Car-Mart earnings and revenue to fall in fourth quarter, analysts say

America’s Car-Mart is expected to report earnings per share and revenue declined in the fourth quarter of fiscal 2020, but earnings and revenue are projected to rise for the year.

The Bentonville-based buy here, pay here used car dealer is expected to report fourth-quarter and fiscal 2020 earnings after the markets close May 21. Earnings per share is projected to fall to $1.51 in the fourth quarter that ended April 30, from $2.07 in the same period in 2019, based on a consensus of four analysts. For fiscal 2020, earnings per share is expected to rise to $7.55, from $6.73.

Fourth-quarter revenue is expected to fall by 0.9% to $175.29 million. For fiscal 2020, revenue is projected to rise by 10% to $736.2 million.

In an earnings preview for the consumer finance industry, equity analysts John Hecht and Kyle Joseph and equity associates Ryan Carr and Lance Jessurun, all of Jefferies, said credit metrics have continued to be favorable for Car-Mart and have bolstered earnings. Gross margin is expected to fall 22 basis points to 40.5% and the provision as a percentage of sales to decline 127 basis points to 23.5%.

Vehicle sales are projected to rise 7.5% to about 14,000 vehicles in the fourth quarter, and the average sales price is expected to rise to 5% to $11,870, according to Hecht, Joseph, Carr and Jessurun. The estimates account for a 0.7% decline in the weighted average of outstanding shares in the fourth quarter, from the same period in 2019.

The company’s results in the third quarter of fiscal 2020 were strong, with same-store sales up 15.1% (and 12.2% from the second quarter). The same-store sales growth followed a continued period of strong performance.

“We highlight robust growth trends within (Car-Mart) and remain impressed by the consistent growth and positive results,” according to Hecht, Joseph, Carr and Jessurun. “Management’s strategy of ‘blocking and tackling’ by investing in long-term employees, building community-based stores and selling reliable vehicles that will be less likely to charge off has paid off as the company has consistently delivered strong top-line results.”

The company has a defensive business model, and its highest losses came in 2007 while its lowest losses were in 2009-2011 as a result of a favorable competitive environment. With hourly workers being impacted by the COVID-19 pandemic, this might affect Car-Mart’s credit performance in the near-term, said Hecht, Joseph, Carr and Jessurun.

Car-Mart’s sales have fallen amid the pandemic but they’re not as weak as the broader market in which sales have declined more than 50%, according to a separate report by Hecht, Joseph, Carr and Jessurun. In mid-March, the company announced it had drawn an additional $30 million from its lender group amidst uncertainty in global markets because of the health crisis. The company also recently established a task force to respond to the crisis.

Shares of Car-Mart (NASDAQ: CRMT) closed Tuesday (May 12) at $68.07, down $2.52 or 3.57%. In the past 52 weeks, the stock has ranged between $129.70 and $35.18.

USED VEHICLE TRENDS
Wholesale used vehicle prices, with adjustments for mix, mileage and seasonality, declined 11.4% in April, from March. This led the Manheim Used Vehicle Value Index to fall 9.2% to 125.8 in April, from the same month in 2019, and dropped to the lowest level in three years.

Price declines accelerated in the last two weeks of March and started to slow in the last two weeks of April.

Total used vehicle sales declined 34.3% in April, from the same month in 2019, according to Cox Automotive. The seasonally adjusted annual rate of sales fell to 27 million, compared to 39.3 million in the same month in 2019, and down from 32 million in March. The used retail seasonally adjusted annual rate of sales is 14.4 million for April, down from 21.4 million in the same month in 2019 and 17.3 million in March.

Wholesale prices have started to become stable as the excess supply of used vehicles falls. Used retail supply was 115 days on April 8, and wholesale supply reached a peak of 149 days on April 9. By the end of the month, it had fallen to 65 days.

New vehicle sales declined 47% in April, from the same month in 2019. The new vehicle seasonally adjusted the annual rate of sales was 8.6 million in April and was the lowest monthly rate since 1976.

Consumer plans to purchase a vehicle in the next six months declined by a record level of 34% in April, according to Manheim.