Rogers-based America’s Car-Mart Inc. missed Wall Street estimates for earnings but beat revenue expectations in the first quarter of fiscal 2024 as CEO Jeff Williams looks to shift into an emeritus role after 18 years with the company. President Douglas Campbell will become CEO on Oct. 1.
Before the markets opened Tuesday (Sept. 5), the buy here, pay here used car dealer reported earnings declined by 69.5% to $4.17 million, or 63 cents per share, in the quarter ending July 31 from $13.68 million, or $2.07 per share, in the same period last year. Revenue increased by 8.6% to $368.02 million from $338.81 million.
Company shares fell by double digits after posting first-quarter earnings. Also, Car-Mart recently closed two dealerships.
Car-Mart missed estimates of 91 cents per share, based on a consensus of four analysts. It beat the revenue estimate of $352.12 million.
In an earnings report, equity analysts Kyle Joseph and John Hecht and equity associate Derek Sommers, all of Jefferies, attributed the earnings miss to the company’s higher provision.
“In the first quarter, improvements in many areas of the business – unit sales, gross margin, repair costs, diminishing wholesale losses, online credit application activity, working capital management and closing underperforming stores were overshadowed by the increase in the provision for loan losses during the period,” Williams said. “The major drivers behind higher loan losses related to post-stimulus normalization of charge-offs, additional provisioning resulting from increased contract term and a higher average interest rate for the portfolio. Said in a different way, we are experiencing the same credit results on the portfolio as we have historically, but the contract length has changed.”
Williams said he expects this to reverse and lead to a more normal reserve provision. In the first quarter, the average term length rose by 6.6% to 46.9 months from 44 months in the same period last year. Over the same period, the provision for credit losses rose by 26.3% to $96.32 million from $76.24 million.
“Our loan origination system is now being utilized in all our stores for customer pre-approvals, improving our ability to maximize deal structures according to the risk each customer presents, and positioning us well for long-term success,” Williams added. “While our competition is struggling with access to capital, we are not. Our healthy increase in sales volume and scale, not to mention our ongoing business investments, are giving us ever-increasing advantages in the marketplace.”
According to a news release, Williams will move to the emeritus role on Oct. 1 but remain on the board. He’s expected to remain in the emeritus role through April 2024. Williams joined Car-Mart as chief financial officer in October 2005. He became president in March 2016 and has been a director since 2011 and CEO since January 2018.
“Since 2018, America’s Car-Mart has grown its customer base 50%, doubled book value per share, increased finance receivables from $500 million to $1.4 billion, and diversified its funding through a successful securitization program,” Williams said. “We have also embarked on several investment projects critical to our long-term success and increasing productivity. Importantly, to reach our full potential, we have aggressively recruited key talented executives. Doug is top among these new talents, and I’m very pleased that he will become CEO of America’s Car-Mart. Doug is a great leader and will take our company to the next level.”
Campbell will become a director and CEO on Oct. 1. He will also continue to be president of the company. Campbell joined the company in October 2022 after 25 years of automotive industry experience. He previously worked for Avis Budget Group and was senior vice president – head of fleet services. In 2021, he was named head of fleet services for the Americas and was responsible for the acquisition of the company’s new and used vehicles and its vehicle disposal strategy. He previously worked in leadership roles for AutoNation and Coral Springs Auto Mall.
“Doug has learned our business quickly — he appreciates our culture, the importance of our value proposition to any community, has made meaningful improvements to our operations and is an excellent leader,” said board chairman Josh Welch. “We are grateful for the many key business initiatives launched under Jeff’s leadership. Jeff continues to be a large shareholder in America’s Car-Mart. He will continue his dedicated work until the end of fiscal year 2024, subsequently remaining as a consultant to the company to help ensure a smooth transition.”
In the first-quarter earnings call, Campbell said this will be his first CEO position. “Over the last year, I’ve witnessed how dynamic, resourceful and agile our associates and leaders are,” he said. “Jeff has led the company through a challenging environment while kicking off some of the most important initiatives in our company’s history. I’m thankful for his leadership and ongoing assistance through the transition. I look forward to building upon the momentum Jeff has put in motion, and working with our team on the next chapter of growth and transformation while continuing to give back to the communities we serve.”
Also in the call, chief financial officer Vickie Judy said the company closed two dealerships in the first quarter “to better allocate our available capital.” Williams noted the company is looking at acquiring additional dealerships as operators are considering an exit strategy.
Car-Mart had 154 dealerships at the end of the first quarter, flat from the same period last year. Active customer loans increased by 8.1% to 104,734 from 96,899. Net finance receivables rose to $1.12 billion from $930 million.
Following are other company highlights in the first quarter compared to the same period last year:
- Vehicle sales rose by 2.4% to 15,912 from 15,536
- Average sales price increased by 4.1% to $18,799 from $18,065
- Gross profit increased by 0.2 percentage points to 34.6%
- Same-store revenue growth fell to 8.2% from 21.5%
- Net charge-offs increased to 5.8% from 5.1%
- Accounts over 30 days past due rose to 4.4% from 3.6%.
According to a news release, the company’s gross margins are expected to exceed 36%, and it attributed the gross margin improvement to Campbell’s work to improve “purchasing and disposition business practices and the hard work of our team, under his leadership.” The gross margin rose by 1.2 percentage points from the fourth quarter of fiscal 2023, and “the biggest driver of the sequential quarterly gross margin improvement was an 11% reduction in the cost of repairing vehicles. In addition, wholesale losses continue to diminish and are now lower than they were in 2018 as a result of improvements to both the purchasing and the disposition of vehicles.” The company noted that inventory is down 19% from the same time last year.
Shares of Car-Mart (NASDAQ: CRMT) closed Friday (Sept. 1) at $113.53, up $2.22 or 1.99%. On Tuesday, the stock was trading at $99.96, down $13.57 or 11.95%. Over the past 52 weeks, the stock has ranged between $52.24 and $127.96.