Tight credit drives consumers toward pawn shops

With credit drying up and gas and food prices rising, most retailers are seeing sales decline as shoppers cut back on discretionary spending. But for pawn shops, which offer used goods at low prices and allow consumers to sell their possessions for cash, consumers' pain has translated into big revenue and profit gains.

Texas-based pawn shop operators Ezcorp Inc. and Cash America International Inc. both boosted their profit outlooks for the upcoming quarter this week. The companies also offer "payday loans," or short-term, high-interest cash advances to consumers on their paychecks. As more people struggle to cover the rising cost of gasoline and groceries, they are turning to payday lenders to help them bridge the days between paychecks.

Ezcorp lifted its outlook to 25 cents per share from 21 cents for its fiscal third quarter. Cash America raised its second-quarter profit outlook to a range of 62 cents to 64 cents per share, from prior estimates of 51 cents to 54 cents per share.

Cash America said it was helped by more merchandise sales, strong revenue from its online cash advance service and better-than-expected revenue in its pawn lending business. Pawn shops offer loans in exchange for goods that can then be sold if the customer doesn't redeem them.

Roth analyst Elizabeth Pierce said the companies may have benefited from economic stimulus payments that began pouring into taxpayers' mailboxes and bank accounts at the end of April.

"People who have a bit more may be looking at the cheapest alternative in terms of product," Pierce said in a note to clients.

High gold prices may also be spurring shoppers to pawn their jewelry for extra cash, she said. At $927.30 on the NY Mercantile Wednesday, prices are down somewhat from their record-high of $1,000 in March, but still up sharply from last year's $650 an ounce.

Robert Santos, manager of a pawn shop in Queens, New York called EZ Pawn, said more people have been coming in to the store recently for a cash infusion or to fatten their wallets, even if only for a short time.

"More people have been selling or pawning," he said, adding that many have come back to redeem their items once they no longer need the cash.