America’s Car-Mart, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended October 31, 2021; comparisons are to the periods ended October 31, 2020. The company sells used vehicles and finances substantially all customers through 152 dealerships. Dollar amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Three months ended Oct. 31, 2021 | Three months ended Oct. 31, 2020 | Six months ended Oct. 31, 2021 | Six months ended Oct. 31, 2020 |
|---|---|---|---|---|
| Total revenue | $288.3 | $223.4 | $568.6 | $411.3 |
| Net income | $22.9 | $21.2 | $47.9 | $40.8 |
| Diluted EPS | $3.33 | $3.05 | $6.90 | $5.88 |
| Provision for credit losses | $60.9 | $43.9 | $115.1 | $79.9 |
- Quarterly revenue rose 29.1%; sales increased 27.8% and interest and other income increased 38.8%. Quarterly net income rose about 8.0%.
- Six-month revenue rose 38.3% and net income rose about 17.4%. Retail units sold increased 14.7%, while average retail selling price rose 20.5% to $15,787.
- Gross margin as a percentage of sales declined to 37.5% in the quarter from 40.7%, and to 37.8% for six months from 41.1%. Management attributed the pressure to higher vehicle acquisition costs; gross profit per retail unit nevertheless increased.
- SG&A was 14.8% of sales for the quarter and 15.3% for six months, both lower than the comparable periods, reflecting sales growth outpacing expense growth. Credit-loss provision was 24.3% of sales for the quarter and 23.1% for six months, versus 22.3% and 22.2%, respectively.
Cash flow, balance sheet and funding
- For the six months, operating cash flow was negative $70.0 million, compared with negative $29.7 million a year earlier. Investing cash flow was negative $7.1 million; financing cash flow was positive $76.3 million. Cash decreased $0.8 million to $2.1 million.
- Finance receivables, net, were $748.2 million at October 31, up from $625.1 million at April 30; inventory was $109.0 million, up from $82.3 million.
- Debt facilities, net of issuance costs, were $324.1 million, versus $225.9 million at April 30. The company had $106.3 million of additional borrowing availability and reported compliance with credit-facility covenants.
- A September 2021 amendment increased total revolving commitments to $600 million and extended facility maturity to September 2024. The facilities bear variable rates; management estimated that a 1 percentage-point rate increase on October 31 debt would add about $3.3 million in annual interest expense.
- Six-month capital expenditures were $6.8 million and common-stock repurchases were $20.0 million. The company expects approximately $25 million of capital expenditures over the next 12 months.
Credit, outlook and risks
- The allowance for credit losses was $218.2 million, or 24.5% of the relevant receivables balance. Net charge-offs were 9.1% of average finance receivables for six months, down from 9.6%; however, accounts more than 30 days past due rose to 4.0% from 2.5%, and balances more than 90 days past due increased to $6.5 million from $1.6 million year over year.
- Average originating contract term increased to 39.7 months from 33.1 months. Management said higher vehicle prices contributed to longer terms and expected elevated vehicle costs and near-term gross-margin pressure to persist.
- Management stated it believes liquidity is adequate for foreseeable needs. The filing provides no specific earnings or revenue guidance. It cites used-vehicle supply and pricing, customer affordability, collections and credit losses, inflation, employment, COVID-19 developments, funding availability, staffing, competition and regulation as risks.
- Seasonality is significant: the November–January fiscal quarter is historically the slowest for vehicle sales. The company also disclosed a tax-treatment contingency related to intercompany receivable sales; an adverse tax interpretation could increase taxes and affect payment timing. Ordinary-course legal proceedings were not expected to have a material adverse effect.
Important facts for investors to verify
- Whether rising delinquencies and longer loan terms lead to higher future charge-offs or require a larger credit-loss allowance.
- Whether vehicle supply and acquisition costs stabilize, and how gross margins respond while customer affordability is maintained.
- Whether receivables growth, negative operating cash flow, share repurchases and capital spending remain supportable within borrowing availability and facility covenants.
- Exposure to variable interest rates, including the effect of any rate increases on financing costs.
- Potential consequences of the tax contingency and the timing or outcome of any related tax-authority challenge.