story by Kim Souza
ksouza@thecitywire.com
Investors made a U-turn away from America’s Car-Mart Inc. on Wednesday (Nov. 20) as the buy here, pay here, auto dealer missed Wall Street expectations on the top and bottom lines.
Shares fell more than 7% in active trading when the market opened Wednesday. Car-Mart shares traded as low as $38.52, down almost $4 on seven times the normal daily volume. Following the earnings call with Car-Mart execs, the shares rebounded a bit to $40.11, down $2.64.
America’s Car-Mart has been rolling out new dealerships at a robust 10% rate this year and last; but in the recent quarter ending Oct. 31, the car dealer faced competitive headwinds that curtailed its net profits.
The Bentonville-based company posted net profits of $5.8 million for the recent quarter, down 20.2% from the $7.268 million pocketed in the year-ago period.
On a per-share basis earnings totaled 61 cents, down from 76 cents, a year ago. Car-Mart missed Wall Street’s consensus expectations of 80 cents per share.
Car-Mart also missed top line revenue expectations of $126.8 million, instead reporting $121 million, a solid increase of 10% from the same period in 2012.
A key metric in the industry is same-store sales, rising 3.8% in the quarter, which was aided by a slight uptick in the average retail sales price and steady traffic patterns.
"We are pleased with our top line growth in this presently challenging competitive environment ... We are highly focused on increasing customer success and tightening expenses while ensuring that our infrastructure remains solid to support the business," said CEO Hank Henderson.
He said many companies are competing for Car-Mart customers on the funding side, but they are not focused on earning repeat business that has always been Car-Mart’s goal.
“This is a reality that is having a negative effect on our business especially on the provision for credit loss line. We remain committed to the belief that the only way to run this business for the long-term is to do everything possible to help customers successfully complete the terms of their contracts. By focusing on customer success, we will continue to fulfill our vision of being the most respected buy-here-pay-here organization in the country," Henderson said.
Because Car-Mart provides in-house financing for its 60,000 customers, maintaining steady loan portfolio performance is important to the company’s net profit.
The company reported net charge-offs as a percent of its finance receivables of 6.9% in the quarter, up from 6.5% in the prior year. Likewise, the provision for credit losses also ticked higher to 26.3% of sales versus 24.1% in the prior year.
In the recent quarter Car-Mart sold 10,608 automobiles, an average of 27.6 units per dealership per month. While total unit sales were up 8.1% from a year ago, the monthly average sales per dealership slipped from 28.2 units.
The company opened three new dealerships in the quarter, ending the period with 129 lots, which was 12 more than they had a year ago.
“We have several new openings planned for the next few months and we continue to expect to open a total of 12 for the fiscal year," Henderson said.
Chief Financial Officer Jeff Williams said the provision of credit losses are higher than they would like, but the company’s balance sheet and cash-on-cash returns are still very attractive.
"As we have said in the past, we believe it is prudent to maintain a very conservative balance sheet, especially in the current operating environment. Our debt to equity ratio was 47% and our debt to finance receivables ratio was 26.1% at the end of the quarter,” Williams said.
Henderson said the company’s mature lots, those over 10 years old, were a little heavy on higher-end vehicles in the quarter as they continue to see more consumers wanting to buy lower priced cars.
“We continually battle that cost-to-quality curve as it moves up and down. Perhaps we lost a few sales because some of the mature lots did not have enough lower priced cars, but we have made the necessary inventory adjustments, this is nothing new to us,” Henderson said.
He said the firm has a bright future and will continue to expand its footprint with more stores, but in the meantime Car-Mart is reigning in corporate expenses. For example, he said the total headcount at the corporate offices has been slightly reduced, as some workers have been moved out to the lots as positions open up.