America’s Car-Mart third quarter earnings up more than 400%

Strong car and truck sales along with more on-time payments at America’s Car-Mart helped to push third quarter net profits to $7.461 million, up 407.5% from the lackluster $1.47 million reported a year ago. The third quarter gross revenue rose to $131.5 million, up 7.3% from the $122.58 million reported in the same period last year.

Wall Street has been bullish on earnings and revenue expectations with consensus at 77 cents per share net earnings. Car-Mart blew past that prediction posting 82 cents per diluted share, and also beating on revenue expectations. 

The Bentonville-based buy here, pay here used car dealer reported after the markets closed on Wednesday (Feb. 18) for the three months ending Jan. 31. However, investors sensed the favorable report because the stock price (NASDAQ: CRMT) rallied 2.94% prior to closing to reach $52.82. In aftermarket trades the shares gained another 2% to finish at $53.88.

"Our plan of focusing on solid top line growth is working out very well and we are excited about our prospects as we look forward. Retail units sold was up 7.1% and same store revenue was up 2.8% when compared to the third quarter of fiscal 2014. Productivity as reflected in the average retail units sold per month per store increased from 27.7 to 28.0 for the quarter. We feel very comfortable with our new store opening plans and with our ability to grow profitably into the future," CEO Hank Henderson, said in the earnings report.

The company has 138 dealership in 10 states, which is eight more than this time last year. 

“We are looking to pick up the pace of new lot openings a little in 2016," Henderson said. "We are pleased with the top line growth, and we remain convinced that we are moving the company in the right direction."

Closing the sale is just half of the battle for Car-Mart who finances 100% of the deals made. In recent quarters the company has struggled from hyper competition in the subprime auto financing sector.

"While the competitive environment remains challenging, our sense is that financing offerings in our markets may be a little more rational now when compared to say 12 months ago. We are hopeful that we can get back to a point where customers in the markets we serve are presented competitive financing options that are in their best long-term interest, structured for their ultimate success,” said Jeff Williams, chief financial officer. 

In the recent quarter Car-Mart saw positive trends with collections, average down payments and accounts past due 30 days.

“While net charge-offs are higher than historical levels and much higher than we would like to see, we are encouraged by the decrease for the quarter,” Williams said.

The company reported net charge-offs at 6.5% of sales, which was down slightly from 6.7% of sales a year ago. The 30-days past due accounts were 5.2%, down fro 5.8% and downpayment amounts rose to 5% up from 4%. 

Car-Mart sold 11,495 cars in the quarter, 7.1% more than a year ago. The average sales price rose fractionally to $9,764. The company has finance receivables of $425.07 million at the end of the quarter, a gain of 6.1% year-over-year.

Bill Armstrong, analyst with C.L. King, pegs Car-Mart shares a “buy” position noting that management appears to be more effectively adapting to the still-difficult competitive environment as evidenced by the company’s improved recent performance. In addition, improving employment trends and the likelihood of lower used car prices should stoke demand and unit volume growth going forward.

“We think credit availability for subprime auto buyers may begin tightening up in the months ahead as industry-wide loss rates continue to increase. … This would be a clear positive for Car-Mart as it would represent a reduction in competitive pressure and would drive more traffic to its stores where it can provide it’s own financing. We remind investors that Car-Mart posted strong earnings increases during the credit crisis,” Armstrong noted.

Through three quarters of business in fiscal 2015 Car-Mart posted total revenue growth of 7.1% to $392.7 million. Revenue is comprised of gross sales and interest income for the finance receivables. Interest income was $43.41 million in the three quarters compared to $41.249 million in the same period of the previous fiscal year.

Net Income is up 50% through three quarters of this year to $22.21 million, well ahead of the $14.786 million a year ago. Net earning per share year-to-date are $2.45, versus $1.56 a year ago.