Car-Mart misses earnings expectations, beats revenue estimates

Rogers-based America’s Car-Mart Inc. posted a double-digit decline in earnings and a double-digit increase in revenue as winter weather affected sales and vehicle values growth moderated in the third quarter of fiscal 2023. Following the earnings report, the stock price was down by double digits.

Before the markets opened Wednesday (Feb. 22), the buy here, pay here used car dealer reported earnings declined by 92.1% to $1.49 million, or 23 cents per share, in the period ending Jan. 31, from $19.13 million, or $2.82 per share, in the same period last year. Revenue increased by 13.6% to $326.53 million from $287.29 million.

Car-Mart missed analyst expectations of 49 cents per share, based on a consensus of three analysts. The company narrowly beat revenue estimates of $326.36 million.

“It is positive to see that vehicle prices have leveled off over the last several months as wages continue to rise for our customers,” said CEO Jeff Williams. “The significant increase in the cost of vehicles over the last few years has resulted in higher retail prices and longer contract term lengths, necessary to keep consumer payments more affordable. We continue to see market share gains attributable to our pricing decisions.

“In addition, we have recently reorganized several areas within our operations under the leadership of [President] Doug Campbell including vehicle acquisition and disposal, logistics, reconditioning and field operations management. These changes put us in a position to improve efficiencies while narrowing areas of focus and increasing accountability. Short-term operating conditions are difficult; however, we are making significant progress on the things we control and prudently investing for the long term. Over the next three to five years, we expect to generate returns on equity at historical levels by increasing volume productivity, improving gross margins as a function of procurement initiatives, by leveraging SG&A and through acquisitions of well-operated dealerships.”

In December, Car-Mart closed on dealership acquisitions in Knoxville, Tenn., and Taylor, Texas. The company noted it has plans to spend $28 million on capital expenditures this year, including $20 million for new locations, relocations and rebranding, and $6 million on information technology investments. At the end of the third quarter, the company had 157 dealerships, up from 153 at the same time last year.

In the third quarter, Car-Mart’s average vehicle sales price increased by 8% to $18,091 from $16,750 in the same period last year. Vehicles sold rose by 2.7% to 14,508 from 14,126.

According to the company’s earnings release, severe winter storms in January disrupted operations at most of its dealerships. The company noted the storms affected sales volumes by 300 to 400 vehicles.

In an earnings report, equity analysts Kyle Joseph and John Hecht and equity associate Derek Sommers, all of Jefferies LLC, said the company likely would’ve beat expectations modestly without the weather impacts.

“We consider the results as mixed but not unexpected given an ever-changing economic backdrop,” the analysts said. “Used car prices continued to decelerate in the (quarter) but remain up 5.9% (year-over-year). Unit sales were consistent with our (estimates) and are up 2.7% (year-over-year). We continue to believe (Car-Mart) maintains an operating model which is well-tested for the current economic environment.”

Jefferies maintained a hold rating on the stock and a 12-month target price of $75.

Shares of Car-Mart (NASDAQ: CRMT) closed Tuesday (Feb. 21) at $87.55. By Wednesday afternoon, Car-Mart shares were trading at $78.37, down $9.18 or 10.49%. In the past 12 months, the stock has ranged between $52.24 and $127.05.

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

• Net finance receivables rose to $1.02 billion from $806.98 million.
• Active customers increased by 6% to 99,577 from 93,982
• Accounts over 30 days past due fell to 3.7% from 4%
• Net charge-offs rose to 5.9% from 4.8%
• Total gross profit declined to 33.6% from 36.7%
• Same-store revenue growth fell to 12.3% from 24.8%.

From the first to third quarters, earnings declined by 73.2% to $18.31 million, or $2.79 per share, from $68.58 million, or $9.97 per share. Revenue rose by 19.7% to $1.01 billion from $849.32 million.