America’s Car-Mart off to the races

BENTONVILLE — Shares of America’s Car-Mart Inc. ran all cylinders ahead of Thursday’s earnings report released after the market close.

The stock set a new 52-week high to close up 6.91% at $48.60 on prospects the buy-here, pay-here auto dealer will benefit from what has been forecast as a slower second half of 2012. But the used-car dealer/finance company missed Wall Street expectations on both income and revenue.

Car-Mart reported first-quarter earnings of 83 cents per share. While better than 78-cent profit a year ago, the results were slightly below Wall Street’s 87-cent consensus.

Revenue also missed the $111.47 million consensus, as Car-Mart reported top line sales revenue of $110 million. This compared to $101 million a year ago.

Same store revenue grew at 5.5% clip, according the release.

"Our financial performance for the quarter was solid. We continue to see healthy growth at the top line as we add new locations and increase volumes at existing dealerships. The best thing we can do for our customers' success is to continue to push affordability,” said Jeff Williams, chief financial officer of America's Car-Mart.

He said a significant sequential decrease in the average retail sales price had a negative short term effect on the company’s gross operating margin. Average retail sales price decreased $200, or 2%, sequentially from the previous quarter.

In the quarter ending July 31, Car-Mart sold 9,753 auto vehicles, this was 7.8% more than a year ago.

The company grew its finance receivables to $11.703 million, up 14.7% from a year earlier. Car-Mart has a customer base exceeding 54,800 among its 116 stores.

Analysts have pegged the stock as a hold given the hefty run over the past year. Between April 2011 and April 2012  investors saw their share value increase from $24.40 in 2011 to $47.17, a whopping 93% gain.

The 12-month target price forecast by analysts is $52 per share, recently raised from $48.

Phil LeBeau, an auto analyst for CNBC said, Car-Mart has enjoyed an incredible run fueled by a growing need of subprime borrowers, who have to have reliable transportation.

He said the stock has been recession resilient although the business model is sometimes viewed controversial, because of high interest rates charged, between 11% and 19%, depending on what state’s allow.

Car-Mart might argue that its ability to attract repeat business is proof customers approve of the company’s business model.

C.L. King analyst Bill Armstrong noted in May, “Car-Mart has a favorable set of competitive, economic and demographic factors going for it. With a business model that is not easy to run (hence the dearth of large successful buy here, pay here competitors), management execution has been strong, as evidenced by the steady level of credit losses even with a store base growing at 10% per year. We project mid- to high-teens earnings growth for the company stock over the next three to four years.”

When the market opens Friday, it remains to be seen if investors will sell off shares and take profits like  Bentonville-based Wal-Mart experienced following its earnings miss on Thursday.

Car-Mart executives will hold a conference call for analysts and investors at 10 a.m., Friday (Aug. 17).