What's happening?

Shares of CURO Group Holdings (NYSE:CURO) are plunging today, declining by nearly 34% as of 4:00 p.m. EDT after a disappointing earnings report revealed worsening credit metrics and downward revisions to its guidance for 2018. 

So what

CURO Group makes its money lending to high-risk borrowers with short-term loans at high interest rates -- often in the double-digits per month. Loan losses are a fact of life in high-risk consumer lending, but CURO Group's third-quarter results suggested larger loan losses may be just around the corner.

Curo Group logo

Image source: CURO Group Holdings.

CURO Group's provisions for loan losses tallied to 48% of revenue this quarter, up from 37% in the sequential quarter and 39% in the year-ago period. The company reduced its guidance on several key metrics for the full year, a portion of which are included in the table below.


Previous Guidance for 2018

Updated Guidance for 2018


$1.025 billion to $1.08 billion

$1.09 billion to $1.095 billion

Adjusted net income

$110 million to $116 million

$88 million to $91 million

Adjusted diluted EPS

$2.25 to $2.40

$1.84 to $1.88

Data source: Earnings release.

On the conference call, company management specifically identified new product introductions and higher credit lines in Virginia and Tennessee being responsible for an increase in credit losses above and beyond what it had previously anticipated. Provisions grew to 46% of revenue in the U.S. segment, up from 38% in the prior quarter, and 41% a year ago.

Now what

Changes to guidance aren't well received by investors, particularly when they come along with expectations for higher loan losses. Notably, CURO Group's diluted EPS guidance for 2018 was slashed by about 20% at the mid-point, even as it increased its revenue guidance for the full year. 

It certainly doesn't help that the company is highly leveraged. At the end of the quarter, the company had about $491.6 million of net loans (loans minus allowances for losses) supported by shareholders' equity of less than $10 million. 

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