Car-Mart beats expectations for profit, revenue in third quarter; stock price hits another high

by Jeff Della Rosa ([email protected]) 465 views 

America’s Car-Mart earnings and revenue rose in the third quarter of fiscal 2020 as it beat analysts’ expectations for the period and ended the trading day with a record-high stock price.

After the markets closed Wednesday (Feb. 19), the Bentonville-based buy here, pay here used car dealer reported earnings for the period that ended Jan. 31 increased 16.5% to $12.68 million, or $1.83 per diluted share, from $10.89 million, or $1.55 per diluted share, in same in the same period in the previous year. Revenue rose 15.9% to $186.73 million, from $161.05 million.

Car-Mart beat earnings estimates by 6 cents per share and revenue estimates by more than $15 million, according to a consensus of four analysts.

Through the first three quarters of fiscal 2020, earnings increased 27.3% to $42.05 million, or $6.03 per share, from $33.03 million, or $4.66 per share. Revenue increased 11.5% to $548.92 million, from $492.24 million. Over the same period, vehicle sales rose 6.6%, or by 2,437 vehicles, to 39,600, from 37,163.

In the third quarter, vehicle sales rose 11.3%, or by 1,351 vehicles, to 13,314, from 11,963. Average retail sales price increased 5.4% to $11,750, from $11,146. Net charge-offs fell to 5.9%, from 6.2%; accounts more than 30 days past due rose to 3.6%, from 3.2%; and the number of active loans increased 6.9% to 80,250, from 75,101. Net finance receivables increased 12.6% to $467.26 million, from $414.91 million. Car-Mart had 145 dealerships as of Jan. 31 or two more than it did at the same time in 2019.

“We are pleased to report solid top-line growth with revenues up 15.9% and same-store revenues up 15.1%,” said Jeff Williams, president and CEO. “The continuous investments in our business are showing up in the numbers.”

The company is working to increase market share in the areas it has dealerships, Williams explained. “The revenue increases we are experiencing are the direct result of improving operational execution in the field, starting with inventory management,” he said. “To pick up market share in this very competitive environment, we will continue to focus on quality vehicles and a broad selection, as customers have many choices.”

Williams noted that competition is “intense,” and the company is seeing benefits as a result of investments in digital marketing and brand reputation, focused on the customer experience.

Car-Mart is nearly completed with the acquisition of Taylor Motors, Williams said. The company had expected to close on the deal in January, but it’s taking longer than expected to obtain the necessary licensing with entering business in a new state. Also, the company is expected to open its Cabot dealership in the fourth quarter, and as a result, will open six new dealerships in fiscal 2020.

“New dealership openings are an important part of our growth plans, and we will continue to add locations at a rate that matches our ability to support this high touch business,” Williams said, adding that the company will open dealerships in Edmond, Okla., Chattanooga, Tenn., and Norman, Okla., in the upcoming fiscal year.

“We have increased our investment in inventory almost $6 million in the past three months to ensure that we have the quality and selection of vehicles to meet our customer’s needs during the upcoming tax refund season,” said Vickie Judy, chief financial officer. “The increased inventory combined with our commitment to our associates and infrastructure to support the customer experience after the sale is having a positive impact on the top line and customer success in terms of lower net charge-offs as a percentage of average receivables.”

Selling, general and administrative expenses declined to 18.6% of sales, from 18.9% in the same period in the previous year, Judy said. The quarter included $930,000 of stock compensation, up from $576,000 in the same period in the previous year. The quarter also included income tax benefits related to share-based compensation of $922,000 or 13 cents per diluted share, compared to $41,000, or 1 cent per diluted share.

Shares of Car-Mart (NASDAQ: CRMT) closed Wednesday at a record high of $126.52, up $4.94 or 4.06%. In the past 52 weeks, the stock has ranged between $126.90 and $80.40.

Wholesale used vehicle prices on a mix-, mileage-, and seasonally adjusted basis increased 0.39% in January, from December, according to the Manheim Used Vehicle Value Index. The index rose 4.6% to a record level of 141.6 in January, from the same month in 2019.

Prices were steady in January following a normal trend in weekly prices at the end of 2019, according to Manheim. The normal trend was an improvement over last year’s decline.

Total used vehicle sales rose 2.8% in January, according to Cox Automotive. The seasonally adjusted annual rate of sales rose to 39.5 million, from 38.8 million from the same month in 2019. The rate was down from 40 million in December. The used retail seasonally adjusted annual rate of sales increased to 20.7 million in January, up from 19.8 million in the same month in 2019 and 20.1 million in December 2019.

The U.S. GDP rose 2.1% in the fourth quarter of 2019, flat from the third quarter and slightly better than expected. Personal consumption growth decreased to 1.8%, from 3.2% in the third quarter and down from 4.6% in the second quarter. Consumer spending on durable goods rose 2.1% in the fourth quarter, down from 8.1% in the third quarter and 13% in the second quarter. Consumer confidence rose 2.1% in January, flat from the previous quarter, according to the Conference Board. The confidence metric for December also was revised up.

“The better end to 2019 with the revision and the strong start to January were related to the Phase 1 Trade Deal with China,” according to Manheim. “The January survey was conducted prior to the news breaking about the Wuhan coronavirus.”

In an automotive aftermarket report, equity analyst Bret Jordan and equity associates Mark Jordan and Ethan Huntley, all of Jefferies, expect rising used car prices to offset headwinds related to lower vehicle sales as the number of vehicles coming off lease peaked in 2019 and dealer consignments volumes decline at auction. Salvage auction operators should see higher used car values as insurers opt to consider younger vehicles involved in crashes as total losses rather than repairing them, the report shows.