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America's Car-Mart (NASDAQ:CRMT) Shareholders Endure a Challenging Year as Macro Headwinds Persist
Published on September 24, 2024 | Ticker: CRMT

America's Car-Mart, Inc. (NASDAQ:CRMT), a leading automotive retailer focused on the "Integrated Auto Sales and Finance" segment of the used car market, has faced a challenging year as it navigates a difficult macroeconomic environment. The company's annual net income for the fiscal year ended April 30, 2024 was -$31,393,000, while its annual revenue came in at $1,393,894,000. Additionally, the company reported annual operating cash flow of -$73,898,000 and annual free cash flow of -$79,728,000.

Financials

The company's third quarter results, reported in March 2024, highlighted the ongoing pressures it is facing. Revenues decreased by 7.9% year-over-year to $299,614,000, primarily due to a 19.6% decline in retail units sold. This was partially offset by a 16.0% increase in interest income and a 7.5% increase in the average retail sales price.

The company's gross margin as a percentage of sales improved to 34.2% in the third quarter, up from 33.7% in the prior year period, driven by better operational execution in pricing discipline and continued focus on inventory efficiencies. However, the provision for credit losses as a percentage of sales increased to 37.3% from 31.2% in the prior year quarter, primarily due to higher net charge-offs and an increase in the allowance for credit losses.

In the fourth quarter, the company reported a 5.8% year-over-year decline in total revenues to $364,700,000, again due to a 13.6% decrease in retail units sold. Gross margin as a percentage of sales improved by 200 basis points to 34.2% compared to the prior year quarter, but the provision for credit losses as a percentage of sales increased to 35.1% from 31.6% in the prior year period.

For the full fiscal year 2024, the company reported a 0.5% decrease in revenues to $1,393,894,000, while gross margin improved by 120 basis points to 34.4% of sales. However, the provision for credit losses as a percentage of sales increased to 37.6% from 28.8% in the prior fiscal year.

Recent Developments

The company's management team has been focused on several key initiatives to navigate the challenging environment. This includes the implementation of a new loan origination system (LOS), which has allowed the company to tighten credit approval standards and improve deal structures. The LOS originations, which now make up 20% of the company's portfolio, have demonstrated a 20% reduction in the cumulative net loss rate compared to the legacy origination pool.

Additionally, the company has partnered with Cox Automotive to drive efficiencies within its vehicle supply chain process, which is expected to improve vehicle quality and contribute to better gross margins going forward. The company has also been focused on cost discipline, with selling, general and administrative expenses increasing just 1.5% year-over-year, the lowest percentage change in over five years.

Geographic Breakdown

In terms of geographic breakdown, the company operates primarily in the South-Central region of the United States, with approximately 27% of its current period revenues derived from sales to Arkansas customers. The company has also been focused on strategic acquisitions to expand its footprint, including the recent acquisitions of Central Auto Sales in Hot Springs, Arkansas and Texas Auto Center in Austin and San Marcos, Texas.

Outlook

Looking ahead, the company remains cautiously optimistic about its prospects, but acknowledges the ongoing macroeconomic challenges facing its customer base. The company's management team is focused on driving operational excellence, improving affordability for its core customers, further optimizing the LOS system, capitalizing on its partnership with Cox Automotive, and continuing to pursue strategic acquisitions.

Conclusion

Despite the headwinds, the company believes its investments in technology and operational improvements, coupled with its focus on serving its customers' needs, will position it for long-term success. Investors will be closely watching the company's ability to navigate the current environment and deliver improved financial performance in the coming year.

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