America’s Car-Mart Goes Off-Road

The small-cap automotive retailer operates in the integrated auto sales and finance segment of the used car market. 🚗

America’s Car-Mart saw revenues jump 8.6% YoY to $368 million, narrowly topping estimates. Meanwhile, adjusted earnings per share of $0.63 missed expectations of $0.98.  

Looking at volumes, the company’s customer count rose 8.1% to 104,734 active customers. Total retail unit sales rose 2.4%, with a growth of 8.2% for same-store retail revenue. And sales volume productivity per store per month was 34.2 vs. 33.6, a 1.8% increase. 📊

Turning to profitability, gross profit per car sold rose 3.74% to $6,768. Additionally, gross margins increased 260 bp to 36%, with executives now expecting future gross margins above previous guidance. However, the company’s provision for credit losses as a percentage of sales rose to 30.9%, as net charge-offs continue to rise amid its core customer base. 

The higher loan loss provisions overshadowed improvements elsewhere in the business. This figure is returning to pre-pandemic levels, stressed by longer contract terms and a higher average interest rate for the portfolio of loans. ❌

Essentially, more expensive cars have caused customers to finance their purchases at less favorable terms. And as the economy slows and/or used car values fall, delinquencies become more likely.

The automobile market continues to be a tough one for retailers. Demand is pressured by high automobile prices and financing rates, while low inventories and higher repair and replacement costs pressure supply. If the economy weakens, the demand side of the equation will only get more difficult and likely see loan delinquencies tick up further. 😬

$CRMT shares fell 14% on the day, now sitting at the same levels as early 2019. With that said, like many of its peers, its longer-term trend remains higher. 🙃

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