Rogers-based America’s Car-Mart Inc. posted mixed financial results in the second quarter of fiscal 2023, missing analyst projections for net income but exceeding revenue expectations. It continues to face tight vehicle supply and rising costs amid high inflation and will increase its consumer interest rates.
Late Wednesday (Nov. 16), the buy here, pay here used car dealer reported earnings in the period ending Oct. 31 fell by 86.6% to $3.12 million, or 48 cents per share, from $23.41 million, or $3.41 per share, in the same period last year. Revenue rose by 23.6% to $351.84 million from $284.53 million.
Car-Mart missed earnings expectations of $2.17 per share, based on a consensus of four analysts. It beat revenue projections of $326.72 million.
“Looking at our business at a high level, our sales increased nicely this quarter as compared to the prior year’s quarter, but we earned far less income,” CEO Jeff Williams said. “Primary drivers of the shortfall relate to wholesale losses – approximately 200 basis points of gross margin decrease, and inventory procurement challenges, including higher direct and indirect cost of sales inputs, that were not passed on to consumers – another approximate 200 basis point effect. The market changed dramatically during the past year, as the price of used vehicles increased while our customers’ ability to pay has declined. The result is we have taken losses on certain amounts of inventory, and we expect wholesale losses to continue into next quarter. In addition, labor costs are up across the board, as well as funding costs of the business due to higher interest rates. We view the wholesale losses and procurement challenges as temporary.”
Williams said Car-Mart will increase its consumer interest rates to 18% in all states except for Arkansas, which will remain at 16.5% because of a state cap. As of Oct. 31, Car-Mart had 154 dealerships in 12 states, up two dealerships from the same time last year.
He also noted several ongoing initiatives, including scaling vehicle purchasing and reconditioning, installing a new loan origination system, spending about $27 million on dealership renovations and relocations, adding multiple executives and speaking with other companies about acquiring their businesses.
“Numerous competitors are shrinking and closing while we are leaning into our value proposition, adapting, as always, to changing business conditions,” Williams said. “The combination of rapid inflation, tight supply conditions for our vehicle and rising credit costs is unprecedented; this environment creates enormous opportunity for America’s Car-Mart.”
President Doug Campbell discussed the company’s ongoing initiatives in its quarterly earnings call on Thursday (Nov. 17). Regarding the new loan origination system, he said the aim is to shift the application process online, allowing customers to focus on vehicle shopping at the dealerships.
Following are some highlights from the quarter, compared to the previous period last year:
- Vehicles sold rose by 7.2% to 15,885 from 14,824
- Average sales price increased by 13.2% to $18,025 from $15,926
- Same-store revenue growth slowed to 23.2% from 28.2%
- Net charge-offs rose to 5.8% from 4.4%
- Active loans increased by 5.8% to 98,636 from 93,231
- Average loan term rose by 12% to 44.8 months from 40 months.
- Net finance receivables rose to $986.91 million from $757.46 million.
Through two quarters, Car-Mart’s earnings fell by 66% to $16.81 million, or $2.56 per share, from $49.45 million, or $7.14 per share, in the same period last year. Revenue rose by 22.8% to $690.65 million, from $562.02 million.
Shares of Car-Mart (NASDAQ: CRMT) closed Wednesday at $65.66, down $4.79 or 6.8%. On Thursday, the stock opened at a 52-week low of $52.24 and was trading at $64.55, down $1.11 or 1.69%, as of mid-day. In the past 52 weeks, the stock has ranged between $52.24 and $127.05.
According to J.D. Power Valuation Services Used Vehicle Price Index, wholesale used vehicle prices declined by 2.5% in October from the same month in 2021. The prices are 11% lower than their all-time high in December 2021. Between January and October, the prices are up an average of 19%, from the same period in 2021.
Meanwhile, retail prices have flatted to about $31,000 per vehicle for 2022. In October, J.D. Power used retail pricing data decreased by $500. Still, consumers in October paid $1,000 more than what they were paying in the same month last year and $8,000 more than what they were paying in October 2019.
“There continues to be a lot of information being depicted in the media that suggest used vehicle prices are crashing,” the index report shows. “J.D. Power data continues to show strong but cooling used vehicle prices, however no signs of a pricing bubble or crash.”
In October, total used retail sales at franchised dealers rose to 970,000 vehicles, up 10,000 vehicles from September and 45,000 more than in October 2019, according to the index report. The average number of days needed to sell a used vehicle rose by one day to 41 days, which is 10 days faster than in October 2019. Used dealer gross profit declined for the fifth consecutive month to $1,700 per vehicle but remained $500 higher than October 2019 levels.
According to the index report, wholesale used vehicle prices are expected to continue to fall through the remainder of 2022 and into early 2023. Retail and used prices are projected to remain above pre-pandemic levels through 2023 before returning to “their new normal level in 2024 and 2025,” the index report shows.