Pawn operations boost First Cash Financial Services (FCFS)

First Cash Financial Services (FCFS) said profits jumped 21%, exceeding estimates on strong revenues, and the company raised full-year 2009 guidance. Revenue increased 12%, 20% excluding currency effects, on the continued strength of its core pawn businesses in the U.S. and Mexico. Pawn-related revenue represented 82% of year-to-date total revenue.

One of the headwinds facing the U.S. economy has been access to credit for people who are at the lower end of the income spectrum (and who also represent the greatest default risk). As lenders ration credit in response to record-high delinquency rates, people are scrambling for cash. Accordingly, pawn shop business is up 40% in the U.S.

It should be no surprise that First Cash Financial Services (FCFS) was able to smash earnings expectations. The pawn-shop operator remains one of our favorite small-cap plays in this environment. Longer-term, we look to their Mexico operations to be drive revenue and profit growth for years to come. Enhancing the firm’s competitive advantage is their older and more mature network of operations in Mexico, which allows them to capture more growth than their competitors.
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Peter J. Lazaroff, Investment Analyst