Car-Mart shares slide as credit losses mount

Shares of Car-Mart Inc. tumbled in early trading on Friday after the Bentonville-based "buy-here, pay-here" used car dealer’s second quarter earnings fell short of expectations.

In early morning trading, Car-Mart shares were down nearly 12%, or $3.39 at $24.98.

The company’s shares (NASDAQ: CRMT) touched a 52-week high of $30.10 on Nov. 10, but investors’ may be worried that the dealer’s credit-limited customers are struggling to pay on time.

"Our financial results for the quarter were solid, but short of our own internal expectations. The uptick in our credit losses means we’ve got to do a better job taking care of our customers," Car-Mart President and CEO William "Hank" Henderson, said in a statement. "Our commitment to helping our customers succeed has always been a cornerstone of our success and this will not change as we move forward."

For the quarter ended Oct. 31, Car-Mart reported net income of $6.2 million, or 56 cents a share, compared with $6.3 million, or 53 cents a share, a year ago. Revenue rose more than 11% to $91.8 million.

Still, Car-Mart’s second quarter profits were well below Wall Street consensus estimates of 65 cents a share on revenue of $91.2 million, according to Thomson Reuters.

Going forward, Henderson said new store openings will be an important factor in keeping the company’s growth expectations on schedule.

"Our new store openings are going very well and we are on pace. We have added 4 great locations so far in fiscal 2011 and we have 4 more in the works that we intend to have in operation by the end of the fiscal year," Henderson said. "While we expect that most of our top line growth year to year will come from existing stores, the contributions of these new locations will be an important factor in keeping us on our projected growth targets."

Earlier this month, Car-Mart completed negotiations with Bank of Arkansas, Commerce Bank and Arvest Bank on a $90 million credit facility to replace the company’s existing credit facilities. The proceeds were used to pay off all existing debt under the company’s previous $61.5 million financing package last amended in January 2010, including the remaining balance ($6.3 million) related to a $10 million term loan.

Car-Mart officials also lauded recent passage of constitutional Amendment 2 that raises the interest ceiling on retail lending.

“We are happy to report that on November 2, 2010 the voters in Arkansas approved a state constitutional amendment to allow up to 17% interest for non-bank loans and contracts in the state," said Car-Mart CFO Jeff Williams. "This amendment removes the major unknown we were facing as to interest rates we could charge to our Arkansas customers."