Banking & Finance

Payday Lender Cash America Cancels Spin-off After Poor Results

The country’s largest payday lender and pawn shop operator, Cash America International Inc. (NYSE: CSH), reported second quarter earnings this morning that fell short of the consensus estimates. The company also withdrew its application for an IPO of its online subsidiary Enova International Inc. The IPO had been planned to add $500 million to Cash America’s bank account.

EPS came in at $0.94, up from $0.84 in the same period a year ago, but short of the consensus estimate of $0.97. Revenue rose 19% from $345.9 million last year to $411.6 million, mainly on a 36% jump in consumer loan fees to $180.7 million.

Cash America also said that its third-quarter profit would take a hit of -$0.06/share related to $3 million in costs associated with the failed IPO of Enova. For the third quarter the company now expects EPS of $0.95-$1.05, excluding the Enova-related charges. The full-year forecast calls for EPS of $4.35-$4.60. The previous consensus estimates called for third-quarter EPS of $1.25 and full-year EPS of $4.97.

The company attributed the earnings shortfall to weaker-than-expected demand for its pawn-related loans. Cash America operates at almost 1,100 locations under various names in the US and Mexico. The company also offers consumer loans over the Internet in 16 states, the UK, Australia, and Canada.

Competitor EZCORP Inc. (NASDAQ: EZPW) also missed estimates when it reported earnings earlier this week, blaming lower gold prices and fewer people offering to pawn gold. Another competitor, World Acceptance Corp. (NASDAQ: WRLD), which only makes loans and does not operate a pawn business, beat estimates this morning.

Payday lenders are under a lot of scrutiny and many states have adopted legislation that severely limits what lenders may charge. An interesting study on payday lenders by the Federal Reserve Bank of Kansas City is available here. The paper concludes this way:

[R]estricting payday lending may indeed have costs. The evidence showed that consumers in low-income [US] counties may have limited access to credit in the absence of payday loan options. As a result, they may be forced to seek more costly sources of credit. The evidence also showed that, in counties without access to payday lending, consumers have a lower credit standing than consumers in counties with access.

For a rundown of restrictions on payday lending, see this list.

Cash America shares are down -17.7% at $37.13 after posting a new 52-week low of $36.00 earlier today. The previous range was $40.02-$62.33.

Paul Ausick