America's Car-Mart reported a significant loss for its second quarter on Tuesday despite higher revenue with the buy-here, pay-here used car dealer saying it is facing continued headwinds, including decreased unit sales and higher credit losses.
The Rogers-based company reported a loss of $27.5 million or $4.30 per share compared with earnings of $3.1 million or 48 cents per share for the quarter ended Oct. 31 last year. A consensus estimate of four analysts had predicted earnings per share of 78 cents, according to Yahoo Finance.
The company's shares tumbled on the news Tuesday, closing at $66.29, down $14.54 or 18% on the Nasdaq. Shares have traded as low as $59.52 and as high as $127.96 over the past year.
Car-Mart has seen its profits decline over the previous five quarters, posting results that missed analysts' forecasts for profits as the buy-here pay-here car dealer's customers -- typically those with poor or little credit -- face pressure from inflation and the costs for used cars remains stubbornly high. This is the first quarterly loss the company has reported in recent years.
Revenue for the quarter was $361.6 million, up 2.8%, compared with $351.8 million for the year ago period. A consensus estimate of four analysts pegged revenue at $363.76 million for the quarter.
"The persistent inflationary environment impacted existing customers, which was evident in our credit losses," Doug Campbell, president and chief executive officer of Car-Mart, said in a statement.
"This required an increase in the allowance for credit losses which subsequently impacted the bottom line for the quarter. We believe these headwinds regarding credit loss are shorter-term in nature."
The company said its 2.8% revenue bump came from a 23% increase in interest income and a 5.6% increase in the average retail sale price. The gain was partially offset by a 4.6% decrease in units sold.
Car-Mart released its earnings Tuesday morning before the market opened.
In a call with analysts Tuesday morning, Campbell said while inflation has slowed, prices for essential items, from utilities, to food to rent remain painfully high for Car-Mart's core customers.
Car-Mart said net charge-offs were 7.2% for the second quarter compared with 5.8% for the year-ago quarter. It noted the higher rate is more in-line with net charge off percentages before the pandemic.
Charge-offs are an indication of debt that is unlikely to be collected.
The company raised its allowance for credit loss to 26.04%, compared with 23.91% in the first quarter resulting in a $28 million, or $3.40 per share charge -- a one-time increase -- "primarily driven by the recent increases in net charge-offs, underscoring the challenges and economic pressure on our subprime consumer."
Car-Mart sold 15,162 vehicles in the second quarter, down 4.6% from 15,885 for the year-ago period.
The company said it is making progress in lowering purchase prices and adding newer vehicles to its lots.
The average retail price per vehicle sold was $19,035 compared with $18,025, an increase of 5.6%. Gross profit per unit was $6,835, up from $6,132 for the second quarter of 2022, on the company's focus on procurement, remarketing and repairs.
Car-Mart operated 154 stores during the quarter, the same amount as last year.
During the conference call, Car-Mart executives noted October sales were surprisingly soft.
According to Cox Automotive, retail used-vehicle sales for October -- reflecting vehicles sold at dealerships and not private party sales -- were estimated to be 3 million, down 3.5% year over year.
"The used-vehicle market saw a slight decline in October, which is a bit surprising given the affordability issues in the new market," Chris Frey, senior manager of Economic and Industry Insights at Cox Automotive said in a statement.
"Despite facing higher interest rates, the used market has remained strong, a result of the lower prices of used vehicles and the continued need for transportation among consumers."
Earlier this month Car-Mart said it was acquiring Central Auto Sales in Hot Springs with the deal expected to close at the end of December.
Central Auto Sales was founded in Hot Springs in 1996.
In September, long-time America's Car-Mart CEO Jeff Williams stepped down and was replaced by Campbell effective Oct. 1. Williams, who served as the company's chief financial officer and then president, took over as chief executive officer in 2018 when Car-Mart's high-profile front man Hank Henderson who left the company. Henderson passed away in mid-October.
Car-Mart has 154 locations in Alabama, Arkansas, Georgia, Illinois, Indiana, Iowa, Kentucky, Mississippi, Missouri, Oklahoma, Tennessee and Texas.