The used-car sales and finance business was anything but easy driving for America’s Car-Mart during the company’s fourth quarter and fiscal 2014. The Bentonville-based buy here, pay here auto business reported fiscal year net income of $21.1 million, down 34% compared to the previous fiscal year.
Total revenue rose 5.3% to $489 million, despite slightly negative same-store sales for the year. The company sold and financed 42,551 cars and trucks in fiscal 2014, up 4.4% more than in the prior year. The average sales price rose less than 1% to $9,768.
Fiscal year income was $2.25 per share, which missed the consensus estimate of $2.31. The company was also estimated to earn $499.97 million, which was below the reported $489 million. Car-Mart missed both marks sending shares down more than 14% in after market trading.
Car-Mart shares (NASDAQ: CRMT) rallied prior to Tuesday’s (May 27) earnings report to close at $40.53, up $2.19. But investors backed away after the release sending Car-Mart stock price down $6.09 to $34.44 in after hour trades. Despite a clean balance sheet and executive optimism, investors are cautious with America’s Car-Mart. Shares have traded as low as $34.56 and as high as $47.93 over the past 52-week period.
Car-Mart execs, while optimistic, did announce plans to slow expansion of new dealerships this year to eight, down from the 10% projections set earlier.
HARD FOURTH QUARTER
The company’s annual profits were dinged by a challenging fourth quarter, according to CEO Hank Henderson. He said net charge-offs rose to higher levels as the year progressed. Net Charge-offs were 28.2% of average net receivables, up from 25.2% a year ago. When charge-offs go up, that’s more money that must be set aside in provisions for loan losses. The provision for credit losses was 27.4% of sales, compared to 23.1% a year ago.
“We have tried to take the necessary steps to improve in this most important area (credit charge-offs) of the business. The bottom line is that too many of our customers did not successfully fulfill the requirements of their contracts. Our mission is providing quality vehicles, affordable payment terms and excellent service. To us success means that our customers have equity in their vehicle quickly and as a result own an asset at the end of the contract term. Unfortunately, in many cases competition does not share this same view of customer success and that market dynamic is certainly pushing up our default rates," Henderson noted in the release.
The fourth quarter for America’s Car-Mart occurs in conjunction with the tax refund period and typically is one of the company’s best performing periods. That was not the case this year. Car-Mart reported net income of $6.313 million in the quarter ending April 30, down from $8.789 million a year ago. On a per-share basis Car-Mart posted 68 cents, down 26% from the 92 cents per share earned a year ago.
Revenue in the quarter was $123 million compared to $126 million for the prior year quarter, with same store revenue down 7.1%.
"The higher charge-off levels led us to be more disciplined with the structures of our 4th quarter deals and we are confident we will see improvement in customer success rates as a result. Holding a stronger line for better deal structures, however, contributed to the top line challenges we experienced as we did forego some sales opportunities to assure better success rates for our customers on these most recent sales. We intend to continue to push for better deal structures but at the same time remain aware of the necessary balance for the sales side of the equation,” Henderson said in the release.
COMPETITIVE CREDIT CLIMATE
Car-Mart said it generated a 10% return on equity despite the challenging credit issues that continue to plague the business.
“By focusing on cash flows we were able to pay down $2.5 million in debt while adding 10 new dealerships, growing the receivable base by $16 million, repurchasing almost $13 million in common stock and investing almost $3 million in GPS technology. We accomplished all this in a year that could be considered the most difficult in the company's history from both a macroeconomic standpoint for our customers coupled with the extremely competitive environment on the financing side,” noted Jeff Williams, chief financial officer.
He said Car-Mart customers have never been more stressed financially, and at the same time, have never been presented with more aggressive financing options for their vehicles.
“We had been optimistic that interest rates may rise and give us some relief on the competitive side by potentially re-directing some money in search of yield. That has not happened so we continue to focus our energies on those things we can control and where we can make a difference. We are committed to maximizing our operational efficiencies and being best in class on expenses with both the retail and financing sides of the business. At the same time, we will do everything we can to add value to the customer and help them succeed,” WIlliams said.