Analysts expect Car-Mart to post double-digit increase in earnings, revenue in fiscal first quarter

Rogers-based America’s Car-Mart is expected to see gains in sales and earnings in the first quarter of fiscal 2022 as the buy here, pay here used car dealer celebrates its 40th anniversary.

After the markets close Tuesday (Aug. 17), Car-Mart is expected to report earnings per share to rise by 21.5% to $3.44 for the quarter ending July 31, from $2.83 in the same period in 2020, according to a consensus of three analysts. Revenue is expected to rise by 21.9% to $229.11 million, from $187.91 million.

In an earnings preview, equity analysts John Hecht, Kyle Joseph and Ryan Carr and equity associate Lance Jessurun, all of Jefferies, expect earnings to rise as a result of higher sales volumes and interest income. The analysts expect loss rates to rise slightly in the quarter, from the same period last year. They also expected total expenses to increase, and gross margin on vehicle sales to fall to 40.5%, from 41.7% in the same period last year. Vehicle sales are projected to rise by 15% to about 14,000 vehicles. Average retail sales price is expected to increase by 12.5% to about $14,400 “as car sales continue to be impacted by low supply and ongoing supply chain disruptions,” analysts 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,” they added. “Credit remains solid, and (Car-Mart) has effectively controlled costs.”

Company executives previously emphasized the company’s transition from a collections company to a sales company that can collect, the analysts noted.

“We believe this entails greater investments in procurement and sales/marketing and ultimately see this increasing overall customer count for (Car-Mart),” analysts said. “We believe (Car-Mart) is well-positioned from a competitive perspective as indirect lenders have tightened and as ‘mom-and-pop’ competitors face similar inventory sourcing issues/higher used car prices which have offsetting impacts on the business and a 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. 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 analysts maintained a hold rating on Car-Mart shares, with a target price of $156.

Shares of Car-Mart (NASDAQ: CRMT) closed Monday (Aug. 9) at $158.37, up 2 cents or 0.01%. In the past 52 weeks, the stock has ranged between $177.45 and $82.48.

ANNIVERSARY CELEBRATION
Car-Mart is marking 40 years in business this month. In August 1981, founder Bill Fleeman opened the first Car-Mart in a converted Dog n’ Suds fast-food establishment in Rogers.

“This is an incredible milestone for our company, our associates and our customers,” said Jeff Williams, president and CEO. “Over four decades of change in the used car industry, one thing has remained the same. We have stayed true to our roots, always focused on giving customers peace of mind by keeping them on the road and helping them succeed.

“And we could not have achieved our outstanding success without the dedication and hard work of our talented associates at Car-Mart,” Williams added. “Their passion for helping people comes through in everything they do. So, as we celebrate this milestone, we are proud of our achievements, and we look forward to the next 40 years of taking care of customers and ensuring we earn their repeat business.”

Car-Mart has more than 2,000 employees, 151 dealerships in 12 states and more than 88,000 customers.

BROADER TRENDS
In equity research on the consumer auto finance segment, Hecht, Joseph, Carr and Jessurun said trends including strong credit quality, vehicle values and used car sales volumes continued in the second quarter in part because of stalled volumes last spring.

The second quarter is expected to be “another strong quarter given these factors; however, we note that fleet sales have slowed recently as used car values, which have been very supportive of strong results, have begun to taper,” analysts said. As a result, they added that the second half of the year “may not be as easy as” the first half of the year.

In July, the Manheim Used Vehicle Value index declined by 2.6%, from June, but was up 23.6% from July 2020.

The decline was the second consecutive monthly decrease in the index since rising to record levels, according to equity analyst David Kelley and equity associate Gavin Kennedy, both of Jefferies. Existing vehicle values remain a key positive indicator for the recovery in the used car market, and the strength continues to indicate a “favorable trade-in cycle,” they said. Kelley and Kennedy expect the existing pricing trend to continue through the second half of 2021 with pricing strength moderating from peak levels. And, above-trend pricing is expected to extend through at least the first half of 2022 as inventory levels are not expected to become normal until possibly the first half of 2023.

Used retail supply ended July at 39 days, or five days below normal, according to vAuto data. Wholesale vehicle supply was at 23 days or two days below normal.

According to Cox Automotive, total used vehicle sales declined by 15% in July, from the same month in 2020. New vehicle sales rose 4% over the same period.

Meanwhile, consumer indexes were mixed. Consumer confidence increased by 0.2% in July, according to the Conference Board. However, consumer sentiment from the University of Michigan and Morning Consult declined by 5% and 5.5%, respectively, in July. Even so, plans to purchase a vehicle in the next six months increased to the highest level in 18 months. Plans to purchase a home rose also.