Car-Mart’s Hank Henderson Focused On The Horizon, Not The Rear-view Mirror

The slow-talking man behind the “Drive Easy” brand of America’s Car-Mart runs a company that’s anything but simple. While overseeing 118 used auto dealerships complicated by a high-risk finance company with accounts receivable in excess of $268 million, CEO Hank Henderson feels right at home.

And rightly so. He’s spent 25 years – roughly half of his life – with the Bentonville-based “buy here, pay here” auto dealer that had just 16 stores when he joined the company in 1987.

With five new stores set to open in the next few months, Henderson admitted, “I don’t have near the heartburn going from 100 to 200 stores, as I did back when the company grew from 50 to 100. That’s because we have made the necessary investments in infrastructure to adequately support 200 stores.”

In fact, getting from 118 to 200 stores mostly entails expanding to the next city over from stores already up and operational across nine states from Texas to Georgia.

People assume cars are his business, but Henderson is quick to set that record straight.

“We are about relationships, people are the core of our business,” he said emphatically.

He’s not even a car fan per se. He drives a GMC truck and says he’s more likely to invest in Quarter Horses for his three daughters than a sports coupe of any kind. Henderson has three daughters, twins, 15, and a 13-years-old. They are actively involved in 4H and Quarter Horse shows, which he says also keeps the family busy.

UP THE RANKS
“Bill Fleeman started Car-Mart in 1981 with a single dealership in Rogers. I came onboard in 1987 as a district manager after finishing college at UCA (University of Central Arkansas). I moved up to regional management and then became general manager for the business in 1992,” Henderson said.

In 1999, Fleeman sold the company to Dallas, Texas-based Crown Group for $41 million prior to his death that same year. Henderson became chief operating officer at that time.

Fleeman’s widow, Jeannie, retained the real estate related to Car-Mart when the finance company and auto business transferred to Crown. Her construction firm continues to build and lease Car-Mart lots back to the company.

Henderson said Crown divested the Car-Mart business in 2002 at which time he became president of the new publicly-traded America’s Car-Mart Inc.

He took the helm as CEO in October 2007 when Tillman “Skip” Falgout, general counsel who came aboard with the Crown purchase, stepped away from the business.

In the five years since Henderson became CEO, Car-Mart added 26 new stores and grew its total annual revenue from $274 million to $430 million by the end of fiscal 2012. The company sold in excess of 10,500 more cars and trucks in 2012 than it did in 2008, and grew its finance receivables by $122 million at the end of fiscal 2012.

Henderson says the company still has more growing to do.

HUMBLE ROOTS
Henderson hails from England -– Arkansas, that is. This only son of a soybean farmer and school teaching mom says he still makes it south for his favorite pecan pie every chance he gets.

“I was raised on a farm back in the sticks near England. My parents moved further south near the Louisiana line after they retired. I have one sister, also a school teacher, who lives in Monroe, Louisiana. But I love it here and really have never wanted to live anywhere else,” Henderson said.

In his busy life, Henderson always make time for Cousin Smitty – a four-piece band ensemble that plays charity gigs and private parties on request. Henderson plays guitar and provides vocals for the classic rock/new country cover band.

“We’ve been playing together for about six years, we practice once week and have lots of fun with it,” Henderson said.

But he joked that he won’t soon quit his day job to pursue a music career.

“It’s just a fun release for us, nothing too serious,” he said.

COMFORTABLE CULTURE
Henderson says the company’s culture is rooted in service. He’s comfortable in his jeans and black, two-button polo-style shirt with the company insignia embroidered on the front.

“We are pretty much no frills around here,” he said of the recently painted home-office located in Fountain Square in Bentonville, a building owned by Jeannie Fleeman.

“Because of Bill Fleeman’s influence and culture infused into the company early on, we continue to be customer-focused even though we have grown to more than 1,100 employees,” he said.

Henderson is committed to keeping the service-oriented culture alive, no matter how many stores are added in the company’s aggressive growth strategy. One interesting aspect to Car-Mart’s recruiting protocol is that it typically does not recruit car salesmen for its lot jobs or management training program.

“We have a unique mix of managers, former school teachers, ex-military or folks with service industry experience from restaurant management to retail. Our managers have a lot of autonomy as to how they run their dealerships. We look for compassionate, but disciplined managers who can make tough decisions but also sit down with a customer having difficulty making a payment,” Henderson said.

The one misconception he says the public has most often about America’s Car-Mart is that they gouge customers with high interest rates on over-priced cars.

“We take a lot of risk with the credit we extend and we charge a set 15% for that exposure. Sub-prime auto rates offered at new car lots and other used dealers are comparable or higher, but they extend the term to make the monthly payment lower. We believe the sooner a customer can own their car the better it is for them, so we keep terms within 26 months or so,” Henderson said.

The company has more than 55,000 active customers, many of which are repeat buyers.

“We go to great lengths to help our customers who are having payment issues, we schedule special payments around tax time and keep an open line of communication with them. A majority of them pay in person at the lot level and remain on a first name basis with our lot managers,” he said.

EARNINGS, SHARE PRICE GROWTH
Fiscal 2012 was a banner year for America’s Car-Mart. When the year-ended April 30, the company stock has risen in price some 87.6% from the prior year-end. Shares frequently set new 52-week highs as the stock price reached more than $47 this spring.

Sales revenue topped $430.17 million for fiscal 2012, up 13.4% from the prior year. Net income totaled $32.98 million in fiscal 2012, this compared to $28.21 million in the prior year. Diluted earnings per share rose 28% to $3.24 in the year-over-year period.

Car-Mart opened eight new dealerships and sold nearly 38,000 vehicles in fiscal 2012. Forbes Magazine tagged America’s Car-Mart No. 40 on its Best Small Company’s List in 2012.

“Our focus on cash flows and customer successes allowed us to not only grow the business but also allowed us to repurchase over $39 million in common stock during the year. Since February 2010, we have repurchased over 21% of our company,” said Jeff Williams, chief financial officer for the company.

Henderson said had the company opted to, it could have eliminated its debt with the $39 million it spent in stock repurchases.

“We chose to return that money to shareholders by adding value to the stock,” he said.

FORGING ON
After floating on a high for much of fiscal 2012, Car-Mart shares have tumbled more than 20% in fiscal 2013, which began May. 1. Profit taking, hints of tighter operating margins and slightly elevated customer delinquencies were to blame for the sell-off.

Henderson said the sell-off was premature.

“Our company is in great shape, we had one little bobble in October that basically amounted to our dealerships selling three less cars each and we reported some additional competition in the sub-prime auto market among new car dealers. I guess I don’t understand why the sell-off occurred – we are growing our customer base which is the key to our long-term success.” he concluded.

Bill Armstrong, analyst with C.L. King, lowered his rating on America’s Car-Mart shares from a strong buy position to a neutral hold on Nov. 20, following the company’s second quarter financial results ended Oct. 30.

Armstrong attributed the downgrade to an easier lending environment that has given sub-prime buyers more options which is having a slowdown in Car-Mart’s topline growth. In other words, more people with lower credit scores may obtain financing for a new car. Armstrong sees this as a potential headwind for Car-Mart this year and next.

Henderson says the company is forging on with its plan to grow its store base by 10% this year. He said the company manages aggressively and has always taken a few chances here and there in an effort to continue its growth trajectory.

“It’s a model that has always paid off for us. We are confident and optimistic for the future, even if the stock market doesn’t see the value every day. If we knew exactly what to expect and managed only to that benchmark we would undoubtedly be leaving business on the table,” Henderson explained.

Henderson says he’s never really wanted take his management expertise and try something else.

“Our company has managed to embrace change and adapt to unpredictable economies every other year or so. We have a formula that works, but we continue to improve efficiencies and look for new ways to grow the business for the future, which has kept this job pretty interesting for me,” he said.