Car-Mart loss exceeds $27 million in ‘challenging’ Q2

Rogers-based America’s Car-Mart Inc. posted a more than $27 million loss in the second quarter of fiscal 2024 as challenging conditions affected vehicle sales and credit. Shares Tuesday (Dec. 5) tumbled to a 52-week low.

Before the markets opened Tuesday, Car-Mart reported a loss of $27.47 million, or a loss of $4.30 per share, in the quarter that ended Oct. 31 compared to net income of $3.12 million, or 48 cents per share, in the same period last year. Revenue rose by 2.8% to $361.58 million from $351.84 million.

Car-Mart missed earnings expectations of 78 cents per share and revenue of $363.76 million, based on a consensus of four analysts.

“Our second quarter results reflect the Car-Mart team’s commitment and focus on delivering value to our customers during a challenging economy,” said President and CEO Doug Campbell. “Revenue was up 2.8%, primarily due to interest income despite unit sales being down 4.6% during the quarter. The persistent inflationary environment impacted existing customers, which was evident in our credit losses. This required an increase in the allowance for credit losses which subsequently impacted the bottom line for the quarter.”

In an earnings report, equity analysts Kyle Joseph and John Hecht and equity associate Derek Sommers, all of Jefferies, said, “the challenging macro appeared to weigh on unit sales and credit, while gross margins continues to recover.” They noted the allowance for loan losses increased, contributing to a higher provision than expected: $135.4 million compared to an estimated $100 million. Net charge-offs rose by 1.4 percentage points to pre-pandemic levels, while delinquencies were stable.

The Jefferies analysts maintained a hold rating on Car-Mart shares and cut their 12-month target rate to $72 from $95.

“Macro pressures continue and appeared to impact unit sales and (net charge-offs) in what we would characterize as a challenging quarter,” the analysts said. “We anticipate challenges being relatively short-lived and highlight the resilient and defensive nature of (Car-Mart’s) business.”

Following are second-quarter highlights:

• Vehicle sales declined by 4.6% to 15,162
• Average sales price rose by 5.6% to $19,035
• Gross margin increased to 34.3% from 32.1%
• Active loans rose by 6% to 104,596 from 98,636
• Net charge-offs rose to 7.2% from 5.8%
• Net finance receivables rose by 12.9% to $1.1 billion from $978.28 million.

Campbell also expects the credit losses to be short term and said the “operational investments we’ve made are driving greater efficiencies in the business, one of which was gross margin, which was a bright spot during the quarter. However, we are equally focused on being more agile regarding our cost structure to effectively navigate this environment. We believe this will leave our consumer and our company well-positioned for success in the long term.”

Car-Mart recently announced a one-location acquisition that’s expected to be completed in the third quarter. The company will have 154 dealerships after the deal is completed. At the end of the second quarter, Car-Mart had 153 dealerships, one less than at the same time last year. The company closed a dealership in the second quarter.

Through the first half of fiscal 2024, Car-Mart reported a loss of $23.29 million, or a loss of $3.65 per share, compared to net income of $16.81 million, or $2.56 per share, in the same period last year. Revenue rose by 5.6% to $729.6 million from $690.65 million.

Shares of Car-Mart (NASDAQ: CRMT) closed Tuesday at $66.29, down $14.54 or $17.99%. In the past 52 weeks, the stock has ranged between $59.52 and $127.96.