America’s Car-Mart closed two Arkansas dealerships, but opened one in the state and another in Kentucky as the company continues to focus on training and recruiting managers.
On Monday (Feb. 19), the Bentonville-based buy here, pay here used car dealer reported third-quarter earnings per share rose 71.4% to 60 cents, excluding a $9.7 million tax reform benefit and a $1.1 million bonus paid to former CEO Hank Henderson. Sales for the quarter that ended Jan. 31 increased 5.7% and total revenue, which includes sales and interest income, rose 6.1% to $147.214 million.
In a company update, equity analysts John Hecht and Kyle Joseph, both of Jefferies, were encouraged by “continued signs of credit stability and favorable topline trends including a pickup in units sold and generally stable margins.” Jefferies maintains a hold on the stock and has a 12-month target price of $49. As of midday Tuesday, shares of Car-Mart (NASDAQ: CRMT) were at $47.80, up $1.55 or 3.35%. In the past 52 weeks, shares have traded between $49.40 and $30.20.
“We remain on the sidelines and await further signs of improvement as we believe the competitive environment remains challenging,” Hecht and Joseph said. “That said, the improvements we are observing in credit lend us greater confidence that strong operators such as (Car-Mart) stand to benefit as the operating environment improves over time.”
In the third-quarter earnings call on Tuesday (Feb. 20), President and CEO Jeff Williams said the company’s top priority is to train and recruit managers.
When asked for an update on the strategy, Williams explained the company has used popular websites and word of mouth to recruit prospective managers in the tight labor market. Over the past year, the company has seen the quality of candidates improve and has a good group in the training program now, he said.
When asked about the tax reform benefit and whether it will be used to open more dealerships, Williams said customers will benefit from reform with increased take-home pay and child tax credits. He expects the company to see a $5 million benefit annually from tax reform that it could use to expand dealerships or invest in the manager recruitment program. But plans to open dealerships hinge on training managers as the company’s not limited in capital but in talent.
The company’s employees, especially managers, will see wages rise as a result of tax reform because their pay is based on sales. Vehicle sales in the third quarter rose 5.1% to 11,420 vehicles, from the same period between 2016 and 2017. Average sales prices increased 0.3% to $10,662. Average vehicles sold per dealership rose 7.4% to 27. The company’s profit margin increased to 41.5%, from 40.8% in the same period between 2016 and 2017.
Car-Mart’s margin “appears to exhibit some stability,” according to Hecht and Joseph. The company’s provision for credit losses rose 0.6% to $37.872 million as credit trends were “generally positive” with charge-offs declining to 7.4% and past due balances of more than 30 days down to 4.1%. “In all, we view topline and credit trends favorably, especially in the context of the competitive environment.”
The analysts noted that company management, in the second-quarter earnings call, provided comments on used vehicle prices and the ability to purchase better vehicles at lower prices. In the earnings call on Tuesday, Williams explained the company doesn’t have a corporate buying department but purchases vehicles at the lot level. The company saw some price spikes after the hurricanes last year and during tax time, but he expects prices to continue to get better.
When asked how long the investments into the manager training program would continue before the company would start to leverage those expenses, chief financial officer Vickie Judy expected expenses would probably be elevated for a few quarters. Williams said it’s difficult to pinpoint when the company would start to leverage those expenses.
2 DEALERSHIPS CLOSE
Also, the company closed the dealerships in Bethel Heights and Jacksonville. It previously ceased sales at the dealerships and was weighing its options as to whether to officially close them. The company shifted some employees from its Bentonville corporate office to the Bethel Heights location.
“After looking at it, we decided we have locations with better potential and our resources need to go elsewhere,” Williams said. “The customers these locations had/have are being serviced from nearby locations at a high level which is very important.”
Customers of the Bethel Heights dealership have started to be served by the Rogers dealership, while customers of the Jacksonville dealership are served by the North Little Rock dealership, five miles away.
On Jan. 30, the company announced it opened a second dealership in Bowling Green, Ky., and on Nov. 20, the company opened a dealership in Centerton. High-performing managers have the opportunity to operate more than one dealership, and the managers of the two the company opened operate more than one location. As of the end of the third quarter, Car-Mart had 140 dealerships.