Car-Mart reports nearly 40% annual earnings growth in fiscal year (Updated)

by The City Wire staff (info@thecitywire.com) 64 views 

It’s been a stellar year for used-car sales evidenced by the explosive growth of Bentonville-based America’s Car-Mart. The buy here, pay here car dealer reported net earnings for fiscal 2015, ending April 30, of $29.45 million, a gain of 39.6% from the $21.089 million the company pocketed a year ago. 

Total revenue topped $530.321 million for the year, rising 8.4% from $489.187 million in fiscal 2014. The company sold 46,760 automobiles last year, up 9.9% than in prior year. The company has grown its store count to 141 stores with more coming soon. CEO Hank Henderson said the company’s dealerships are spread across 10 states, having added seven new stores during fiscal 2015.  

“We currently have seven new location projects in process. Our next dealership opening will be in June in Rolla, Mo. We are very excited about our expansion plans as we will be adding a new state this year, Iowa. We have already secured a location in Burlington, Iowa and are currently looking at a few other prospects in the state,” Henderson said. “As always, we look forward to adding value to the markets we will serve. We are looking to pick up the pace of new lot openings in 2016 and the seven projects in process right now will certainly help. We are pleased with the top line growth and remain convinced that we are moving the company in the right direction."

Henderson said during the earnings call on Friday morning (May 22) the company has opened 45 new lots in the past five years and has plans to repeat that growth pattern in the next five with a goal to open store No. 200 by 2020.

EARNINGS MISS
Wall Street Investors expected solid numbers from the used car retailer as America’s Car-Mart shares (NASDAQ: CRMT) rose more than 2% in light trading on Thursday ahead of the after-the-market earnings report. Shares opened lower on Friday (May 22) after the earnings release losing most of the prior day's gains. This morning Car-Mart shares were down 86 cents trading at $53.08. Car-Mart shares have traded from $35.40 to $57.55 over the past 52-week period.

Analysts forecast Car-Mart to earn $3.28 per share for the full year, which was three cents more than the $3.25 net income per share earned by Car-Mart. That said, analysts underestimated the top line revenue at $528 million, more than $2 million shy of the actual number.

In the fourth quarter which ended April 30, Car-mart earned 81 cents per share, a marked improvement over the 68 cents posted a year ago. Again, Car-Mart missed Wall Street predictions of 83 cents a share. Revenue exceeded expectations rising to $137.61 million, nearly $2 million more than expected and a 12.2% gain from the same period last year. Revenue benefited from a 7.5% comp sales number reported in the quarter.

Net Income totaled $7.240 million in the recent quarter, up 14.86% from the prior-year period. 

"As we expected, we saw a nice improvement at the top line for the (recent) quarter and are pleased to see the increase in sales productivity,” Henderson said. “We believe that we offer our local markets a better value by staying focused on customer success. Productivity, as reflected in the average retail units sold per month per store, increased from 26.9 to 28.1 for the quarter.”

While the company’s results speak for themselves, Henderson said competition remains tough as subprime lending options are more readily available today by larger dealerships also selling used cars. He said pressures from other dealerships is nothing new and Car-Mart will continue to focus on its niche business in smaller metro areas and capitalizing on repeat customers.

BETTER BALANCE SHEET

Car-Mart provides inhouse financing which comprised $14.342 million in the fourth quarter, a gain of 6.8%. For the full year the company’s net interest income earned totaled $57.752 million, compared to $54.683 million in the prior year. At the end of fiscal 2015, Car-Mart had more than 64,000 paying customers on its books. 

“For the quarter, we saw net charge-offs decrease to 7.8% from 8.3%. While it was nice to see the decrease, we were disappointed that losses weren't even lower as we were very optimistic heading into the fourth quarter,” said Jeff Williams, chief financial officer.

He said because of the competitive environment Car-Mart must be at the top of its game, especially as related to collections. At the end of the fourth quarter accounts more than 30-days past due rose to 5.8%, increasing sharply from 4.4% a year ago. Down payment amounts also slid some to 9% from 9.7% a year ago.

“We are focused on the increase in our accounts over 30 days past due at the end of the quarter and the decrease in principal collected for the quarter. We are not happy with where we are in these two areas and are working hard to help our customers succeed,” Williams said.

Henderson explained during the call the higher delinquencies were a function of under-performance at the lot collection levels, and not a systemic macro-economic event.

“Some lots performed quite well, while others in the same region didn’t do as good a job with collections. That is something we can fix. We focused as a company intensely on sales in the quarter and perhaps that came at the expense of collection efforts which are equally important,” Henderson said during the call.

GPS AND SERVICE CONTRACTS
Two programs Car-Mart has expanded in recent months include adding GPS units in each vehicle sold so that tracking it throughout the life cycle of loan is possible. That comes at a cost of $4 per unit, which resulted in $600 of charges in the recent quarter.

Henderson said the company hopes to get the unit cost down to $3, but there is still much work to be done with this initiative.

The company has also extended its service contract which is an add-on purchase of $600 for the car buyer. The service contract is now 12 months, extended from the 3-month contract previously offered. Henderson said this extended contract is performing well for buyers because it gives them more protection early in the contract period which averages about 28 months.

CASH DEPLOYMENT
Williams said the company remains aggressive with share repurchases fueled by increased cash flow.

“We repurchased 121,025 shares of common stock during the quarter for $6.4 million at an average cost per share of $52.81. Since Feb. 1, 2010, we have repurchased 3.7 million shares, or 31% of our company, for $120.7 million at an average cost per share of $32.96,” Williams said.

He said the company’s fiscal balance sheet remains strong following an active fiscal 2015. There were seven new dealerships opened with net capital expenditures of $4.2 million and they added more than 5,000 new active accounts with receivables growth of $38 million, repurchased $20 million in common stock, all while increasing total debt by just $5.7 million.

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