Car-Mart misses 2Q forecast

Net suffers as customers strapped and inventories scant

America’s Car-Mart posted second-quarter earnings that fell short of analysts’ estimates as its customers face challenges from inflation and as tight used car supplies keep the company’s costs high.

Net income for the quarter ended Oct. 31 was $3.1 million, or 48 cents per share compared with $23.4 million or $3.41 per share for the same period a year ago. A consensus of four analysts predicted earnings per share of $2.17, according to Yahoo Finance.

Revenue was up for the second quarter with CarMart booking $352 million, up nearly 24% when compared with $284.5 million for the year ago period. The four analysts have revenue for the quarter pegged at $326.72 million.

Car-Mart released earnings late Wednesday and held a conference call with analysts Thursday morning.

Shares of Car-Mart closed at $67.01, up $1.35 or about 2% in trading Thursday on the Nasdaq. Shares have traded as low as $52.24 and as high as $127.05 over the past year.

During the call, Jeff Williams, Car-Mart chief executive officer, said despite the current market headwinds, which include rising credit costs, rapid inflation and a supply crunch on used cars, the company is still well positioned and the situation actually presents an opportunity for the buy-here pay-here used car dealer. He said customer demand is high and the company didn’t pass on all of its cost onto its customers this quarter.

“The market changed dramatically during the past year, as the price of used vehicles increased while our customers’ ability to pay has declined,” Williams said in a statement. “The result is we have taken losses on certain amounts of inventory, and we expect wholesale losses to continue into next quarter. In addition, labor costs are up across the board, as well as funding costs of the business due to higher interest rates. We view the wholesale losses and procurement challenges as temporary.”

He noted the company’s competitors are scaling back or closing lots, something that’s not been seen in the industry for years and creating an opportunity for Car-Mart going further.

“We will continue to adapt,” Williams said.

Vickie Judy, Car-Mart chief financial officer said net charge-offs as a percent of average finance receivables was 5.8% for the second quarter compared with 4.4% for the year ago period. Charge-offs are an indication of debt that is unlikely to be collected. Car-Mart’s customers often do not have access to traditional vehicle financing because of poor credit or no credit history.

Judy said the second quarter results saw more credit losses and they were more severe but were in line with pre-covid quarters. She said the company is focused on keeping customers in their cars and on the road.

Douglas Campbell, a top executive at Avis Budget Group who joined the company as

its president in September, spoke for the first time during a conference call. He said new programs and improvements at Car-Mart include acquiring and reconditioning vehicles through a strategic partner; a new loan origination system; and improved computer software that can help generate sales and streamline processes.

Car-Mart sold 15,885 vehicles in the second quarter, up 7.2% when compared with 14,824 vehicles sold for the same period a year ago. The average retail price was up 13% at $18,025. Gross profit per unit sold was $6,132 compared with $6,095 for the same quarter last year, an increase of less than 1%.

According to Cox Automotive, retail used-vehicle sales for October, which focuses on vehicles sold at dealerships and removing private party sales, are estimated to be down 13.2% when compared to October of 2021. The total used vehicle market is expected to finish the year down more than 12% from 40.6 million last year.

“Rising interest rates are making some used vehicles too expensive, and it is taking some potential buyers out of the market,” Charles Chesbrough, senior economist at Cox Automotive said in a news release. “As rates continue to rise through 2022, demand may take a larger hit and vehicle discounting may need to occur to get buyers able and interested again in purchasing.”

Car-Mart operates 154 dealerships in 12 states — Alabama, Arkansas, Georgia, Illinois, Indiana, Iowa, Kentucky, Mississippi, Missouri, Oklahoma, Tennessee and Texas.

“As rates continue to rise through 2022, demand may take a larger hit and vehicle discounting may need to occur to get buyers able and interested again in purchasing.”

— Charles Chesbrough