Higher credit losses, stiff competition produce a net quarterly loss for Car-Mart

The driving wasn’t so easy in the second fiscal quarter for Bentonville-based America’s Car-Mart. The company posted a net loss of $495,000 in the quarter ending Oct. 31, compared to net income of $7.509 million a year ago.

Profits tanked in part because of a $3 million non-cash after-tax charge resulting from an increase in delinquent loans. The auto dealer also sold 10% fewer cars and trucks in the quarter compared to the year-ago period.

For the first half of fiscal 2016 Car-Mart posted net profit of $4.132 million, down 72% from the $14.779 million earned a year ago. The earnings per share for the six-month period is 46 cents, compared to $1.62 in the same period of 2014. Revenue through two quarters rose to $275.693 million, up 5.5% over revenue of $261.21 million last year.

QUARTERLY RESULTS
On a per-share basis Car-Mart lost 6 cents in the recent quarter compared to being up 83 cents a year ago. Total revenue also dipped to $133.004 million, down from $133.834 million in the year-ago period. Wall Street analysts expected much more from Car-Mart with a consensus second quarter earning per share of 70 cents with revenue of $151.77 million.

“The quarter started out relatively solid as we had a decent August even though credit losses were continuing to be higher than expected, based on the lower delinquency levels, and we were working through some inventory issues. Sales softened in September and October, which can be attributed in part to the fact that we instituted some additional underwriting reviews and made adjustments and improvements to inventory that we believed were necessary for the longer term,” said CEO Hank Henderson.

Car-Mart sold 10,881 automobiles in the quarter, 10% fewer than reported in the same period of 2014. That equates to a negative same-store sales comp of 3.4%, compared to a strong 5.4% comp gain in the year-ago period. Henderson said the company had operational inconsistencies among dealerships and that is having a negative affect on results. He said extra time and expense were also directed at improving inventory management in the quarter and that came at the expense of sales volume.

“The competitive landscape remains intense, and we have to get much better and more consistent operationally. … Credit losses for the quarter were certainly higher than anticipated and relate in part to the quality of our inventory as well as the competitive environment,” he added.

The company’s gross profit margin percentage decreased to 39.2% from 42.9% for the prior year quarter due primarily to higher repair costs and higher wholesale volumes and losses. Net charge-offs also rose higher than a year ago prompting the need for additional credit loss provisions.

Car-Mart’s provision for credit losses rose to $38.094 million in the quarter, which was 21% higher than a year ago. 

“The quarter was not where we would have liked for it to be … Our first order of business at this time is to address our current operational challenges. Our inventory continues to improve, and we expect sales volumes to pick back up as we move forward,” Henderson said. 

MOVING FORWARD
The company opened three new dealership in the quarter.

“As we have discussed in recent quarters, we have spent several years now investing heavily in creating an infrastructure that will support a larger customer base and give us an advantage over the competition in providing a superior service to our customers. We are at a point where these investments are in place and functioning well,” said Jeff Williams, chief financial officer. “Our cash on cash returns are attractive, and we must ensure that we improve sales productivity and lot level execution consistently across our dealerships. We are committed to making that happen.”

He said the company repurchased $4 million in stock in the recent quarter and paid down $1 million in debt.

Car-Mart’s share price (NASDAQ: CRMT) has inched higher in recent days after dragging much of this year. Shares closed Thursday at $37.92, up 2.29% and prior to the earnings release. Shares did not trade after market hours. For the past month the price risen 8.34%, but year-to date shares are down 29.98%. For the past 52 weeks the share price has ranged from a $57.55 high to a $31 low.