Car-Mart third-quarter earnings rise 373%, revenue up 6.1%

America’s Car-Mart received a third-quarter earnings boost as a result of tax reform and growth in down payments and same-store sales. Meanwhile, the Bentonville-based buy here, pay here used car dealer closed two stores and opened two others, ending the period with 140 dealerships.

Late Monday (Feb. 19), Car-Mart reported earnings for the period that ended Jan. 31 were $13.369 million, or $1.82 per share, up from $2.826 million, or 35 cents per share. Excluding the effects of tax reform and a one-time retirement bonus to former CEO Hank Henderson, diluted earnings per share were 60 cents, beating analysts’ expectations of 55 cents, according to a consensus of five analysts.

Revenue rose 6.1% to $147.214 million, also beating analysts’ expectations of $136.24 million, according to a consensus of four analysts.

Over the past three quarters, earnings have risen 76.2% to $26.310 million, or $3.48 per share, from $14.933 million, or $1.83 per share, in the same period between 2016 and 2017. Excluding tax reform and Henderson’s bonus, diluted earnings per share were $2.30. Revenue rose 1.8% to $442.750 million.

Third quarter net receivables rose 4.6% to $380.384 million. The number of active loans increased 4.5% to 70,300, and average term lengths increased 1.6% to 32.4 months. Average down payment increased to 5.5%, from 4.3%. Accounts over 30 days past due fell to 4.1%, from 4.7%, and net charge-offs declined to 7.4%, from 7.8%. After the company repossess a vehicle, it is sold on the wholesale market, and the difference between the loan amount and the wholesale prices represents the net charge-off.

As of Jan. 31, the company had 140 dealerships in 11 states, down three dealerships from the same time in 2017. Same-store sales increased 7.1%, from 1.1% in the same period between 2016 and 2017. Vehicle sales increased 5.1% to 11,420 vehicles, and average monthly sales per store rose 7.5% to 27.2 vehicles. Average vehicle sales price increased 0.3% to $10,662.

“We are pleased with what we would consider a good, solid quarter,” President and CEO Jeff Williams said. “Fundamentals across the board were good, and the business continues to move in the right direction.” The improvements in average sales per store and down payment percentage were a reflection of the company’s efforts to strengthen its inventory management processes and sales at the dealerships.

EMPLOYEE SUPPORT
The company gave credit to its employees for an increase in collections and decreases in net charge-offs and accounts 30 days past due.

“We are in a tough business, but it’s a business with great purpose, and our associates are up to the challenge,” Williams said.

The company is continuing to invest in its general manager recruitment, training and advancement program.

“Our plan is to support our top performing general managers with opportunities to serve significantly more customers, which may include additional dealerships under their management. At the same time, we will continue to train and support our less experienced general managers while recruiting talented, passionate people into the company. We currently have several newer, less seasoned general managers, and we are excited to support them and watch them grow into top performers over time.”

The company’s selling, general and administrative expenses increased in the third quarter as it builds infrastructure to support the business, said Vickie Judy, chief financial officer. The company’s investments have been focused on the general manager recruitment, training and advancement program. Also, expenses rose as a result of Henderson’s $1.1 million retirement bonus, and increased bonuses and commissions related to an increase in earnings.

“Several of our associates are compensated based on net income, and the benefit of the lower tax rates will result in increased pay for these hard-working associates,” Judy said. “We were excited to see the increase in sales volume productivity, and we expect productivity will continue to improve as we move forward, which will allow us to leverage our expenses.”

Tax reform led to a $9.7 million decrease in income taxes.

“While the new federal statutory rate was not effective until Jan. 1, 2018, we were required to revalue deferred taxes as of Dec. 31, 2017, at the new federal statutory rate and adjust current net tax liabilities to a ‘blended’ base rate of 33% for fiscal 2018 as required by the tax act based on a number of days the new rates were in effect,” said Judy, adding that she expects the company’s tax rate to decline to 24%, from 37%, in fiscal 2019, starting May 1, and into the future.

In the quarter, the company repurchased 141,717 shares of common stock (2%) at an average price of $43.80. Since February 2010, the company has repurchased 5.5 million shares (47%) at an average price of $33, Judy said.

“In the last nine months, we have added $31 million in receivables, repurchased $26 million of our common stock, funded $1.5 million in net capital expenditures and increased inventory by $8 million to support higher sales levels with only a $30 million increase in debt. Our balance sheet is still very strong with debt to finance receivables ratio of 29.8% compared to 25% at this time last year.”

Shares of Car-Mart (NASDAQ: CRMT) closed at $46.25, up 60 cents or 1.31% on Friday (Feb. 16). Markets were closed Monday because of Presidents Day. In the past 52 weeks, the stock has traded between $49.40 and $30.20.

USED VEHICLE PRICES
Wholesale prices of used vehicles up to eight years old declined 0.6% in January. As a result, the J.D. Power Valuation Services’ Seasonally Adjusted Used Vehicle Price Index declined 0.5% to 114.2.

Among mainstream vehicles, large pickups and SUVs had the largest price declines. Pickup prices fell 1.7% in January and have declined for four consecutive months as the vehicle segment remains strong but is showing signs of losing momentum, according to J.D. Power Valuation Services. Large SUV prices fell 1.7%, and mid-size pickup prices declined 1.3%. Prices for compact and subcompact cars rose 0.2% and 1%, respectively.

Late-model auction volume declined 0.8% to 273,000 in January, from the same month in 2017. However, from December, the volume increased 33.8%. The largest increases were in pickups and SUVs.

In February, wholesale prices of vehicles up to eight years old are expected to rise 0.3%, according to J.D. Power Valuation Services. Used prices are expected to remain flat for 2018.