Car-Mart profit rises 80.7% in fiscal 2018, 94% in 4Q, tops analyst estimates

by Jeff Della Rosa (JDellaRosa@nwabj.com) 279 views 

America’s Car-Mart beat earnings expectations by nearly $1.75 per share in fiscal 2018 and 45 cents per share in the fourth quarter as the company works to open four dealerships and close one.

On Monday (May 21), the Bentonville-based buy here, pay here used car dealer reported earnings, for the fiscal year ending April 30, increased 80.7% to $36.469 million, or $4.90 per share, from $20.165 million, or $2.49 per share. Revenue rose 4.2% to $612.201 million. In the fourth quarter, company profit increased 94% to $10.169 million, or $1.43 per share, from $5.242 million, or 66 cents per share. Revenue rose 10.8% to $169.451 million.

Fiscal 2018 earnings were expected to be $3.18 per share, based on a consensus of analysts. Revenue for the year was projected to rise 2.2% to $600.88 million. For the quarter, earnings were expected to be 98 cents per share, and revenue was expected to rise 3.8% to $158.73 million. The company had a $1.721 million, or 23 cents per share, income tax benefit in fiscal 2018 related to an accounting standard approved in May 2017.

Net finance receivables increased 7.4% to $383.617 million, from April 30, 2017. Accounts over 30 days past due declined 10 basis points to 3.5%. Net charge-offs declined 170 basis points to 28.8%. When a vehicle is repossessed, the net charge off is the loss amount after the vehicle is sold on the wholesale market.

The number of vehicles the company sold increased 2.5% to 48,271, from the previous year. Average number of vehicles sold rose 3.6% to 28.7 per month. Average retail sales price increase 0.6% to $10,604. Same-store revenue growth increased 170 basis points to 5.2%. In the fourth quarter, same-store revenue growth rose 920 basis points to 10.5%, from the same period in 2017. The number of vehicles sold rose 7.9% to 13,082, average vehicles sold rose 6.9% to 31.1 per month and average vehicle sales price increased 2.5% to $10,922. Net charge-offs declined 120 basis points to 7.5%.

As of April 30, the number of car loans increased 6.4% to 71,100, from the same time in 2017. Average contract term was flat at 32.5 months, and gross profit margin fell 90 basis points to 40.6%. The rise in the vehicle selling price put pressure on the gross profit margin, said chief financial officer Vickie Judy, adding that as selling prices rise, the gross margin percentage falls. However, gross profit per sale increased in the quarter.

“Our focus on improvements with inventory management is showing up in our results as we work to find good cars for good prices and to efficiently move these vehicles through our system,” CEO Jeff Williams said. “Better inventory processes have also led to improvements with our lot-level sales volume productivity which was up 6.9% for the quarter. At the same time, we saw an increase in the down-payment percentage for the quarter which is a very positive indication that we are doing some good things at our dealerships.”

The company has continued to invest in recruiting, training and retaining general managers, and the investment has started to show in its results, said Williams, adding that the company will continue to invest in its general managers.

The four new dealerships the company is opening will be managed by “experienced top performing” managers, he said. They will be in Bixby, Okla., Pryor, Okla., Montgomery, Ala., and Fayetteville. Before Williams became CEO, he said he would focus on company growth and allow high-performing general managers to operate multiple dealerships.

Also, the company is closing a dealership in Forrest City. As of April 30, the company had 139 dealerships, one less than at the same time in 2017.

Over the past year, the company repurchased $42 million in common stock, increased receivables by almost $35 million, had $2.5 million in capital expenditures, grew inventory by $3.5 million and added $34 million to the company’s debt, said Judy, adding that “our balance sheet is still very strong with debt to finance receivables ratio of 30.4% compared to 25.3% at this time last year.” In the fourth quarter, the company repurchased 327,550 shares of common stock (4.6%) at an average price of $48.86 for a total amount of $16 million.

Shares of Car-Mart (NASDAQ: CRMT) closed at $54.70, up 10 cents or 0.18% on Monday. In the past 52 weeks, the stock has ranged between $56.80 and $33.05.

ANALYST REACTION
In a report on Car-Mart’s earnings, equity analysts John Hecht and Kyle Joseph, along with equity associates Michael Del Grosso and Mark Drucker, all of Jefferies, said a 10.8% increase in sales, including an increased average sales price and number of vehicles sold, led to the company to beat expectations. This was partially offset by lower gross margins and slightly higher operating expenses.

Margins and credit numbers look to be stable, according to the analysts, and they were encouraged by the results in the competitive market.

“We would characterize the credit results as positive when considering recent volatility, not to mention we believe management continues to execute well in a challenging competitive environment,” according to Hecht, Joseph, Del Grosso and Drucker, adding that they believe the company puts priority on profitability compared to volume.

“We remain on the sidelines and await further signs of improvement as we believe the competitive environment remains challenging. 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.”

The analysts have a 12-month price target of $49 and a hold rating on the stock.

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