Car-Mart drives home bigger profits (updated)

 America’s Car-Mart Inc.shareholders got a nice payday Tuesday (Feb. 19) with stock price gains of more than 10% in the early morning trading on the heels of better-than expected profits.

Bentonville-based Car-Mart profits recovered nicely in the quarter ending Jan. 31, after an unexpected pitstop in the previous period.

The buy here, pay here auto dealer earned a net income of $7.98 million, which equaled 84 cents per share for business conducted between Nov. 1, 2012 and Jan. 31, 2013 – the company’s third quarter in fiscal 2014.

Profits sped passed Wall Street’s consensus 73 cents with industry analysts’ predictions ranging from 69 cents to 76 cents in net income earned per share.

Compared to the year-ago period Car-Mart improved net income by 12.86%.

Earnings were released late Monday, Feb. 18, with an earnings call set for the following morning. Shares of Car-Mart rallied to $45.96 in the opening session today, gaining $4.40 over Friday’s close.

Car-Mart has recovered more than three-quarters of the 12% dip in share price which occurred following the previous earnings report in November.

In the third quarter, Car-Mart sold 10,403 vehicles hoisting up firm’s total revenue to $118.922 million, a 12.8% increase from the year-ago period.

"We are very pleased with our results for the quarter, and especially so with the significant increases in sales. As we mentioned after our second quarter, we had seen some increases in the amount of funding into the sub-prime auto industry which did create some increased competition that put some pressure on our sales earlier in the year. In typical fashion, our General Managers stepped up to the challenge and delivered. Our focus remains solidly fixed on driving the same mission we have for years; striving to earn the repeat business of our customers by providing quality vehicles, affordable payment terms, and excellent service,” CEO Hank Henderson noted in the release.

Car-Mart has more than 57,000 active accounts and continues it aggressive growth strategy opening two more dealerships in the earnings period.

Same-store revenue increased 8.8% from a year ago, according to Jeff Williams, chief financial officer for Car-Mart.

"As expected, higher unit sales resulted in significant leveraging at the selling, general and administrative line. When we look to the future we are convinced that the business model will continue to support significant unit volume expansion. The overall gross profit percentage was relatively flat with the prior year quarter and in line with our expectations,” Williams said.

During the quarter Car-Mart repurchased 62,160 shares of its common stock with free cash.

“Since February 1, 2010, we have repurchased 2,890,851 shares, or 24.7% of our company. We believe in the long-term value of our company and we plan to invest in the repurchase program when favorable conditions are present,” Williams said.

One area of concern in recent quarters has been thinning overall gross margins as wholesale auto prices continue to decline.

Wholesale prices fell by 0.6% in January. Absent the seasonal adjustment, the decline in vehicle values was half that amount, according to Manheim’s most recent used vehicle price report.

“It was well-anticipated that wholesale values would retreat somewhat at the beginning of 2013, given that Hurricane Sandy’s impact on the wholesale market would be waning and that auction supplies from commercial consignors would be rising,” Manheim chief economist Tom Webb said.

“Continued strength in the retail market, however, kept the decline in wholesale prices modest, for now,” Webb said.

Only one vehicle segment Manheim tracks in conjunction with its index reading moved higher year-over-year in January. Prices for pickups ticked up 1.1%.

Brad Wilson, general manager at the Car-Mart lot in Fayetteville, said Monday that sales have been great in February and rising gas prices have prompted a few customers to look for vehicles that get better gas mileage.

With respect to declining overall wholesale prices, Wilson said customers do benefit as the company will pass on the lower costs.

In the end, Wilson said that’s a long-term benefit for the company because when vehicles are more affordable for customers, there are more buyers shopping.