EZCORP (EZPW) - Executing Well, Raising Guidance for '09

EZCORP (EZPW) continues to execute and we have some upside to their fiscal 2009 (which starts now; their year end is Sept 30th) based on some acquisitions. While I don't agree with counting Hurricane Ike as not part of their EPS, this is the game as they play it on Wall Street. It was a one time event, but so was this tax credit they took to "make the number". More important are the longer term trends which continue to be positive.

Analysts were in at $118M on revenue and $0.34 EPS

• For the quarter ended September 30, 2008, EZCORP’s net income increased 44% to $16,031,000 ($0.37 per share) compared to $11,155,000 ($0.26 per share) for the quarter ended September 30, 2007. Total revenues for the quarter increased 19% to $123,402,000 while operating income improved 13% to $18,950,000.
• Included in the results for the quarter are the impact of Hurricane Ike and the benefit of taking a previously under utilized foreign tax credit. On September 13^th, the Company closed 154 stores in the hurricane threat area, with most of these closed on September 12^th in advance of the hurricane. During the month, the Company lost 1,042 store days due to the hurricane and the resulting power outages. The Company estimates this adversely impacted pretax income approximately $2.5 million ($0.04 tax affected earnings per share).
  
• During the quarter, the Company recognized the benefit of a previously under utilized foreign tax credit related to its investment in Albemarle and Bond Holdings Plc. This resulted in a reduction to income tax expense, not related to the quarter, of approximately $3.1 million ($0.07 per share).
• Excluding the adverse impact of Hurricane Ike and the benefit of the foreign tax credit related to Albemarle and Bond’s earnings in prior periods, the Company’s fully diluted earnings per share for the fourth fiscal quarter and 2008 fiscal year would have been $0.34 and $1.19 per share. (so net of benefit from foreign tax credit, and Hurricane Ike they were "in line")
• Our pawn operations in the U.S. and Mexico drove our excellent results for the quarter. (remember we want to focus on the pawn shops, not the cash advance stores)
• “We have completed our due diligence and are moving ahead with our eleven store Pawn Plus acquisition and the acquisition of Value Financial Services. We expect to close on the Pawn Plus transaction later this month and close on the Value Financial Services acquisition in the latter half of December.

Outlook for 2009

• “For our first fiscal quarter and 2009 fiscal year, we expect earnings per share, excluding the two pending acquisitions, to be approximately $0.35 and $1.45. Assuming a late November closing on the Las Vegas acquisition and a late December closing on the Value Financial Services transaction, the acquisitions will have a nominal earnings per share impact on our first fiscal quarter and an approximate $0.08 to $0.09 per share benefit on our fiscal year results.” (analysts have $1.41 for 2009 EPS so the company is guiding up 4 cents ex the 2 acquisitions; including those two we can add another 8 to 9 cents - i.e. we are guiding up 12 to 13 cents on 2009)
• “In addition to completing these two acquisitions, we plan to open 30 to 35 EZMONEY locations in the U.S. and 30 to 35 Empeño Fácil locations in Mexico.

Of the $123.4M in revenue, only $33.6M came from cash advance fees so this is down to 27.2% of sales i.e. nearly 3/4 of sales are now pawn shop which is what we want to see. Frankly, if the economy goes where I think it will go in 2009, I think there could be material upside to even this guidance above - a dual recession and lack of access to credit should be a perfect storm for the pawn shops. We have yet to benefit from this investment but at 10x earnings on 09 with 40% earnings growth it would be nice to see some stock appreciation sooner or later ;) Or maybe this will just be a nice thesis that never makes us a dime.

[Oct 23: Adding to EZCORP]
[Oct 20: Cramer Jumps on Pawn Shop Bandwagon]
[Sep 8: EZCORP Acquires 11 Pawn Shops in Nevada]
[Jul 24: Cash America (CSH) and EZCORP (EZPW) Both Report Today - Starting Small Stake in EZCORP]
[Jul 10: Another Payday Loan/Pawn Shop Breaks Out on Higher Guidance - A Trend Seems to be Afoot]

Long EZCORP in fund; no personal position