Car-Mart’s earnings rise 74%, revenue up 3% in the fiscal year

America’s Car-Mart ended fiscal 2017 with a 74% increase in profit, compared to the previous year, beating analysts’ estimates but missing on revenue.

On Monday (May 22), the Bentonville-based buy here, pay here car dealer reported net income of $20.16 million, or $2.49 per share, in the 2017 fiscal year, up from $11.55 million, or $1.33 per share, in previous fiscal year. Revenue rose 3% to $587.75 million, from $567.90 million.

The company beat the analysts’ estimate of $2.48 per share, based on an average of four analysts. The company missed the average revenue estimate of $593.06 million.

For the fourth-quarter, which ended April 30, net income rose 56% to $5.23 million, or 66 cents per share, from $3.35 million, or 40 cents per share. Revenue declined 1% to $152.91 million.

The company is closing its Jefferson City, Mo., dealership “to allocate resources to locations with better long-term potential,” CEO William “Hank” Henderson said. But it’s working to open a new dealership in Siloam Springs to “to take advantage of market opportunities.” The company expects to open more dealerships in the future as a result of its investments in general managers.

In the past year, the number of open dealerships fell to 140, from 143. At the end of the third quarter of fiscal 2016, Car-Mart had 147 dealerships.

“The competitive environment has been difficult the last few years, but we are seeing some positive indicators,” Henderson said.

For the 2017 fiscal year, net finance receivables rose 6% to $357.16 million, from $334.79 million in 2016. The receivables were $324.14 million in 2015. Same store revenue rose 3.5%, and the number of vehicles sold increased 1% to 47,116, from 46,483.

Accounts over 30 days past due rose to 3.6%, from 3%. Net charge-offs declined to 30.5%, from 31.3%. Net charge-offs relate to the losses from repossessions. When Car-Mart repossesses a vehicle, it’s sold in the wholesale market, and any difference between the loan amount and the wholesale proceeds are the net charge-offs. In the fourth-quarter, “net charge-offs were down by 30 basis points as we did a nice job of adjusting to the delays with income tax refunds during the quarter,” President Jeff Williams said.

Gross profit margin increased to 41.5%, from 38.7% in the same period in 2016. Average contract term rose to 32.5 months, from 31.6 months. The number of auto loans rose 2% to 66,800, from 65,000.

“We are pleased to see the continuing improvements with our inventory management which resulted in a 280 basis point increase in our gross profit percentage,” Williams said.

Shares of Car-Mart (NASDAQ: CRMT) closed at $35.20, up 20 cents or 0.57% on Monday (May 22). In the past 52 weeks, the stock has traded between $47.75 and $19.49.

INDUSTRY TRENDS
Prices of wholesale used vehicles fell 1.5% in April, from March, according J.D. Power Used Car and Light Truck Guidelines, formerly NADA Used Car Guide. J.D. Power Valuation Services’ seasonally adjusted used vehicle prices fell 0.4%, to 109.9 in April, from March. It was 7.1% below the same month in 2016, falling to the lowest level since September 2010. Auction sales volume declined 8% to 366,909 vehicles in April, from the previous month.

For May, wholesale vehicle prices are expected to fall 1%, according to the J.D. Power report. In June, the prices should fall 2%. For the year, prices are projected to decline about 6%. In 2016, prices fell 4%.

Wholesale used vehicle prices rose 1.6% in April, from the same month last year, according to the Manheim Used Vehicle Value Index.

“Used vehicle values have not collapsed the way many analysts have warned of for more than a year due to expected increase in wholesale supplies.”

The weakness in the wholesale prices is “probably more a result of excessive new vehicle inventory, not used,” according to the Manheim report.

“Franchised dealers have had more than 4 million new units in stock for the last three months.”

In April, new vehicle sales fell 4.7%, from the same month last year. Equity analyst Bret Jordan of Jefferies expects used vehicle values to fall in the “mid-single-digit range as downside is limited by strong consumer demand, continued mix shift to CPO (certified pre-owned) higher value late model vehicles, and declining new vehicle affordability.”