EZ Corp (EZPW) reported fiscal Q4 earnings this week and while profit rose 6.1%, the pawn lender noted that weakness in the gold market is going to put pressure on earnings. Guidance for the december quarter was a full 30% below Street expectations and FY2013 guidance was 13% below expectations.
EZ Corp has two big issues it must deal with. In addition to adverse payday lending regulations in Texas, the company also faces headwinds from gold in their pawn lending business. EZPW noted that jewelry scrapping sales fell 10%, indicative of the weakness in the gold market in terms of volume. Notes Hedgeye Financials Sector Head Josh Steiner:
“We’ve recently come to the conclusion that rising gold prices are actually now a negative for the pawn lending industry, a reversal of the trend over the last decade. This is because rising gold prices give rise to growing competition, mainly in the form of “buy-here” gold shops. These pop-up stores are sprouting up everywhere and, on average, pay a slightly higher rate for gold than the traditional pawn operators, which is pressuring volume trends significantly.”
We think it’s probably best to steer clear of EZPW, even after today’s titanic sell-off.