America’s Car-Mart revs up profits

America's Car-Mart Inc. sped through its fiscal third quarter racking up profits of $7.29 million, a 28% improvement from a year ago. That equates to earnings per share of 73 cents, allowing the auto dealer to roll past Wall Street’s 69-cent estimate in the quarter ending Jan. 31.

Car-Mart continues to wow analysts with its aggressive growth strategy pushing same-store revenue growth up 7.9% while also reducing charge-offs related to fewer repossessions.

Car-Mart is a margin-based business that buys used automobiles and resells them for a profit. The company also provides its own customer financing, which contributes to the company’s incoming cash flow.

The company said its customer base topped 53,000 in the quarter, and it held $322.35 million in account receivables. Interest income generated in the quarter totaled $11.4 million and continues to improve as the interest rate charged is 15% for new business across 111 stores.

Jeff Williams, chief financial officer, said the company began using the 15% national rate back in July, to simplify accounting processes because there was a large difference between what state laws would allow. At that time Arkansas customers were paying 12%. The company estimates it will take about two years for the blended rate to settle at 15%.

Car-Mart posted $105.4 million in total revenue in the quarter, up 62.4% from the prior year. There were 8,965 vehicles sold in the period, an 8.5% increase over last year. Car-Mart added nine new stores in the year-over-year period. The 112th Car-Mart location opened last week and CEO Hank Henderson said three more will come online by the end of fiscal 2012, which is April 30.

“Our new store openings are going very well and these stores are really important in achieving our long-term goals,” Henderson noted in the release. He remains confident in the company’s strategy to grow at a 10% annual rate.

The only hiccup to worry analysts is the rising wholesale costs of the vehicles Car-Mart buys. In the recent quarter the average wholesale price totaled $6,056, up $231 compared to a year ago. That higher cost was passed on to the customer with the average retail sales price of $9,636, up 3.6% from a year ago.

Because Car-Mart is known as a second-chance auto dealer for clients with blemished credit histories, maintaining affordability is key to the company’s ongoing success, especially since they providing the financing, analysts said.

“We think margins are continuing to be pressured by the elevated used car price environment. We expect margins to remain near the low end of the company's 42% – 43% target range in the foreseeable future,” Stephens Inc. analyst David Burtzlaff, wrote in his last note to investors.

Burtzlaff pegs Car-Mart shares (NADSAQ: CRMT) with a target price of $43. Shares closed Wednesday (Feb. 15) at $40.13, up 23 cents. The earnings report was released after the market closed. For the past 52 weeks Car-Mart shares have ranged from a $41.23 high to a low $22.77.

Car-Mart has helped return value to its shareholders by repurchasing $29.9 million of its own stock within the past nine months. The stock repurchases total 2.28 million share or 19.4% of the company’s outstanding stock. There are 908,995 shares still available under the company’s existing repurchase plan, according to Williams.

THIRD QUARTER HIGHLIGHTS
Net income
2012: $7.294 million
2011: $5.678 million

Total revenue
2012: $105.365 million
2011:$92.569 million

Finance receivables
2012: $322.353 million
2011: 281.852 million

Net charge-offs
2012:  5.7%
2011:  6.1%