Car-Mart sees more delinquencies

America’s Car-Mart is on the fast track to profitability with an aggressive growth strategy again this year.

The company continues to post strong earnings which boosted it’s share price to another 52-week high Thursday (Sept. 6). Shares closed at $47.49, up 3.10% following the broader market trends.

The stock price tumbled to $44 on Aug. 17 following Car-mart’s earnings release which fell slightly below Wall Street expectations, but it has since rebounded.

A recent financial filing with the Securities and Exchange Commission indicates that while profits are stable the buy here, pay here dealer is seeing more loan delinquencies from its customer base. The company reported late fee revenues of $461,000 in the quarter ending July 31, up 17% from the same period last year.

Late fees are recognized when collected and are reflected in interest income. Finance receivables more than 90 days past due were approximately $638,000, compared to $361,000 a year earlier. 

Car-mart executives attribute the higher delinquencies to more overall sales in new markets. Basically all of the company’s automobile loans involve contracts made to individuals with impaired or limited credit histories, or higher debt-to-income ratios than permitted by traditional lenders. 

Because these loans entail more risk, the company charges a higher interest rate — between 11% and 19%, depending on usury laws in the eight states where the company operates. The average interest rate at the end of July was 14.9%, up from 14.5% a year ago. Roughly 41% of the company’s sales are to Arkansas residents.

Car-Mart reported total sales of $98.297 million in the quarter ending July 31, up 8.8% from a year ago. Interest income also rose rounding total revenue up to $110 million in the recent quarter.

But revenue was not the only metric to rise. Net charge-offs from an uptick in loan delinquencies totaled $18.989 million, up 18.8% from a year ago, according to the filing.

Car-Mart aims to keep its provisions against loan losses at roughly 21% of total sales, and has managed to stay in that range despite a recent 2% reduction in average retail sales prices in the recent quarter.

CEO Hank Henderson said during a recent investor call that the average sales price decreased to $9,584 in the quarter, which had a short term negative impact on gross operating margins.

“We have been in this business long enough to know our real value lies in our long term focus and that is where it will remain. We are committed to keeping our vehicles affordable for our customers and will continue to do,” Henderson said.

Chief Financial Officer Jeff Williams said while declining gross revenues is viewed as negative in some circles, Car-Mart does see some longer term positives in better vehicle affordability for its 54,000 customers. Williams said the company did modify loans for more customers this year who were experiencing tough times.

“That is what we do,” he said.

The company does not anticipate higher losses for the full year, as Williams says many customers have pledged to make extra principal payments during tax time.

“We expect our credit losses for the full year to be in the historical range we typically see,” Williams said. “Many of our customers live pay-check to pay-check as they always have, some struggle here and there to make their payments on a timely basis. But we don’t have a huge backlog of delinquencies in the 60 to 90 day range.”