Car-Mart stock tumbles 10% after earnings report

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

America’s Car-Mart Inc. stock fell more than 10% one day after the Bentonville-based buy here, pay here used car dealer reported earnings beat analyst expectations, but revenue missed estimates for fiscal 2019.

Shares of Car-Mart (NASDAQ: CRMT) closed Wednesday (May 22) at $91.34, down $10.55, or 10.35%. The stock was trading as low as $85.01 on Wednesday, and over the past 52 weeks, the stock has ranged between $104.05 and $60.55.

In a note on the company’s earnings report, analysts Kyle Joseph and John Hecht and equity associates Ryan Carr and Trevor Williams, all of Jefferies, attributed the decline in the stock to the “illiquidity in shares and a strong (year-to-date) performance, and that nothing fundamentally changed in a meaningful way in the quarter.” The analysts maintained a hold rating on the stock and a 12-month target price of $96.

After the markets closed Tuesday (May 21), Car-Mart reported earnings for the fiscal year that ended April 30 rose 30.5% to $47.59 million, or $6.73 per share. Revenue rose 9.3% to $669.12 million. In the fourth quarter, profit increased by 43% to $14.56 million, or $2.07 per share. Revenue increased by 4.4% to $176.88 million. Car-Mart beat earnings estimates for the year and quarter by 25 cents but missed revenue estimates by more than $10 million in the fourth quarter.

In Car-Mart’s earnings call May 22, President and CEO Jeff Williams explained the unique tax refund season impacted average sales per dealership. The sales declined 2.6% to 30.3 vehicles per dealership per month in the fourth quarter, from the same quarter in fiscal 2018. The timing of the refunds caused confusion and kept people from purchasing vehicles, Williams said. By the end of the quarter, average refunds had risen, and the refunds helped with collections.

Car-Mart plans to open a few new dealerships in fiscal 2020, and it was working to opening a dealership in Chattanooga, Tenn. But Williams said the company was facing floodplain issues at that location and a mix-up in city, state and federal regulations. The company expects to open a dealership in Chattanooga, whether at that location or another location. Car-Mart also will open dealerships in Bryant and Conway over the next few weeks.

Also in the earnings call, Williams discussed the company’s progress to develop general managers, its digital presence and how the company has been improving. With regard to the managers, the company has yet to reach the point it would like to be, but they are getting stronger. Vickie Judy, chief financial officer, said the company doesn’t expect to have a large number of general managers ready to go all at once and noted replacing some that have been terminated.

“It’s a slow churn,” Judy said.

Car-Mart recently released an online credit application and has started to add pictures of vehicles to its website. As these features are developed, Williams expects this to have a positive impact on the company and should be able to speak more about it in the next earnings call.

When asked about how the company has been improving, Williams said most of the improvements have been a result of internal operations. Consumers might have more money to spend, but competition has been high. A lot of money is available for consumers with credit scores in the subprime and deep subprime levels, he said.

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