Analysts: Car-Mart to see mixed results in Q4
by June 11, 2024 3:09 pm 61 views
Analysts said Rogers-based America’s Car-Mart Inc. is expected to post an earnings increase and a revenue decline in the fourth quarter of fiscal 2024 amid higher vehicle sales prices and interest but lower sales volumes.
Before the markets open June 18, the buy here, pay here used car dealer is expected to report earnings rose to 89 cents per share in the quarter ending April 30 from 32 cents per share in the same period last year, based on a consensus of three analysts. Revenue is projected to fall by 6.9% to $361.47 million from $388.31 million.
Based on a consensus of four analysts, Car-Mart is expected to report a loss of $4.31 per share for the year, down from earnings of $3.11 per share in the previous fiscal year. Revenue is expected to fall by 3.5% to $1.36 billion from $1.41 billion.
In an earnings preview, equity analysts John Hecht and Kyle Joseph and equity associates Matthew Hurwit, Sagiv Hartmayer, Alexander Villalobos and Ibrahim Kargbo, all of Jefferies, expect revenue to decline as sales fall and interest income increases. Vehicle sales are projected to decline by 17.5% to about 14,600 vehicles in the fourth quarter from the same period last year. The average retail sales price is expected to rise by 5% to about $19,000. Car-Mart’s vehicle inventory mix is expected to shift toward newer vintages with less mileage, bolstering sales prices in the near term.
According to the report, Car-Mart’s gross profit margin is expected to rise by 0.8 percentage points to 34.3% in the fourth quarter from the same period last year. Regarding credit, loss rates are projected to increase to 41.5% of net finance receivables from 40.2% in the previous quarter.
Recently, Car-Mart executives said its new loan origination system is being used at all its dealerships.
“We get the sense that the LOS enables more centralized/unified underwriting across the company,” the analysts said. “Management has highlighted that credit performance on loans originated through the new LOS is meaningfully better.
“Beyond the transition to the new LOS, management noted its new enterprise-wide partnership with Cox Automotive,” the analysts added. “The partnership is intended to offset industry headwinds surrounding inventory procurement and repairs. Given vehicle price data from Manheim/JD Power indices and the Cox Automotive partnership, we are optimistic for a recovery in gross margins.”
Historically, Car-Mart’s gross margins have been in the low- to mid-40s. Margins were 34.2% in the third quarter of fiscal 2024. The analysts expect margins ranging from 35% to 36% in the forecast period.
“We anticipate the next few quarters will see tough comps for retail unit sales, as it appears (Car-Mart) is requiring customers to chip in more equity at origination,” the analysts said. “While this is a headwind to the retail business, it should reduce the overhang of credit concerns over time.”
The analysts maintained a hold rating on Car-Mart shares and a 12-month target price of $72.
In May, Car-Mart announced it would acquire the dealership assets of Texas Auto Center, a used car dealership with two Texas locations. Financial terms of the deal were not disclosed, but it was expected to close in the first quarter of fiscal 2025, which started May 1. After the deal closes, Car-Mart would have 156 dealerships.
Shares of Car-Mart closed Tuesday (June 11) at $62.56, up 78 cents or 1.2%. In the past 52 weeks, the stock has ranged between $55 and $127.96.