Car-Mart: 25 Years Old and Still Growing Up

The name, logo and early-stage growth plan may be similar to that of the world’s top retailer, but there’s no mistaking that America’s Car-Mart Inc. is filling a niche all its own — and with a product Wal-Mart Stores Inc. doesn’t even offer.

America’s Car-Mart Inc. of Bentonville, which is using a strong third quarter to recover from an otherwise recent slump, is a chain of used-car lots that has now expanded to 85 locations throughout eight states and is poised to keep on growing.

“We are making progress on growth plans and will discuss more in the coming months,” Hank Henderson, president of Car-Mart, said in a recent conference call. “We will be celebrating our 25th anniversary [this year], and it’s amazing how we’ve grown. We can’t help but look out to the future to see where the next 25 years go.”

Car-Mart’s origins trace back to an old Rogers car lot founded in 1981 by homebuilder Bill Fleeman. Terminally ill with cancer, Fleeman sold Car-Mart to Crown Group Inc. of Irving, Texas, for $41 million in 1999. Operating as a holding group, Crown Group then sold its other businesses, and in January 2002 the company changed its name to America’s Car-Mart Inc. and began trading publicly on the Nasdaq stock exchange under the symbol CRMT.

In 2003, the company moved its headquarters to Bentonville, though about half of the executive staff still works in Texas.

Car-Mart doesn’t try to fool anyone about the demographic it targets: The company places its lots in lower-income areas of smaller towns, trying to attract the car buyer who probably would have little shot at earning a positive nod from traditional lenders.

Car-Mart can do this by offering its own in-house financing and tailoring it to meet the needs of its clients, often in the form of low down payments, layaway plans and accepting trades on electronics and household appliances.

It’s a plan that has resulted in steady growth and revenue increases since its inception, including a 17 percent average rise in revenue over the past eight years.

“That’s the biggest part of what we do — the financing,” Henderson told the Business Journal in 2003. “That’s our product. We market convenience for our customers. We’re strictly a buy-here/pay-here business. We finance what we sell. We provide credit. We’re also financing cars that the bank’s not going to finance.”

On the Rebound

Revenue for the company’s third quarter, which ended Jan. 31, rose 21 percent to $58.3 million, compared with a $48.2 million posting in the same period a year ago.

The company has not yet filed its fourth-quarter and fiscal year-end results.

A poor second quarter, which saw profits dip nearly 36 percent to $2.8 million from the previous year’s quarter, set up plenty of room for improvement.

“[The third quarter] was a very good quarter for us, following on the heels of a tough second quarter,” said CEO Tilman J. “Skip” Falgout III. “We feel those problems are behind us.”

During the third quarter, Car-Mart stayed in line with its goal of opening 10 to 12 lots per year by opening four new dealerships, including stores in Columbia and West Plains, Mo.; Claremore, Okla.; and Van Buren. There have been nine new locations added so far this year.

Car-Mart also completed an expansion of existing dealerships in Jonesboro, Springfield, Mo., and Ardmore, Okla.

“Net income was somewhat squeezed by lower gross margins, primarily resulting from the tighter inventory availability that we faced in the quarter,” Falgout said. “However, we expect to get some relief on the inventory issues as the hurricane replacement buying tails off and the busy tax refund season winds down.”

Call Collect

Acting as its own lender and taking risks on questionable credit histories means an extremely large portion of Car-Mart’s focus has to be on collections.

According to Falgout, each store handles its own collections with supervisory involvement of the corporate office.

Credit losses as a percentage of sales typically hover around 18 percent annually throughout the company, but in the past two years it has risen to nearly 21 percent, including 26.6 percent in the second quarter.

“Delinquencies and credit losses are down significantly from recent quarters,” Falgout said. “Obviously, if credit losses are down then all of the good numbers go up, which we’re starting to see.”

A jump in credit losses during the first two quarters of fiscal 2006 resulted in an 18 percent decrease in net income.

Falgout said the opening of new stores is something of a Catch-22.

“There’s no question that newer stores tend to have higher credit losses than our older, more-established locations,” he said. “Mature stores have more repeat customers, and repeat customers are a lot less of a credit risk.”

When Car-Mart locations are divided into two categories, stores older than six years and stores that are younger, there’s a definite discrepancy. The older stores have about a 19 percent credit loss, while newer ones have about a 26 percent rate.

Sweet Home

Analysts are predicting a full rebound and continued growth for America’s Car-Mart, and the company already has a plan laid out.

According to Henderson, Car-Mart’s next invasion will be into northern Alabama.

“We’re looking to Alabama, as we’ve already contracted for two locations and are working on additional sites,” he said. “We are optimistic about our future there. But [growth] will not be limited to Alabama, as we will keep expanding in existing states as well.”

Henderson also said the company recently added a new position, director of expansion. The job is filled by Ted Taylor, a former location manager who will focus on the expansion of used-car lots.

“We’ve also beefed up our IT department,” Henderson said. “After many months, the next generation of operational software is complete. This new software gives us access to a lot more information, and an important element is that it was designed to assist with expansion and change.”

Click here for a look at Car-Mart by the numbers.