Cash America International Inc., the world’s largest pawn shop operator, fell the most in seven years after posting results that missed estimates and saying third-quarter earnings will be lower than last year.
Cash America plummeted 19 percent to close at $36.69 in New York, the most since April 2005. It was the biggest decline in the 102-company Standard & Poor’s SmallCap Financials Index.
Net income rose 11 percent to $29.8 million, or 94 cents a share, from $27 million, or 84 cents, a year earlier, the Fort Worth, Texas-based company said today in a statement. Adjusted net income of 94 cents was 2 cents less than the average estimate of nine analysts surveyed by Bloomberg.
“This particular quarter has me a little bit stumped,” Chief Executive Officer Daniel R. Feehan said in a conference call. Every component of Cash America’s U.S. store-front business slowed in the second quarter, he said.
“Some combination of macroeconomic and consumer-sentiment factors must be impacting our customers’ appetite for borrowing and spending,” Feehan said.
New and renewed loans slowed in the first half, the firm said. Loans rose 5 percent in the first six months of 2012 from a year earlier, after climbing 26 percent in the same period of 2011 compared with 2010.
Demand for “pawn-lending products has proven more challenging,” the firm said in the statement. “Management expects growth in its pawn-lending business, but is more reserved about expectations for the remainder of 2012.”
The pawn lender said it expects third-quarter earnings expectations to be 95 cents to $1.05 a share, down from $1.08 a year earlier. Full-year profit will climb 2 percent to 8 percent, according to the statement. Analysts including Bill Carcache of Nomura Securities International Inc. and Sameer Gokhale of Janney Montgomery Scott LLC said they were anticipating a 17 percent increase.
“The market was looking for basically double the growth that Cash America is now guiding to for the year,” Carcache said in a phone interview. “It’s all about expectations.”
Pawn shop operators and payday lenders such as Cash America typically profit when the economy is weak and consumers are more likely to seek loans or pawn their valuables for cash. When customers can’t make payments on their pawned loans, they forfeit the merchandise as collateral.
Second-quarter gross profit margin on selling forfeited merchandise declined to 32 percent from 37 percent a year earlier, the company said. Jewelry comprised more than 60 percent of the value of pawned merchandise held by Cash America at June 30, according to the statement.
“Given that the spot price of gold actually increased year over year, we’re concerned about what is driving these declines,” Carcache said in a note to investors.
Cash America said today withdrew its application for an initial public offering of its e-commerce subsidiary, Enova International Inc. Enova provides online financial services in the U.S., U.K., Australia and Canada, offering credit to consumers who aren’t eligible to obtain it from banks or credit-card lenders. Cash America had said in September it planned to raise $500 million with Enova’s IPO.
“It is our board’s current judgment that the volatility in the IPO market is not likely to abate anytime soon,” Feehan said during the call.
Current IPO discount levels are “unacceptably high” and give investors too much leverage over stock issuers, Feehan said.