Shares of World Acceptance Corp. (NASDAQ:WRLD) are down about 19% as of 12 p.m. EST after the company announced fiscal third-quarter earnings that were well below analyst expectations.
The company reported third-quarter earnings of $9.6 million, a 34.6% decrease from a year ago. That tallies to just $1.10 per share, well under Wall Street's expectations of $1.56 per share.
A number of factors play into declining earnings -- higher charge-offs, lower loan balances, and lower loan volume. The company addressed the subject of higher charge-offs on the conference call, suggesting that it is taking steps to make loans in the lowest bands of credit scores. When it does lend to borrowers with lower FICOs, it is making smaller loans.
One of the challenges is that revenue is falling faster than expenses, resulting in negative operating leverage. World Acceptance noted in its press release that it believes most of its "poorly performing branches have now been closed," suggesting that upside in earnings will have to come from expanding revenue than cuts in expenses.
To that end, it reported that web applications reached a record in the third quarter and that 90% of applications were from new customers. Whether the company can grow its way out of its earnings slump remains to be seen, as it faces the difficulty of growing quickly while maintaining credit quality.