Car-Mart hopes business increases as refund checks are distributed

America’s Car-Mart executives expect a busy next couple of weeks as tax refund checks begin reaching their customers.

On Monday (Feb. 20), the company reported third-quarter earnings fell 30% to $2.82 million, or 35 cents per share, missing analysts’ estimates by 29 cents. Shares of Car-Mart (NASDAQ: CRMT) closed Tuesday (Feb. 21) at $32.80, down $6.05 or 15.57%. In the past 52 weeks, shares of Car-Mart have traded between $47.75 and $19.49.

A delay in refunds impacted third-quarter sales for the Bentonville-based used-car dealer, which also announced it was closing three dealerships. In the quarter that ended Jan. 31, revenue rose 1% to $138.78 million, from $137.46 million.

In the past, customers’ tax refund checks started arriving in the last week of January, but this year, a new law requires the IRS to hold refunds until Feb. 15 for those who claim the earned income tax credit and the additional child tax credit.

“There was a significant delay in the income tax refunds this year, actually close to a full month behind compared to last year,” CEO William “Hank” Henderson said in a Tuesday conference call on third-quarter earnings. “There wasn’t the pickup in sales in the latter part of January from those customers that had already gotten their refunds in hand as we typically see.”

But the checks are expected to begin arriving this week, leading into “what could be our couple busiest weeks of the whole year,” Henderson said. “We are well stocked on inventory, so we should be able to make up part of that.”

Jeffrey Williams, president and chief financial officer, said the company might’ve had “300 sales last year that didn’t happen this year because of the timing of tax refunds.” The sales that would have happened in the third quarter, “theoretically, that should all roll into the fourth (quarter).” But the sales might be less being that the refunds were delayed a month.

Also discussed in the call were the three dealerships Car-Mart recently closed, bringing the total number of dealerships to 140. Two are Car-Mart dealerships in Nicholasville, Ky., and Albany, Ga., while the third is a Discount Auto dealership in North Little Rock. Other Discount Auto dealerships are located in Russellville and Bethel Heights – both in Arkansas.

Williams noted that excluding the impact of the four dealerships the company closed in the fourth quarter of 2016 and the three recently closed dealerships, revenue increased 2.4%.

When asked about when the company might open dealerships again, Henderson said the company isn’t yet prepared to talk about openings. As far as closing more dealerships, the company has yet to announce other ones that will close, but it will continue to evaluate this. With the company’s 140 dealerships, Williams said the company has “a lot of room to increase profits and increase the top line from that existing store base in the short term.”

Some of the other points made during the conference call include:
• As average sales prices rise, the company’s loan terms might become longer, but it is trying to make sure the life of the vehicle and loan term length “are in alignment,” Williams said.

• Customer traffic at dealerships has risen, while the number of sales has fallen.

• The company’s policy for using GPS tracking devices in its customers’ vehicles is only “for locating the collateral when the customer is not communicating with us,” Williams said.

PRICING FORECAST
Used vehicle prices for vehicles up to eight years old are expected to increase 1% in February, from the previous month, according to the NADA Used Car Guide.

“Prices fell slightly by 0.2% over February in 2016, which was an abnormal result since prices typically rise in February.”

In March, used vehicles prices are expected to reach a peak after rising another 2%. The annual downward trend is expected to start in April. The guide noted that prices are expected to drop 4.5% to 5% in 2017, more than 2016’s 4% decline.

In January, the wholesale price of vehicles up to eight years old declined 0.4%, from December 2016. The decline was expected, but it “was only the fourth recorded for the month since 2003,” according to NADA. Its seasonally adjusted used vehicle price index decreased 6.5% to 114.3 in January, from 122.3 in the same month in 2016. The index fell for the seventh consecutive month.