Car-Mart earnings fall 5%; revenue up nearly 28% in third quarter

Rogers-based America’s Car-Mart Inc. posted an earnings decrease and a revenue increase amid mixed sales volumes attributed to COVID-19 in the third quarter of fiscal 2022.

After the markets closed Wednesday (Feb. 16), the buy here, pay here used car dealer reported earnings for the quarter ending Jan. 31 declined by 5.6% to $18.76 million, or $2.77 per share, from $19.87 million, or $2.85 per share in the same period last year. Revenue rose by 27.9% to $291.89 million, from $228.26 million.

Car-Mart missed expectations of $2.82 per share, based on a consensus of four analysts. However, the company beat revenue expectations of $273.76 million.

President and CEO Jeff Williams said vehicle sales rose 20% in November and 7% in December but were down 21% in January, from the same months in the previous year.

“We believe this was primarily the result of the omicron variant,” Williams said. “While January had other challenges – weather as well as the timing of stimulus payments in the prior year – we believe the omicron variant was the primary cause of the decline in unit volume for January. The omicron variant hit our region of the country later than most, but it appears to have followed the same trajectory as it has across the rest of the United States. And our workforce and our customer base have now returned to normal, pre-pandemic behavior. As such, we view January’s results as largely a one-time event.”

Williams also highlighted how much the pandemic has accelerated change across the industry.

“The average wholesale vehicle value is up over 45% in the last 12 months and up over 65% in the last two years,” he explained. “We have produced record earnings during this unprecedented period of disruption and change. We have an excellent long-term record, and that’s how we manage the business.”

He said the company is investing in the business to allow each dealership to serve at least 1,000 customers. On average, they currently serve 614 customers. The goal is to increase dealership productivity to 40 vehicles sold per month, up from 33 vehicles currently.

Williams added that the high vehicle prices are keeping some customers out of the market; however, the rate of price increases is starting to slow.

Even so, the company doesn’t expect “a collapse in the values of cars that we purchase for our customers,” he said. “However, deflation, all things being equal, would be good for our business and customers. We would be in a good position to capitalize on the volume opportunities this scenario would present. Our economics get better as prices decline, and relative to others in the industry, our recoveries on repossessions are a smaller percentage of our overall profitability.”

In the past three quarters, Car-Mart’s earnings increased by 9.9% to $66.6 million, or $9.68 per share, from $60.61 million, or $8.73 per share. Revenue rose by 34.6% to $860.52 million, from $639.53 million.

Over the same period, the company has remodeled or relocated 21 dealerships, with six relocations currently in progress, said Vickie Judy, chief financial officer.

“Additionally, we welcomed the associates and customers of Smart Auto in Johnson City, Tenn., to the Car-Mart family at the beginning of the fourth quarter as we were able to complete the purchase of the dealership assets,” Judy said. “Smart Auto-Johnson City brings a talented team of associates and helps to expand our footprint in Tennessee. We are excited for this opportunity and look forward to getting to know our customers and the community.”

Following are other highlights in the third quarter, compared to the same period last year:

• Vehicles sold increased by 0.5% to 14,126, from 14,053.
• Average retail sales price rose by 24.8% to $17,076, from $13,688.
• Same-store revenue growth improved to 26.8%, from 16.9%
• Net charge-offs increased to 5.3%, from 4.9%.
• Stores open rose by two to 153.
• Active customers increased by 9.5% to 93,982, from 85,807.
• Average contract term increased by 15.4% to 41.2 months, from 35.7 months.
• Net finance receivables increased by 42.6% to $797.23 million, from $558.94 million.

Shares of Car-Mart (NASDAQ: CRMT) closed Wednesday at $100.71, up $1.13, or 1.13%. In the past 52 weeks, the stock has ranged between $88.70 and $177.45.

BROADER TRENDS
According to a recent Seeking Alpha article, used car prices have been rising at record rates amid the pandemic, with the Manheim Used Vehicle Value Index nearly doubling from pandemic lows. But in January, the non-adjusted used-vehicle price fell by 0.9% from December. Still, prices remain up about 41% from the same month in 2021.

Meanwhile, used vehicle sales fell in January, according to Cox Automotive. Also, consumer sentiment, as measured by the University of Michigan, hit a decade low in January.