Analysts expect Car-Mart revenue, profit to rise in fourth quarter

Rogers-based America’s Car-Mart Inc. is expected to post gains in earnings and revenue for the fourth quarter of fiscal 2021. Meanwhile, analysts expect positive overall trends to continue for auto lenders amid record used prices.

After the markets close May 24, the buy here, pay here used car dealer is expected to report fourth-quarter earnings per share of $2.80, up from $1.35 in the same period last year, based on a consensus of four analysts. Revenue for the quarter, which ended April 30, is projected to rise by 12.7% to $220.6 million, from $195.69 million.

For fiscal 2021, Car-Mart is expected to report earnings per share of $11.54, up from $7.39 for fiscal 2020. Revenue is projected to rise by 12.8% to $840.11 million, from $744.61 million.

In an earnings preview, equity analysts John Hecht, Kyle Joseph and Ryan Carr, and equity associate Lance Jessurun, all of Jefferies, said Car-Mart “has effectively navigated an evolving used car market and remains well-positioned competitively vs. indirect lenders and other (buy here, pay here) operators. Credit remains solid, and (Car-Mart) has effectively controlled costs.”

Car-Mart’s loss rates are expected to rise slightly from last year and result in a provision expense of $48.1 million, analysts said. Expenses are projected to rise 11% to $205.1 million. Gross adjusted margin on auto sales is projected to be flat at 40.5%. Vehicle sales are expected to rise 5.5% to 14,046 units and at an average price of $13,649, up 10% from last year.

In the third-quarter earnings call, Car-Mart management noted it’s shifting from a collections company to a sales company that can collect. The analysts believe this should lead to greater investments in procurement and sales and marketing and more customers.

“We believe (Car-Mart) is well-positioned from a competitive perspective as indirect lenders have tightened and ‘mom-and-pop’ competitors face similar inventory sourcing issues/higher used car prices,” the analysts said. “We see some offsetting influences on (Car-Mart) in the near term, including elevated used car prices which have offsetting impacts on the business and tighter credit environment, which should support sales.

“Ultimately, (Car-Mart’s) business model is a defensive one — the highest losses came in 2007 while its lowest losses were in 2009-2011 given favorable competitive dynamics,” they added. “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.”

Jefferies maintains a hold rating on Car-Mart stock and a 12-month target price of $148.

Shares of Car-Mart (NASDAQ: CRMT) closed Monday (May 17) at $151.45, down $2.13 or 1.9%. In the past 52 weeks, the stock has ranged between $165 and $64.75.

POSITIVE TRENDS
The Jefferies analysts highlighted supportive factors for 2021 for auto lenders: volumes positively impacted by economic re-opening, modest net-charge offs in late 2021 as stimulus impacts moderate and strong vehicle values related to supply and demand.

“While we have been awaiting a charge-off cycle and anticipating a leveling off if not a modest pullback in residual values, these do not appear to be on the horizon given ongoing stimulus and an increasingly steady re-opening of the economy,” the analysts said. “We expect that a surge in the used market probably will continue as consumers in the market for a new vehicle will likely have a harder time finding what they want at an affordable price right now due to severe supply shortages affecting the automotive industry.”

The analysts also noted an Ally survey that showed nearly 72% of Americans are wary of using public transportation because of COVID-19. And this trend might be more long-term, the survey shows, as 69% of car owners say they plan on driving more after the pandemic ends rather than use public transportation.

“With this behavioral backdrop, we may see auto loans higher in the payment priority stack, which may support credit results,” the analysts said.

RECORD USED PRICES
In April, the Manheim Used Vehicle Value Index rose 54.3% to a record high of 194, from the same month in 2020. Wholesale used vehicle prices on a mix-, mileage-, and seasonally adjusted basis increased by 8.3% from March. Price increases reached an acceleration peak in mid-April. Pickups outperformed the overall market, while most other major segments underperformed.

Total used vehicle sales rose 69% in April, from the same month in 2020, according to Cox Automotive. The seasonally adjusted annual rate of sales for used vehicles increased to 41 million in April, from 23.6 million in the same month in 2020. The rate also was up from 40.5 million in March.

Used retail supply fell to 33 days at the end of April, down from a peak of 115 days on April 8, 2020, according to vAuto data. Normal used retail supply is about 44 days. Used wholesale supply declined to 17 days, from a peak of 149 days on April 9, 2020. Normal supply is 23 days.

Total new vehicle sales increased by 111% in April, from the same month in 2020, according to Cox Automotive. The seasonally adjusted annual rate of sales for new vehicles was 18.5 million, up from 8.7 million in the same month last year and the highest monthly rate since July 2005. New vehicle inventories declined by 42% to about 1.9 million units in April, from the same month in 2020.

In the first quarter, GDP growth accelerated to 6.4%, from 4.3% in the previous period. Personal consumption increased 10.7% in the first quarter, compared to 2.3% in the previous period. Spending on goods rose 23.6%, while spending on services increased 4.6%. Gross private investment fell 5% amid declines in nonresidential construction. Government spending rose 6.3% and nondefense spending increased by 45%. Real GDP was up 0.4%, and stronger growth is expected in the second quarter. As a result, real GDP is expected to be fully recovered by midyear from the prior peak reached in the fourth quarter of 2019, according to Cox Automotive.

Consumer confidence increased by 11.7% in April and was down 8% from February 2020, according to the Conference Board. Plans to purchase a vehicle in the next six months rose to a 23-month high in April. Plans to purchase a home rose to a record high in April. Consumer sentiment increased by 4% in April and was down 12.6% from February 2020, according to the University of Michigan.