Car-Mart earnings up 19%, revenue flat in second quarter; new CFO starts Jan. 1

by Jeff Della Rosa (JDellaRosa@nwabj.com) 161 views 

America’s Car-Mart profit increased 19% while revenue was flat in the second quarter as interest income was up $1.7 million and same-store revenue narrowly rose.

After the market closed Thursday (Nov. 16), the Bentonville-based buy, here pay here used car dealer reported earnings rose to $5.969 million, or 79 cents per share, in the quarter that ended Oct. 31, from $5.018 million, or 62 cents per share, in the same period in 2016. Revenue was flat at $149.118 million.

Also in the financial report, the company announced it will soon open a dealership in Centerton and its Board of Directors selected Vickie Judy, principal accounting officer, to become chief financial officer on Jan. 1 after President Jeff Williams becomes CEO. Judy, who has worked for Car-Mart for more than seven years and will take on Williams’ role as chief financial officer, has “earned the highest respect and admiration from her co-workers as well as our business partners,” Williams said. “We are excited for Vickie and for the additional contributions she will make to the company in her new role.”

In the second quarter, earnings met expectations, but revenue did not, according to a consensus of four analysts. Revenue was expected to rise 1% to $151.85 million.

“It was nice to see the increase in bottom line profits for the quarter, and we will continue to improve to make our business stronger as we move forward,” Williams said. “Sales volume productivity was flat for the quarter but up sequentially. We expect productivity will continue to improve as we move forward, which will allow us to leverage our expenses.”

CEO William “Hank” Henderson, who will retire from his position Dec. 31, said the company’s top priority is to recruit, train and support its general managers, “the face of our company,” as “great customer service starts and ends with our general managers.”

“This is a face-to-face, high touch business, and our customers deserve great service,” he said. “We will always look for healthy growth opportunities and believe that our business model will continue to be scaled by attracting quality people to serve as general managers.”

Over the past six months, earnings have risen 6.9% to $12.961 million, or $1.69 per share, from $12.127 million, or $1.48 per share, and revenue has been flat at $295.536 million. Same-store revenue increased 0.6% in the second quarter, while sales volume per dealership was flat at 28.4 vehicles sold per month. The number of vehicles sold declined 1.9% to 11,932, and average retail sales price declined 0.7% or $73 to $10,418. Gross profit margin rose to 42%, from 41.4%. The company had 140 car dealerships at the end of the second quarter, three fewer than in the same period in 2016. The company will open its 141st dealership “to take advantage of market opportunities in Northwest Arkansas,” Williams said. “Our expectations for this dealership are high.”

The number of active auto loans has risen to 69,900, up 1,100, from the first quarter. Net finance receivables rose 3.7% to $376.577 million in the second quarter, from the same period in 2016. Accounts more than 30 days past due declined to 4.1%, from 4.8%. Average contract length rose to 32.5 months, from 31.7 months. Net charge-offs fell to 7.5%, from 7.7%. Charge-offs relate to the losses from repossessions and are the difference between the loan amount and the money received from selling the vehicle on the wholesale market.

Selling, general and administrative expenses were 18.2% of sales, compared to 17% in the same period in 2016. The company has spent “several years building an infrastructure to support a growing business,” Williams said. The company’s recent investments have been “heavily focused on general manager recruitment, training and advancement and collections support as well as improvements with our sales and marketing efforts.”

Also, the Board of Directors approved the repurchase of up to 1 million additional shares, and in the second quarter, the company repurchased 406,930 shares of common stock. Since February 2010, it has repurchased 5.3 million shares at an average price of about $33 per share. “We plan to continue to repurchase shares opportunistically as we move forward,” Williams said.

Shares of Car-Mart (NASDAQ: CRMT) rose 75 cents or 1.74% to close at $43.75 on Thursday. In the past 52 weeks, the stock has ranged between $47.75 and $30.20.

On Oct. 25, the company amended a loan and security agreement with lenders and increased its aggregate limit on stock repurchases by 25% to $50 million, from $40 million, according to a filing with the U.S. Securities and Exchange Commission. The amendment reduces the upper threshold to 20%, from 25%, for “minimum net availability of the borrowing base for financial covenant testing and limitations on distributions.”

Other changes to the agreement include a “0.025% decrease in the second pricing tier and a 0.125% decrease in the third pricing tier for determining the applicable interest rate,” according to the filing.

The company’s existing interest rate is based on its consolidated leverage ratio for the preceding fiscal quarter, and as of Oct. 25, was in the second pricing tier, which was LIBOR plus 2.35%, the filing shows. Also, the amendment increased the “termination fee to 0.5% of the revolver commitment being terminated.”

On Dec. 12, 2016, the company previously amended the agreement to increase its borrowing power by 15.9% to $200 million, from $172.5 million, and extended its revolving credit facilities to Dec. 12, 2019. The initial agreement dates back to March 9, 2012. It was also amended Oct. 8, 2014, Feb. 13, 2014, June 24, 2013, Feb. 4, 2013, and Sept. 30, 2012.

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