Car-Mart’s earnings to fall, revenue to rise by 15%, analysts say

Rogers-based America’s Car-Mart Inc. is expected to post a decline in earnings in the first quarter of fiscal 2023, while revenue is projected to increase by double digits amid lower volumes but higher sales prices and interest income.

After the markets close Aug. 17, the buy here, pay here used car dealer is expected to report earnings of $3.14 per share for the quarter ending July 31, down from $3.57 per share in the same period last year, based on a consensus of four analysts. Revenue is projected to rise by 15% to $322.4 million, from $280.32 million.

In an earnings preview, equity analysts John Hecht and Kyle Joseph and equity associates Matthew Hurwit, Sagiv Hartmayer and Ibrahim Kargbo, all of Jefferies LLC, attributed the projected revenue increase to an increase in sales of about 12% and interest income of 29%.

Regarding credit, the analysts expect loss rates to rise from the same period last year. Also, they expect gross adjusted margin on auto sales of 35.2%, down from 38.1% in the same period last year.

According to the analysts, vehicle volumes are projected to fall by 2.5% to about 15,000 vehicles sold in the quarter, from the same period last year. Meanwhile, the average retail sales price is expected to rise by 15% to about $17,700 “as pricing continues to be impacted by inflationary and supply chain disruptions,” the analysts said.

According to the Manheim Used Vehicle Value Index, wholesale used-vehicle prices fell by 0.1% in July, from June. The prices were up 12.5% from July 2021.

In July, used retail sales fell by 13% from June and declined 16% from July 2021, according to the index report. Compared to 2019, sales were down 29%, the worst comparison against 2019 since January.

Jonathan Smoke, chief economist for Cox Automotive, recently said that falling prices and more normal supply levels in the used vehicle market “should be creating more opportunities and more demand for later this summer and into the fall.”

Still, the Conference Board Consumer Confidence Index fell by 2.7% in July, primarily because of a 4% decline in expectations. Plans to purchase a vehicle in the next six months declined to the lowest level so far this year and was down from the same time last year. However, the sentiment index from the University of Michigan rose by 3% in July, from a record low in June. And, the Morning Consult Index of Consumer Sentiment increased by 0.4% in July. The index report noted that these more inflation-sensitive measures rose as gas prices fell by 16% by the end of July from the June peak.

Compared to indirect lenders and other buy here, pay here dealers, Car-Mart “remains well-positioned competitively,” the Jefferies analysts said. High used vehicle prices have affected margins “but have insulated (Car-Mart) from the overall credit normalization we have seen across the nonprime space,” they said.

Car-Mart’s focus on sales instead of collections allows the company to invest more in vehicle procurement and sales and marketing and should lead to more customers, according to the analysts.

“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,” the analysts said. “We see some offsetting influences of (Car-Mart) in the near term, including elevated used car prices which has offsetting impacts on the business and a tighter credit environment, which should support sales.”

The analysts noted other offsetting influences included margins and credit returning to normal that should balance “strong topline trends.” They maintained a hold rating on the stock and a 12-month target price of $110.

Shares of Car-Mart (NASDAQ: CRMT) closed Wednesday (Aug. 10) at $111.65, up $3.45 or 3.19%. In the past 52 weeks, the stock has ranged between $72.50 and $165.50.