Bearish On Pawns

In mid-July, we published notes detailing our bearish case for the pawn shops. Most notable, we were bearish on EZ Pawn (EZPW), First Cash Financial Services (FCFS) and Cash America (CSH).

EZPW recently reported its quarterly earnings and missed by 7 cents of the consensus 62 cents. More importantly, the main driver of the miss was falling gold volume and price tailwinds abating. We’ve been reiterating that pawn shops were going to have a hard time going forward with the way gold is performing.

Bearish On Pawns  - PAWNS yoychange

CSH has an even more disastrous quarter, missing revenue by 10%.  From Hedgeye Managing Director of Financials Josh Steiner:

If EZPW's quarter was bad, CSH's was a disaster.  The company's revenue missed expectations by 10%. While the earnings miss wasn't as severe, they more than made up for it in the magnitude of guidance downside. They guided to 3Q earnings of $0.95-1.05 vs. consensus of $1.26: a 20% guide-down based on the midpoint. Similarly, they guided to implied 4Q earnings of $1.06-1.41 (midpoint $1.23) vs. consensus of $1.45, a 15% guide-down. On balance, the back half of the year was just taken down by 17.5%, which is about what the stock is off by: 19%, as of the time of this writing.”

Steiner says it all. These shops relied too much on the “BUY GOLD!” boom that swept the nation and are now feeling the macro effects of a stronger dollar.