Analysts: Car-Mart 3Q earnings to rise, revenue to fall

Rogers-based America’s Car-Mart Inc. is expected to post mixed results for the third quarter of fiscal 2025 as vehicle sales fall and prices rise, analysts said.

Before the markets open March 6, the buy here, pay here used car dealer is expected to report earnings of 15 cents per share in the quarter that ended Jan. 31 from a loss of $1.34 per share in the same period last year, based on a consensus of four analysts. Revenue is expected to fall by 5.6% to $282.83 million from $299.61 million.

In an earnings preview, equity analysts John Hecht and Matthew Hurwit and equity associates Alexander Villalobos, Ibrahim Kargbo and Yuna Sohn, all of Jefferies, said Car-Mart faces multiple issues, including “frontbook vs. backbook credit performance, affordability for its core customer and integration of new (loan origination system) into existing dealership infrastructure.”

Still, Car-Mart’s second-quarter credit performance showed “early signs of reverting toward (long-term) averages.”

Following are the third-quarter metrics Jefferies analysts expect Car-Mart to report compared to the same period last year:
• Average retail sales price to rise by 5% to $20,428.
• Vehicles sold to fall by 4% to 11,197.
• Gross margin to increase by 2.97 percentage points to 37.1%.
• Dealerships open to increase by one to 155.

Jefferies analysts attributed the rise in the average sales price in part to “updated revenue recognition related to service contracts.” They also attributed the gross margin increase to this. However, the analysts said the loan system integration may affect the company’s sales in the third quarter.

The analysts expect the company’s provision for losses to improve to $85 million in the third quarter from $100 million in the second quarter. “The improvement is driven by net portfolio run-off (quarter-over-quarter) and improving loss rates as (fiscal year 2023) and earlier vintages continue to payoff,” they said.

Jefferies analysts maintained a hold rating on Car-Mart shares and revised the 12-month target price to $51.

Shares of Car-Mart (NASDAQ: CRMT) closed Thursday (Feb. 27) at $41.73, down $1.29 or 3%. In the past 52 weeks, the stock has ranged between $37.98 and $74.10.

BROADER TRENDS
According to a fourth-quarter 2024 Edmunds report, a rising share of U.S. residents with vehicle loans owe more than their cars are worth. One in four, or 24.9%, of new vehicle trade-ins are underwater or have negative equity. That’s up from 24.2% in the third quarter of 2024 and 20.4% in the fourth quarter of 2023.

U.S. residents with upside-down car loans owe more money than ever before. The average amount owed on upside-down loans rose to a record high of $6,838, up from $6,458 in the third quarter of 2024 and $6,054 in the fourth quarter of 2023.

One in four (24.6%) consumers with negative equity owe more than $10,000 on their vehicle loans, up 22% from the third quarter of 2024. And 8.5% of vehicle owners with negative equity owed more than $15,000 in the fourth quarter of 2024, up 7.5% from the third quarter of 2024.

“Negative equity isn’t a brand-new phenomenon in the auto lending space — in fact, it wasn’t too long ago when more than a third of trade-ins toward new-car purchases were upside down,” said Jessica Caldwell, Edmunds’ head of insights. “What’s particularly alarming in the Q4 figures is that a growing share of trade-ins are hitting the double-digit mark in thousands of dollars owed, making the cycle far more challenging for consumers to escape.”

Compared to the industry average for all new vehicle buyers, those whose trade-ins had negative equity took on an additional $159 in monthly payments and $12,388 more in total financing. Both figures are record highs.

“The ramifications for trading in a vehicle well below sea level for a brand-new vehicle can be drastic and lead to a cycle of poor auto financing decisions,” said Ivan Drury, Edmunds’ director of insights. “If you find yourself significantly underwater on your loan, your best opportunity to rise to the surface is to hold onto the vehicle while keeping up with payments and maintenance.”