gene Furman, the owner of Empire Gold Buyers, has seen a roughly 25 percent increase in walk-in traffic since major investment banks and other financial institutions ran into their own financial difficulties. The company schedules about 50 to 60 buying appointments a day, and not just with the familiar faces. Furman said he sees all sorts -- even the one-time Wall Street powerful -- looking for any way to get some cash on hand.
• Another Portland jewelry buyer said the market has never been so good -- or so depressing. "Little old ladies are coming in with Whitman sample boxes empty of candy and filled with odds and ends and trinkets," said Dan WenDell, owner of Diamond and Jewelry Buyers.com. "I used to be in the jewelry business," he said. "I am in the recycling business now."
• One was full of diamonds. "It was my wedding ring," Johnson said. Another was crowned with a red gem. "A friend of mine gave me this." The last was a simple diamond ring. "My husband got it for me."
• Other customers had similar stories. A construction worker was pawning his wife's diamond earrings because jobs had dried up. A woman, who was selling some rings her husband had left behind when he died, said her Social Security check doesn't stretch as far as it used to.
• "You feel bad for people, and we try to say we're here to try to help you as best as we can," he said. "We have some small-business people who come in here and need to make payroll. Everything from 'I need a tank of gas' to 'I need to take my daughter to the emergency room for medical and we don't have any funds.'" ("richest country on Earth, but if you need to go to the hospital 40% need to hit the pawn shop I suppose")
• The high price of gasoline is why Jeff Silverstein of Ridgefield, Wash., sold his wedding ring to All That Glitters. "I'm still married," he said. "There were just other things we needed more." (well at least national GDP has been rising all decade - since that's accurately reflecting state of things for normal working class people - it's just a mental recession as Phil Gramm tells us)

[Jul 24: Cash America (CSH) and EZCORP (EZPW) Both Report Today - Starting Small Stake in EZCORP]

Long EZCORP in fund; no personal position