Wednesday, April 21, 2010

First Cash Financial - The Real Pawn Star

Another quarter in the books for First Cash Financial Services (Nasdaq: FCFS), and another reminder to me of why I've held on to this stock for so many years.

Revenue this quarter was up 21% and income from continuing operations was up another 20%. Pawn receivables (which you can think about as something of a preview of future revenue) were up 29%, with over 46% growth in pawn receivables in Mexico. Inventory turns improved pretty significantly, and overall same-store sales were up about 14%.

Mexico has been a big part of this company's growth plans for a while, and that doesn't look to be slowing down. The company opened 14 stores this quarter, and all of those were in Mexico. In fact, about half of this company's revenue comes from Mexico. Given the relatively easier regulatory climate in Mexico, I can't see any good reason for the company to do otherwise -- there's plenty of room to expand in the U.S. (the company operates in just 8 states), but advocacy groups have aggressively targeted payday lending (a small part of FCFS's business) and have periodically gone after pawn operators as well.

Said differently, if you can get nearly 30% revenue growth from Mexico, why bother with the hassles in the U.S.?

Like most companies I own, FCFS continues to generate some pretty prodigious cash flow, and management has been building up cash. Hopefully they're not about to do another dumb deal (buying a buy-here/pay-here auto sales business a couple of years ago was a disaster), and that they'll apply the funds either to share buybacks or further expansion into new markets. Who knows, maybe it's time for them to start investigating Brazil (though there's plenty of room left to grow in Mexico).

This stock has always been relatively volatile and I'm not sure I'd rush to buy today, but I'm not looking to sell any shares and I'm quite content to sit tight as an owner.

(disclosure - I own shares of FCFS)

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