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2006 in review: Cash America

December 28, 2006 - Fort Worth, Texas

It was a year for pawnshops and payday lenders to branch out beyond their normal boundaries as their traditional lines of business came under legal and regulatory assault. Already saddled with a less-than-positive public image, pawn broker Cash America branched out further into the payday-lending business by acquiring an online lender to process loans.

Competitors such as payday lender Advance America developed innovative programs to sidestep legal restrictions, even though the changes brought renewed scrutiny, while First Cash Financial acquired a chain of used-car dealers.

Cash America announced its full-year 2005 results at the start of the year, and it was a portent of things to come. Total revenues increased 21%, to $594.3 million, versus $469.5 million the year before, while earnings from continuing operations grew 28% to $44.8 million. As the company expanded more forcefully into cash advances, it assumed a greater proportion of its revenues. Cash America said that back in 2003, cash-advance fees made up just 19% of total revenues; in 2005, it had grown to more than 34% of the total.

The new year began strong for Cash America, as first-quarter earnings rose 29%, to $15.4 million, or $0.51 per share, up from $11.9 million, or $0.32 per share the year before. That was as a result of total revenues rising 12% for the quarter, to $162.6 million, as cash-advance fees and pawn loans rose 13%, while merchandise sales rose 11% on the year. Even though the company still derives two-thirds of its revenues from its pawn operations, cash advances continue to grow as an important driver to future expansion.

The second quarter continued the pawnshop operator's performance of higher year-over-year revenues and profits. Sales, rising again on the strength of cash advances and pawn loans, increased 12% to $74 million while earnings jumped 58% to $10 million, or $0.36 per share. However, factoring out a one-time gain of $0.05 a share from the early termination of a lease, profits were still up a hefty 35% to $0.31 per share. Once again, Cash America was able to beat its original guidance and came in at the upper end of its revised guidance for the quarter.

For the third quarter, Cash America completed its acquisition of CashNetUSA, a privately held online payday lender, which had been fueling the pawn broker's cash-advance sales. Revenues rose another 14% and earnings jumped an additional 35% over the year before, while it experienced an across-the-board increase in margins. It was helped by a 60-basis-point increase in annualized yield on its pawn-lending business.

The full year promises to be a good one for Cash America. Management forecasts that earnings for the year will be in the range of $1.85 to $1.93 per share, a 25% to 30% increase over 2005. Considering that each quarter this year has led to Cash America having to raise its guidance -- and then either beating it or coming in at the high end -- it seems as though achieving these kinds of numbers shouldn't be too difficult for the pawn broker.

That kind of performance this year, however, has also translated into Cash America earning a three-star rating over at Motley Fool CAPS.

Obviously, the majority of CAPS players think that Cash America will continue to beat the market. As CAPS player bmonkeyAK notes, "These guys understand that amazing returns are available in this business. Much like junk was undervalued until Michael Milken came along, extremely high-risk lending is extremely undervalued. Biggest player in a great, growing business."

Cash America is living up to its name. By expanding its operations both on the ground and online, it will make it a more accessible service to people who are in need of it. Despite the regulatory challenges that certain aspects of its business face, Cash America looks as though it will continue to ring the register.

News Source

The Motley Fool, Richard Duprey, Staff Writer

Cash America International Inc. (NYSE: CHS)

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