story by Kim Souza
ksouza@thecitywire.com
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 buy here, pay here, used car dealer faced competition 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. The announcement was released about three hours after the markets closed on Tuesday, (Nov. 19).
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. Same-store sales, rose 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.
Car-Mart sold 10,608 automobiles, an average of 27.6 units per dealership per month in the recent quarter. 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.
Shares of America’s Car-Mart closed Tuesday (Nov. 19) at $42.75, up 56 cents. Car-Mart execs will hold a call with analysts at 10 a.m. Wednesday, (Nov. 20) to discuss the financial results of the recent quarter.
The City Wire will update this story following that call.