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Jan 31, 2024
Car-Mart Q3 2024 Earnings Report
America’s Car-Mart reported a decrease in revenue due to lower retail units sold, but gross profit per unit improved and SG&A expenses decreased.
Key Takeaways
America's Car-Mart reported a decrease in total revenue by 7.9% driven by a decrease in retail units sold. However, the company saw improvements in gross profit per unit and a decrease in SG&A expenses. The company also completed its fourth asset-backed non-recourse term securitization and renewed its revolving credit agreement.
Total revenue decreased by 7.9% due to a drop in retail units sold, partially offset by a rise in interest income and average retail sales price.
Gross profit per unit increased due to better pricing discipline and lower vehicle repair costs.
Net charge-offs as a percentage of average finance receivables increased to 6.8%, signaling a return to pre-pandemic levels.
SG&A expense decreased, aided by cost control activities.
Car-Mart
Car-Mart
Forward Guidance
The company is focusing on cost structure and investments to deliver long-term profitability and shareholder value. They have implemented several initiatives to improve sales during the fourth quarter and entered into a strategic partnership with Cox Automotive to drive better outcomes regarding vehicle acquisition, reconditioning, transportation, and remarketing activities.
Positive Outlook
- The company is actively working on other opportunities they expect to materialize during the calendar year.
- Strategic partnership with Cox Automotive is expected to drive better outcomes regarding vehicle acquisition, reconditioning, transportation, and remarketing activities.
- The company continues to originate finance receivable pools with attractive cash-on-cash returns.
- Kroll Bond Rating Agency upgraded the rating on all notes from the 2023-1 issuance.
- Renewed and extended its revolving credit agreement to September 2025 with a total commitment of $340 million with a group of seven banks.
Challenges Ahead
- Challenging macro environment facing customers.
- Sales volumes fell short of expectations during the quarter.
- Headwinds in gross profit related to lower prices in the wholesale market and an increased volume of wholesale vehicles related to the higher credit losses in the prior quarter.
- Net charge-offs as a percentage of average finance receivables were 6.8% compared to 5.9% during the prior year's third quarter.
- Two fewer selling days during the quarter, and weather in January accounted for approximately 3-4% of the decrease in sales volume compared to the prior year quarter.