Car-Mart net income rises 56%; revenue up 22% in third quarter
Rogers-based America’s Car-Mart Inc. beat analyst expectations for earnings in the third quarter of fiscal 2021 while revenue rose to a record of $228 million.
After the buy here, pay here used car dealer’s shares (NASDAQ: CRMT) closed Tuesday (Feb. 16) at a record high of $137.30, it reported earnings for the period ending Jan. 31 rose 56.8% to $19.87 million, or $2.85 per share, from $12.67 million, or $1.83 per share, in the same period last year. It beat analyst expectations by 30 cents. Revenue rose 22.2% to $228.26 million, from $186.73 million. It beat expectations for revenue by $11.39 million.
Through three quarters, earnings have risen by 44.1% to $60.61 million, or $8.73 per share, from $42.05 million, or $6.03 per share. Revenue has increased by 16.5% to $639.53 million, from $548.92 million.
In the third quarter, same-store sales rose to 16.9%, from 15.1% in the same period last year. Vehicle sales increased by 5.6% to 14,053, from 13,314. Average sales price increased 16.5% to $13,688, from $11,750. Net charge-offs declined to 4.9%, from 5.9%. Accounts over 30 days past due fell to 2.8%, from 3.6%. Active loans increased 6.9% to 85,807, from 80,250. Net finance receivables increased by 19.6% to $558.94 million, from $467.25 million.
In a note on Car-Mart earnings, equity analysts Kyle Joseph, John Hecht, Ryan Carr and equity associate Lance Jessurun, all of Jefferies, said the results were favorable “across the board, highlighting a resilient, adaptable business model.” Car-Mart’s gross margin increased 0.3 percentage points to 40.6%, from the same period last year. And they said this was 0.2 percentage points better than they expected.
“We consider the improving top-line trends favorable, while we believe (Car-Mart) did very well on the margin front given the challenging backdrop,” according to the analysts. “Overall, (Car-Mart) continues to execute well, and the business has recovered well ahead of our expectations. (Car-Mart) remains well-positioned given its defensive, adaptable model.”
The analysts retained a hold rating on Car-Mart stock and a 12-month target price of $123.
“Our results reflect the power of our business model which, at its core, is based on giving our customers ‘peace of mind’ by ‘keeping them on the road,’” said President and CEO Jeff Williams. “What we do is unique, and our customers recognize and appreciate our passionate approach in providing an outstanding customer experience before, during and after the vehicle sale to help them succeed. As we move forward, we believe more consumers will see the benefits of being part of the Car-Mart family.”
Williams said Car-Mart is in the “early stages of our transformation from a collections company to more of a sales company that is very good at collections. When you combine our community-based bricks and mortar structure with a growing digital presence, for which we are investing significant resources, we are very optimistic about our place in the world and the advantages we will continue to leverage as we move forward.”
The company has increased its investments in infrastructure to support a larger customer base, and he noted a “nice leveraging of our cost structure. Also, our credit results once again showed significant improvement over prior year quarters,” Williams added. “We will continue to make significant investments in key areas as we fulfill our vision – to be America’s best auto sales and finance company in the eyes of our associates and customers while improving the communities we serve.”
Williams said the company’s continued investments “will not only keep us relevant but will put us in the position of being a market leader focused on recruiting, training and retaining great associates, inventory procurement and delivering great customer experience.” Important to this are the company’s investment and upgrade to its information technology platform, he said. “We have recently begun the implementation of Microsoft Dynamics 365, a full enterprise resource planning product. An important part of this project will be the customer relationship management module which will allow us to better manage the entire customer relationship journey and to exceed expectations from the consumer viewpoint with heavy emphasis on digital.” The company will continue to invest in the corporate customer experience team as it builds an infrastructure to support a larger customer base.
“Our balance sheet, which is strong as the result of years of disciplined focus on cash flows, gives us a distinct competitive advantage as we move to pick up market share in areas we already serve, add new dealership locations and look for additional acquisition opportunities,” Williams said. The company has more than 2,000 employees, over 85,000 customers and thousands of vendors.
Vickie Judy, chief financial officer, said the rises in the average vehicle sales price and the number of vehicles sold contributed to the revenue increase.
“We were pleased to see our productivity, the average retail units sold per store per month, improve by 2% for the quarter,” Judy said. “Productivity increased although we continue to see a tight supply of vehicles at lower price points. We are working diligently in our procurement efforts to provide a quality assortment of vehicles to meet consumer demand.”
She noted credit results have improved since the pandemic started but uncertainty remains, and Car-Mart maintained an allowance at 26.5% of finance receivables, net of deferred revenue. The investments in employees and the business are paying off as selling, general and administrative expenses declined to 16.7% of sales, compared to 18.6% in the same period last year, she said.
On Feb. 10, Car-Mart increased the permissible capital expenditure amount from $10 million to $25 million for any fiscal year, according to a Tuesday filing with the U.S. Securities and Exchange Commission. The increase was included in the second amendment to the Third Amended and Restated Loan and Security Agreement that was approved Sept. 30, 2019, between the company and a group of lenders.
Judy said the company’s debt, net of cash to finance receivables is 27.7%, compared to 30% at the end of the third quarter last year, which was just before the start of the pandemic. In the third quarter of fiscal 2021, the company added $51.7 million in receivables, increased inventory by $1.1 million and funded $2 million in net capital expenditures.
In December, Car-Mart opened its 151st dealership in Edmond, Okla. It’s the company’s third dealership to open in fiscal 2021. Car-Mart has dealerships in 12 states throughout the south-central United States. It also plans to open a dealership in Norman, Okla.
In the past 12 months, Car-Mart shares have ranged between $137.30 and $35.18. The stock has consistently closed above $100 since Nov. 16.