America’s Car-Mart, Inc. — Form 10-Q Summary
Business context and reporting period
Quarterly report for the three and nine months ended January 31, 2013, the company’s fiscal third quarter. America’s Car-Mart sells older-model used vehicles and finances substantially all customer purchases, primarily for customers with limited or impaired credit histories. It operated 120 dealerships, principally in the South-Central United States.
Key financial metrics
Amounts are in millions except per-share data; comparisons are with the corresponding prior-year period unless stated otherwise.
| Metric | Three months | Nine months |
|---|---|---|
| Total revenue | $118.9, up 12.9% | $339.1, up 7.1% |
| Net income | $8.0, up from $7.3 | $23.4, essentially unchanged |
| Diluted EPS | $0.84, versus $0.73 | $2.43, versus $2.28 |
| Income before taxes | $12.5, up 6.6% | $37.1, down 1.1% |
| Provision for credit losses | $25.2; 23.7% of sales | $70.5; 23.3% of sales |
| Operating cash flow | Not presented for the quarter | $(14.2), versus $(6.0) |
For the nine months, gross margin as a percentage of sales was 42.7%, versus 42.5%; SG&A was 17.8% of sales, versus 17.6%. Cash and equivalents were $0.9 million at January 31. Finance receivables, net, were $288.4 million, and inventory was $35.9 million.
Revolving debt was $109.3 million, up from $77.9 million at April 30, 2012. The $145 million credit facilities mature in March 2015; the company reported $35.7 million of additional borrowing availability and compliance with covenants. The stated rate was generally LIBOR plus 2.5% (2.71% at January 31). A 1 percentage-point rate increase would add approximately $1.1 million in annual interest expense, before tax.
Material changes versus the prior comparable period
- Nine-month revenue growth reflected 7.3% more retail units sold and 12.8% higher interest income; average retail selling price was approximately flat. The quarter’s same-store revenue rose 8.8%, while nine-month same-store revenue rose 2.8%.
- Credit performance weakened: receivables more than 30 days past due reached 6.0%, versus 4.7% a year earlier; balances more than 90 days past due were $2.4 million, versus $1.0 million. Nine-month net charge-offs were 18.1% of average receivables, versus 17.7%.
- Collections as a percentage of average receivables fell to 42.8% from 46.3%. Management cited longer contract terms, more modifications, and delayed customer tax refunds. The allowance was $75.6 million, or 21.5% of principal balance, versus 22.0% at January 31, 2012.
- Operating cash use increased to $14.2 million, largely reflecting growth in finance receivables. Financing provided $18.0 million, including $31.4 million of net revolving-facility borrowings. The company repurchased $17.2 million of stock, compared with $30.0 million in the prior-year period.
Outlook, management commentary, risks and unusual items
- No specific full-year revenue or earnings guidance is provided. Management expects near-term gross margins to remain around 42%–43%, and expects vehicle purchase-cost pressure and competition to contribute to longer customer contract terms.
- Management expects credit losses to remain within historical ranges, but said fiscal 2013 losses could be slightly higher and depend significantly on collections during tax-refund season. It identified economic pressures, including fuel and grocery costs and unemployment, as potential collection risks.
- The company expects approximately $4 million of property and equipment purchases over the next 12 months for dealership refurbishment and openings. It stated that available liquidity should support growth and capital needs for the foreseeable future.
- Seasonality is significant: the company historically sees stronger sales in the first and fourth fiscal quarters; tax-refund-related sales have also supported the third quarter. Changes in the timing of refunds could affect results.
- The IRS approved a negotiated settlement in January 2013 concerning fiscal 2008–2009 tax examinations. It involved additional taxable income and a tax payment, with a corresponding deduction and refund expected in a later fiscal year; interest paid was described as immaterial. IRS audits of fiscal 2010–2011 remained ongoing.
- On February 4, 2013, after quarter-end, the credit agreement was amended to include eligible vehicle contracts with 36–42 month terms. The filing identifies risks involving credit underwriting and collections, funding availability, competition, vehicle supply costs, regulation, and tax matters.
Important facts for investors to verify
- Whether rising delinquencies and lower collection rates lead to further increases in credit-loss provisions or the allowance.
- Whether tax-refund-season collections meet management’s expectations and support portfolio cash generation.
- How longer contract terms, increased receivables, and stock repurchases affect borrowing needs, facility availability, and covenant headroom.
- The outcome and cash-flow timing of the IRS audits and the expected refund associated with the 2008–2009 settlement.
- Whether vehicle sourcing costs, dealership expansion, and competitive pressure allow margins to stay within the expected 42%–43% range.