Car-Mart profits slip, despite higher revenue

America's Car-Mart’s efforts to grow at 10% annually remain intact despite missing Wall Street estimates for bottomline profits in the quarter ending April 30.

The Bentonville-based buy here, pay here car dealer posted net income of 92 cents per share, or $8.78 million, in its fourth quarter of fiscal 2013. Profits slipped from 97 cents per share or $9.63 million in the same period last year.

Company management notes the prior-year results include an extraordinary 9-cent per share gain related to lower credit losses of $1 million, which made for a tough comparison in the quarter.

Car-Mart also narrowly missed Wall Street’s consensus estimate for net income of 93-cents per share, but delivered big on topline revenue gains up 10.6% to $125.53 million in the recent quarter.

For the full year, Car-Mart grew net income by 3.7% on a per-share basis only, as the company continues to aggressively repurchase stock, buying back 25% of its outstanding shares over the past year.

Car-Mart posted net income of $32.125 million or $3.36 per share, for the full fiscal year ending April 30. Profits compared to $32.947 million, or $3.24 per share in the prior year period.

CEO Hank Henderson said he is pleased with the results for the quarter and the full year and remains excited about the future.

“We opened 10 new dealerships during the year, four of which were opened during the fourth quarter. We couldn't be happier with our expansion department and the great work being done by that group,” he said.

Henderson said the company continues to invest in its infrastructure with a rewrite of the firm’s operational software underway, which is expected to increase efficiencies at the lot level and is also important for the firm’s future growth plans.

Total revenue topped $415.74 million, up 7.5% from the prior full year period. Lots sold an average of 28.8 cars a month, up a fraction from 28.6 last year. Car-Mart sold 40,737 cars and trucks the past year, 8% more units than it sold in fiscal 2012. The average retail price rose to $9,721 up less than 1% from the prior year.

Same-store sales, a key metric for retail operations, rose 3.3% for the full year, slimmer than the 7% growth report in the prior year.

While Car-Mart is a used car dealer, the company’s real business is finance with receivables totaling $363.39 million, up 14.7% from a year ago. By extending credit to its customers, who may not qualify for traditional financing, Car-Mart has grown a buyer base of some 48,000 accounts. Henderson said at lots opened 10 years or more, up to 50% of the auto sales are to repeat customers. It’s a formula that has worked for the past 32 years and allowed the company to grow to 124 stores and counting.

"We are pleased with our top line growth and our sales volume productivity improvements especially in light of the challenging macroeconomic environment coupled with some additional competitive pressures from the funding side. As we anticipated, in our efforts to attract and retain better customers, many of whom are long-term repeat customers, we did lengthen our overall contract terms (to 29.3 months up from 28.1 at this time last year) which contributed to lower collections and a higher provision for credit losses,” Jeff Williams, chief financial officer.

The company set aside $96,035 for provisions to cover losses related to repossessions last year, up 17.6% from the prior year.

Higher provisions do have a negative impact on net profitability in the short term.

“We fully expect to earn acceptable cash-on-cash returns supporting our decision to attract and retain better customers through slightly longer terms and somewhat lower down payments in this competitive environment," Williams said.

Seeking Alpha notes Car-Mart is profitable and trading a fair price, citing the company with good growth potential, which if sustained over the next three years at 10% could produce a share price of $74 (14-times annual earnings of $5.32).

Car-Mart shares (NASDAQ: CRMT) closed Thursday (May 23) at $46.04, down 29 cents ahead of the earnings announcement.

Analysts also note Car-Mart is not borrowing excessively to finance its growth, which has allowed it to be aggressive with stock repurchases.

Car-Mart management will hold a conference call Friday morning. The City Wire will update this story as needed following the call.