Car-Mart revenue to top $1 billion in fiscal 2022, analysts say

Rogers-based America’s Car-Mart is expected to post earnings decreases for the fourth quarter of fiscal 2022 and the year, but revenue is projected to rise to more than $1 billion, according to analysts.

After the markets close on May 23, the buy here, pay here used car dealer is expected to report earnings declined to $3.10 per share in the quarter ending April 30, from $6.19 per share in the same period in 2021, based on a consensus of four analysts. Fourth-quarter revenue is projected to rise by 6.5% to $297.23 million, from $279.08 million.

For the year, earnings are projected to fall to $12.78 per share, from $14.95 per share in fiscal 2021. Revenue is projected to increase by 23.1% to $1.13 billion, from $918.61 million.

In fiscal 2002, Car-Mart’s revenue was $127 million. It rose to $588 million in 2017 and hit $745 million in 2020.

In an earnings preview, equity analysts John Hecht and Kyle Joseph and equity associates Matthew Hurwit and Sagiv Hartmayer, all of Jefferies, expected revenue to rise because of an increase in sales and interest income. The analysts expected loss rates to increase from the same period last year. Expenses are expected to rise by 23% to $276 million.

According to the analysts, the gross adjusted margin on auto sales is projected to fall to 38.1%, from 40.2% in the same period last year. Average retail sales are projected to rise by 5% to about 15,000 vehicles, and average retail sales price is expected to fall by 5% to about $15,700 “as car sales continue to be impacted by low supply and ongoing supply chain disruptions,” the analysts said.

“(Car-Mart) has effectively navigated an evolving used car market and remains well-positioned competitively vs. indirect lenders and other (buy here, pay here) operators,” they added. “Like others in the space, (Car-Mart) has shown signs of credit normalization and growing expenses given inflationary pressures.”

The analysts said Car-Mart’s focus on sales instead of collections will lead to more customers as it makes more investments into procurement and sales and marketing. The company is well-positioned from competitors as indirect lenders have tightened, and ‘mom-and-pop’ operators face inventory issues and higher used car prices.

According to the analysts, short-term impacts will have offsetting effects on Car-Mart, including higher used car prices and tighter credit, which is expected to support sales. The analysts said the company’s business model is defensive and its ‘blocking and tackling’ strategy “by investing in long-term employees, building community-based stores, and selling reliable vehicles that will be less likely to charge-off, has paid off as the company has consistently delivered strong top-line results. Recent results have been solid despite an evolving macro backdrop.”

On April 27, Car-Mart completed a securitization transaction that included the issuance and sale in a private offering of $400 million in various classes of backed notes, according to a recent filing with the U.S. Securities and Exchange Commission. The notes were issued by ACM Auto Trust 2022-1, an indirect subsidiary of the company. The collateral for the notes comprises loans issued by the company. Net proceeds from the offering were about $396 million and are being used to pay debt, make the initial deposit into a reserve account and for other general purposes.

The Jefferies analysts maintained a hold rating on Car-Mart shares and lowered the 12-month target price to $89, from $115.

Shares of Car-Mart (NASDAQ: CRMT) closed Monday (May 16) at $81.79, down $1.45 or 1.74%. In the past 52 weeks, the stock has ranged between and $72.50 and $177.45.

BROADER TRENDS
Wholesale used vehicle prices fell by 1% in April, from March, according to the Manheim Used Vehicle Value Index. Prices were up 14% from April 2021.

Used retail vehicle sales fell by 13% in April, from March, and more than half of tax refunds have been distributed so far this year, according to Manheim. Used retail sales fell by 21% in April, from the same month in 2021, according to DealerTrack. Tax refund distribution is about four weeks behind the normal pace. The average refund amount is up 5% from 2021.

According to vAuto, used retail supply fell to 46 days, from 47 days in March. According to Manheim, wholesale supply was 25 days in April, up from 23 days in March.

New vehicle sales declined by 2% in April, from March, according to Manheim. Sales were down 19% in April, from the same month in 2021.

According to the Conference Board, consumer confidence fell by 0.3% in April, from March. The confidence is down by 8.7% in April, from the same month in 2021. Plans to purchase a vehicle in the next six months increased to the highest level in three months but fell from the same time last year. Plans to purchase a home rose slightly but declined from the same time last year.

According to Hecht, Joseph, Hurwit and Hartmayer, used vehicle sales in 2022 are projected to be impacted by affordability and supply issues. Year-over-year comparisons are expected to be tougher than they were in 2021 “as used volumes may recede, as residual values flatten and as (net charge offs) move up,” they said.

The analysts expect residual values to remain high for “a good portion of (2022).” Used vehicle demand has moderated, but prices remain near record highs. Supply constraints can be attributed to a low flow of vehicles coming off lease and chip shortages, which continue to affect new car production.

According to the analysts, the average amount financed for a used vehicle rose by 24.5% to $26,900 in the fourth quarter, from $21,600 in the same period in 2020. The monthly payments for the amounts financed increased by 18.7% to $476, from $401, respectively. In the coming months, the average used vehicle loan is expected to rise to a record high of $27,500 amid tight vehicle supply.

Higher vehicle values and monthly payments might disrupt the low delinquencies over the next six quarters, the analyst said.