Car-Mart earnings fall 36%, revenue up 10% in fourth quarter

America’s Car-Mart earnings declined in the fourth quarter of fiscal 2020, but its revenue rose to a record of $196 million as it beat expectations for revenue but missed earnings estimates amidst the COVID-19 (coronavirus) pandemic.

After the markets closed Thursday (May 21), the Bentonville-based buy here, pay here used car dealer reported earnings for the quarter that ended April 30 fell 36.5% to $9.24 million, or $1.35 per share, from $14.55 million, or $2.07 per share in the same period in 2019. Revenue rose 10.6% to $195.68 million, from $176.88 million.

Car-Mart missed earnings expectations of $1.51 for the quarter, based on a consensus of four analysts. However, it beat revenue projections of $175.29 million.

For the year, net income rose 7.8% to $51.3 million, or $7.39 per share, from $47.58 million, or $6.73 per share, in the previous year. Revenue increased 11.3% to $744.61 million, from $669.12 million.

Car-Mart missed analysts’ expectations of $7.55 for the year, but it beat revenue projections of $736.2 million.

“As we push through the COVID-19 pandemic, our financial position and operating results reflect the quality and power of our Car-Mart business model,” said Jeff Williams, president and CEO. “We are a ground-level operator and were able to turn on a dime to keep our dealerships open in accordance with all state and local orders so that we could continue serving the essential needs of our communities throughout the crisis.

“To better serve our customers, as well as for their health and safety, we quickly launched curbside and home delivery processes,” he added. “We also increased our digital efforts, which included expanding communications channels with our customers to ensure they know how much we care about them individually.”

The company has placed priority on its customers and employees during the health crisis, Williams said, adding that it will continue to learn about ways to prevent the spread of and reduce exposure to the disease. It will continue to invest in its recruiting, training and retention of employees. It also will look to improve operations, with a focus on vehicle inventory and customer service.

Consumer credit markets and vehicle supply channels are expected to be disrupted and should be positive for the company’s business, he noted. Each dealership can serve 1,000 or more customers, he said, and should have the opportunity to increase market share. The company plans for more acquisitions and new dealership openings.

Car-Mart previously drew $30 million on its revolving credit facility and reduced its expenses in the last half of the fourth quarter, including part-time and hourly payroll, said Vickie Judy, chief financial officer. The company also deferred the employer share of Social Security payroll taxes as permitted under the Coronavirus Aid, Relief and Economic Security (CARES) Act.

“Although we reduced hours for certain associates, we are happy to say these measures have allowed us to maintain workforce engagement with no disruption to associate benefits,” Judy said. “For the safety of our customers and associates, we suspended certain collection activities, including personal visits and repossession efforts, for a period of time during the pandemic. This resulted in a lower amount of net charge-offs as a percent of average finance receivables for the quarter. However, COVID-19 has impacted our customers and resulted in increased past-due amounts as a percentage of receivables, resulting in uncertainty of how customers pay and react in this new environment.”

As a result, the fourth-quarter results included an $11.7 million pre-tax charge to increase the allowance for credit losses as a result of the COVID-19 pandemic.

Net charge-offs were down to 5.6% in the fourth quarter, from 6.4% in the same period in 2019. Accounts over 30 days past due rose to 6.2%, from 2.9%. Active customer loans rose 6.7% to 80,669. Same-store revenue growth was 8.6%, up from 2.9%. Vehicles sold rose 1.7% to 13,314. Average sales price rose 9.8% to $12,408. Net finance receivables rose 12.2% to $466.14 million, from $415.48 million.

The company had 148 dealerships at the end of the quarter, up from 144 in the same period in 2019.

Shares of Car-Mart (NASDAQ: CRMT) closed Thursday at $73.38, up $2.38, or 3.35%. In the past 52 weeks, the stock has ranged between $129.70 and $35.18.

USED PRICES STABLE
Used vehicle prices have started to become stable as auction volumes begin to recover, according to a report from equity analysts Philippe Houchois, David Kelley, Sascha Gommel, Himanshu Agarwal and equity associate Touiti Marie-Bornand, all of Jefferies.

Used prices have risen 5.7% in the first half of May, from April, according to the Manheim Used Vehicle Value Index. The index declined 4.8% as of mid-May, from the same month in 2019.

After falling 80% in early April, auction volumes are between 35% and 40% below normal, the analysts said. The extent and duration of the layoffs amid the health crisis “is the wild card,” they noted. Dealers are focused on used and are careful to balance new incentives with used prices. Every new $1,000 incentive impacts used by $300-$400, the analysts said.

New retail vehicle sales fell 31% in the seven-day period ending May 14, from the same period in 2019, according to Cox Automotive. This was an improvement from the 71% decline in the final week of March, from the same week in 2019. Used retail vehicle sales declined 6% on May 14, and this was an improvement from the 67% decrease at the end of March.

Used retail sales have started to recover as retail and wholesale supply have been falling. Retail supply reached a peak in early April and was down below normal as of May 15. Wholesale supply also declined but remained about twice the normal level as of May 15.

Consumer sentiment rose to 73.7 in the initial May reading, from 71.8 in April, according to the University of Michigan. The rise can be attributed to an improving view of existing conditions. Consumers also reported an improving view of buying conditions for vehicles and homes.