America’s Car-Mart beats analyst expectations by 52 cents per share in the third quarter

America’s Car-Mart profit fell 18.6% in the third quarter of fiscal 2019, from the same period in the previous fiscal year, but excluding the impact of tax reform and a one-time retirement bonus to former CEO Hank Henderson, the company’s earnings per share rose 97.4% and beat expectations by 52 cents.

After the markets closed Tuesday (Feb. 19), the Bentonville-based buy here, pay here used car dealer reported third-quarter earnings fell to $10.885 million, or $1.55 per share, for the period that ended Jan. 31, from $13.369 million, or $1.82 per share, in the same period in fiscal 2018. The latter includes the effects of tax reform and Henderson’s retirement bonus; however, excluding those effects, earnings were 60 cents per share in the third quarter of fiscal 2018.

For the third quarter of fiscal 2019, Car-Mart beat estimates of $1.03 per share, based on a consensus of four analysts. Revenue rose 9.4% to $161.054 million but missed analyst estimates by $2.906 million.

“The upside was primarily driven by a lower provision as credit metric improvement accelerated again,” according to an earnings note from equity analysts Kyle Joseph, John Hecht and Michael Del Grosso and equity associates Ryan Carr and Trevor Williams, all of Jefferies. “We consider the consistent top-line growth with improving credit favorably and as indicative of easing competitive factors.”

Over the past three quarters, net income rose 25.5% to $33.029 million, or $4.66 per share, and revenue rose 11.2% to $492.240 million. Over the same period, vehicle sales rose 5.6% to 37,163.

In the third quarter of fiscal 2019, vehicle sales rose 4.8% to 11,963, from the same period in fiscal 2018; average sales per dealership rose 2.6% to 27.9 per month; and average sales price increased 4.5% to $11,146. Average loan term lengths declined to 32 months, from 32.4 months, and accounts over 30 days past due declined to 3.2%, from 4.1%. Same-store sales rose 8.5%, up from 7.1%, and net charge-offs declined to 6.2%, from 7.4%. After the company repossesses a vehicle, it is sold on the wholesale market, and the difference between the loan amount and the wholesale price represents the net charge-off.

Net finance receivables rose 9.1% to $414.913 million as of Jan. 31, from the same date in 2018.

“We had a good quarter as we continue to see across the board improvements resulting from our focus on the company’s non-negotiables related to inventory, facilities and associates, collections practices and expense management,” President and CEO Jeff Williams said. “There is a tremendous demand for our service, and we will continue to make significant investments in our people especially in our general manager recruitment, training and advancement program. Our productivity improvements have been made possible because of the investments we’ve made, and it’s nice to see us leverage those investments so quickly.”

“Our most important non-negotiable is related to how our blocking and tackling efforts are impacting customer relations and customer experience,” he said. “Improving the customer experience at various touch points, without sacrificing basic daily discipline, is emerging as our top opportunity, and we are in a unique position to really move the needle in this important area.”

At the end of the third quarter, the company had 143 dealerships, the same number at the end of the second quarter, and between the two quarters, the number of active loans rose by about 1.4%, or by 1,000 loans, to 75,000 loans. Car-Mart announced in November it would open three dealerships, with two in central Arkansas, and in the third-quarter earnings report, Williams said the company is working to open four dealerships. They will be in Conway, Bryant, Chattanooga, Tenn., and Tyler, Texas, and three of the dealerships will be managed by existing general managers. An experienced general manager will reopen the Tyler, Texas, location.

Shares of Car-Mart (NASDAQ: CRMT) closed Tuesday at $82.20, up 6 cents or 0.07%. In the past 52 weeks, the stock has ranged between $100.75 and $46.40.

PRICE, SALES TRENDS
Wholesale used vehicle prices fell for the third consecutive month in January, according to the Manheim Used Vehicle Value Index. The prices declined 1.62% in January, from December. The index rose 3.3% to 135.4 in January, from the same month in 2018. Throughout 2018, the prices of more affordable vehicles rose at a higher rate than other vehicles, and the trend continued in January.

Sales of used vehicles fell 1.1% in January, from the same month in 2018, according to Cox Automotive estimates. Used vehicles seasonally adjusted annual rate of sales are expected to be 38.8 million, down from 39.2 million in January 2018.

“Overall, 2018 shaped up to be an exceptionally strong year for used vehicles relative to 2017,” according to a report from J.D. Power Valuation Services. “Prices grew by a healthy 2.9%, which was supported primarily by mainstream segment growth. Compact car prices ended 2018 around 9% above their position in 2017, while mid-size car prices grew by around 7%. Mainstream SUV prices also increased in 2018, however not nearly to the same level as their car counterparts. One of the primary drivers was the increase in used SUV supply. However, despite these increases in supply, there was still a healthy demand for SUVs which helped keep segment price movement positive.” Prices for compact utility vehicles rose 2% in 2018, while prices for mid-sized utility vehicles increased by almost 5%.

Prices in 2019 are expected to decline by about 1.1% as supply increases and more volatile credit conditions put downward pressure on the market, according to J.D. Power Valuation Services. Gasoline prices and labor conditions are not expected to have an impact on the market, and used car demand, driven by increases in equipment and more advanced safety and technology features, is expected to partially offset the negatives for the year.