Executive Summary / Key Takeaways

• America's Car-Mart achieved a significant financial turnaround in fiscal year 2025, rebounding from a $31.4 million net loss to $17.9 million in net income, driven by strategic operational and technological enhancements.
• The company's advanced Loan Origination System (LOS) and newly implemented risk-based pricing model are proving highly effective, demonstrating a 21% improvement in cumulative net losses for new originations and enabling more precise risk management.
• Strategic capital structure improvements, including an upsized ABL facility and successful asset-backed securitization (ABS) transactions, have strengthened liquidity and reduced funding costs, providing a crucial competitive advantage in a tightening credit market.
• Operational innovations like the "Pay Your Way" platform and the Cox Automotive partnership are enhancing customer experience, collection efficiency, and gross margins, directly addressing affordability for CRMT's core underbanked customer base.
• Despite persistent macroeconomic headwinds and a dynamic used car market, CRMT's focused strategy on affordability, disciplined underwriting, and technological differentiation positions it for sustained, profitable growth and potential market share expansion.

The Resilient Path: CRMT's Niche in a Dynamic Market

America's Car-Mart, Inc. (CRMT), founded in 1981, has carved out a distinct and enduring presence in the automotive retail landscape. Operating exclusively within the Integrated Auto Sales and Finance segment of the used car market, CRMT specializes in providing older model used vehicles and in-house financing to a customer base often overlooked by traditional lenders due to limited credit histories or past financial challenges. This foundational business model, honed over four decades, emphasizes direct customer relationships and meticulous account collection, a critical differentiator in its niche.

The current macroeconomic environment presents a complex backdrop for CRMT and its customers. Persistent inflationary trends, elevated used car prices, and higher interest rates continue to strain consumers, particularly those with limited financial resources. Concurrently, the broader used car market remains dynamic, characterized by tight supply and evolving trade policies, such as tariffs, which introduce additional uncertainties. Amidst these challenges, CRMT's strategic evolution is centered on operational excellence, enhancing vehicle affordability, optimizing its technology stack, and pursuing disciplined acquisitions to solidify its market position.

CRMT operates 154 dealerships, primarily in smaller cities across the South-Central United States, a geographic concentration that fosters strong local ties. While larger, more diversified competitors like CarMax , Carvana , AutoNation , and Sonic Automotive command broader market segments, CRMT's specialized focus on the subprime buyer, coupled with its integrated sales and financing approach, grants it a unique competitive advantage. This allows CRMT to serve a critical, underserved demographic with tailored solutions, a segment where larger players often face higher risks or lack the necessary operational flexibility.

Technological Edge: Driving Precision and Performance

CRMT's recent technological advancements are not merely incremental upgrades; they represent a fundamental re-engineering of its operational backbone, designed to enhance efficiency, manage risk, and improve the customer experience. These innovations are central to the company's competitive moat and its ability to thrive in a challenging market.

The Loan Origination System (LOS) stands as CRMT's core differentiated technology. Fully implemented across 147 of its 156 dealerships, the LOS has fundamentally transformed underwriting. It provides dealership managers with centralized access to internal scores, credit reports, and customer data, enabling more informed credit decisions. The tangible benefits are significant and quantifiable: LOS-originated loans have shown a 21% improvement in cumulative net losses through October 2024 compared to legacy loans from the same period. For higher-risk customers (ranks 1-4), the LOS has led to a 15% improvement in down payments, allowing for smaller loan sizes of $400 to $800 less, and curtailing originating terms by three months on average. This precision in underwriting also speeds up the sales and financing process by at least one hour per customer, enhancing efficiency and customer satisfaction.

Building on the LOS, CRMT has transitioned to an advanced 7x7 scorecard (from a 6x6 model) and rolled out risk-based pricing nationwide as of May 8, 2025. This initiative, accelerated due to market dynamics, provides greater granularity in loss ratio projections. Early pilot results indicate CRMT has pricing power even in its highest-risk bands, with no material drop in application conversion after increasing rates by a few hundred basis points and modestly raising down payments. Conversely, offering slightly lower rates to its highest-quality customers (7-rated) has shown a meaningful improvement in sales volume. This strategic flexibility allows CRMT to optimize returns across the credit spectrum, attract better-qualified customers, and potentially diversify its inventory mix, leading to lower reconditioning costs and reduced warranty claims.

Further enhancing customer engagement and collection efficiency is the relaunched "Pay Your Way" platform. Recognizing that many of its customers operate outside traditional banking systems, CRMT has expanded payment options to include widely used digital platforms like Apple Pay, Google Pay, Venmo, and PayPal (PYPL). Crucially, the cash payment network has grown from approximately 14,000 to over 80,000 locations, including major retailers like Walmart (WMT) and Dollar General (DG), making payments significantly more accessible. This initiative aims to strengthen payment performance, improve customer satisfaction, and reduce the day-to-day account management burden on store teams.

Complementing these internal systems, CRMT's strategic partnership with Cox Automotive, initiated in October 2023, is optimizing its inventory supply chain. This collaboration centralizes vehicle procurement and remarketing, reducing transportation and repair costs. CRMT has actively consolidated its vehicle vendors, reducing them from nearly 400 in fiscal year 2023 to roughly 270 in fiscal year 2024, with a plan to go under 200 in fiscal year 2025. This consolidation improves title flow, speeding up the time it takes to get inventory onto sales lots and online. The partnership is a key component in CRMT's plan to enhance vehicle affordability for consumers and improve gross profit margins.

Finally, the implementation of a new Enterprise Resource Planning (ERP) system in May 2024 is a multi-year investment designed to improve efficiency and operational flexibility within finance, accounting, and customer management functions, providing crucial capacity for future growth and expected leverage in SG&A. These integrated technological advancements collectively create a formidable competitive moat, enabling CRMT to manage risk more effectively, operate more efficiently, and better serve its unique customer base.

Financial Performance: A Resurgent Trajectory

Fiscal year 2025 marked a pivotal financial turnaround for America's Car-Mart. The company moved from a net loss of $31.4 million in fiscal year 2024 to generating $17.9 million in net income in fiscal year 2025, an impressive improvement of over $49 million. This resurgence underscores the effectiveness of its strategic initiatives and disciplined execution.

Total revenues for fiscal year 2025 were $1.39 billion, a slight decrease of 0.2% compared to fiscal year 2024. This was primarily due to a 1.7% decrease in retail units sold, partially offset by a 5.0% increase in interest and other income, and a 1.5% increase in the average retail sales price. Interest income benefited from a 6.2% growth in finance receivables, which reached $1.18 billion net of deferred revenue by year-end. This receivables growth modestly outpaced revenue due to longer contract terms, a strategic choice to maintain affordability for customers.

Gross margin as a percentage of sales significantly improved to 36.7% in fiscal year 2025, up from 34.7% in the prior year. This includes a 0.7% benefit from a change in accounting estimate related to service contract revenue recognition, where revenue is now recognized over a shorter, nine-month term for every 12,000 miles, reflecting earlier customer usage. This change is expected to provide an ongoing 1% improvement to gross margin on a go-forward basis. The increase in gross margin was also driven by vehicle pricing discipline, reduced transportation and repair costs, and more effective vehicle disposal strategies, leading to a $431 increase in gross profit per retail unit sold.

Credit performance, a critical metric for CRMT, showed marked improvement. The provision for credit losses as a percentage of sales decreased to 32.7% in fiscal year 2025 from 36.5% in fiscal year 2024. Net charge-offs as a percentage of average finance receivables also improved, falling to 25.9% from 27.2% in the prior year. The allowance for credit losses as a percentage of finance receivables (net of deferred revenue and APP claims) decreased to 23.25% at April 30, 2025, from 25.32% a year prior. This positive trend is directly attributed to the superior performance of contracts originated under the new LOS and tighter underwriting standards. LOS-originated receivables now constitute 65.7% of the total portfolio (excluding acquisitions), consistently outperforming legacy loans.

While selling, general, and administrative (SG&A) expenses increased by $9.5 million (5.3%) in fiscal year 2025 due to ongoing investments in technology, talent, and strategic acquisitions, the company demonstrated effective scaling. SG&A per customer increased by a more modest 6.1%, reflecting efforts to leverage these investments. Interest expense, though up 8.1% for the full year due to higher average borrowings and rates, saw a sequential decrease in Q4 FY25, benefiting from improved benchmark rates and more favorable securitization terms.

CRMT's liquidity and capital resources have been strategically bolstered. The company successfully extended its revolving credit facility to March 2027 and upsized it to $350 million. In September 2024, CRMT raised approximately $74 million in net proceeds through an equity offering, used to pay down its revolving credit line, enhancing balance sheet flexibility. Furthermore, the company completed its sixth and seventh asset-backed securitization (ABS) transactions in January and May 2025, respectively. The January transaction ($200 million) was over 10 times oversubscribed, achieving a weighted average coupon of 6.49% (a 95 basis point improvement from October 2024). The May transaction ($216 million) secured an even tighter weighted average coupon of 6.27% (a 22 basis point improvement from January). These successes in the ABS market reflect growing investor confidence in the quality of CRMT's LOS-underwritten portfolio and provide a material improvement in advance rates compared to its ABL facility. As of April 30, 2025, the company's adjusted ratio of debt to finance receivables (net of cash) was 43.20%, which it believes is lower than many competitors.

Competitive Positioning: Differentiated Service in a Challenging Sector

America's Car-Mart operates in a highly competitive and fragmented used automotive retail industry. Its primary direct competitors include larger, more diversified players like CarMax , Carvana , AutoNation , and Sonic Automotive , as well as numerous smaller independent dealers. CRMT's competitive strategy is rooted in its specialized focus and integrated business model, which provides distinct advantages, particularly in serving its credit-challenged customer base.

CRMT's core competitive advantage lies in its in-house financing model and its deep understanding of the subprime consumer. While competitors like CarMax (KMX) and AutoNation offer broader vehicle selections and more traditional financing options, they often do not cater as extensively to individuals with limited or impaired credit histories. CRMT's ability to underwrite and service these higher-risk contracts in-house, supported by its advanced LOS, allows it to maintain a strong connection with its customers and offer flexible payment terms. This personalized approach, including frequent face-to-face interactions (approximately 46% of customers make payments in person), fosters loyalty and can lead to repeat business, a significant portion of sales at mature dealerships. This contrasts with Carvana's fully digital model, which, while innovative, may struggle to replicate the high-touch service often required by CRMT's customer demographic.

The company's established dealership network, predominantly in smaller communities, further strengthens its position. Operating costs, including salaries, rent, and advertising, tend to be lower in these areas compared to major metropolitan markets, contributing to a cost-efficient operating model. This local presence, combined with centralized support through digital and phone channels, allows CRMT to build stronger personal relationships, a critical factor in collection performance. While AutoNation (AN) and Sonic Automotive (SAH) boast larger networks, CRMT's localized strategy enables a more tailored approach to market demand and customer needs within its specific niche.

However, CRMT also faces competitive disadvantages. Its narrower product range, focusing on older model used vehicles, means it does not compete for customers seeking newer or luxury vehicles, a segment served by many of its larger rivals. Furthermore, CRMT's dependence on financing revenue exposes it to higher credit risk, particularly during economic downturns, compared to competitors with more diversified revenue streams (e.g., new car sales, service, parts). The company's digital integration, while improving with its CRM and "Pay Your Way" initiatives, still lags behind online-first competitors like Carvana (CVNA) in terms of seamless end-to-end digital purchasing experiences.

The current market environment, characterized by tightening credit availability from traditional lenders, presents a significant opportunity for CRMT. As other financing sources become more restrictive, CRMT's specialized financing expertise and willingness to serve credit-impaired borrowers position it to gain market share. Management has observed that "the lack of options for the consumer" is a key value proposition. Moreover, the fragmented nature of the independent used car market, coupled with higher interest rates and floor plan costs, is creating stress for smaller operators. This dynamic is generating strategic acquisition opportunities for CRMT, which is actively pursuing well-performing dealerships that align with its footprint and operational model.

Outlook and Risks: Building a Resilient Future

America's Car-Mart's outlook for fiscal year 2026 is one of cautious optimism, underpinned by a clear strategic roadmap designed to build on the recent turnaround. Management anticipates the used car market will remain dynamic, with continued pressure on the supply and price of used vehicles in the near term. While tariffs have led to a manageable $300 increase per unit in procurement costs, the company's proactive inventory management and risk-based pricing are intended to mitigate these impacts.

The continued enhancements of the LOS and the nationwide rollout of risk-based pricing are expected to be key drivers for strengthening credit performance and growing the size of the finance receivables portfolio in fiscal year 2026. The company projects that the LOS will reach a "crossover point" by the end of fiscal year 2025, becoming a larger driver of both the frequency and severity of losses, further solidifying portfolio quality. Management's long-term target for gross margin remains 37% to 38% on an annualized basis, a goal it is actively pursuing through procurement optimization and pricing discipline.

Strategic acquisitions are also a core component of CRMT's growth strategy, with recent acquisitions like Texas Auto Center expected to add 5,000 or more accounts over the next 18 to 24 months. The company plans to invest approximately $9 million in fixed assets over the next 12 months, primarily for facility updates and general fixed asset requirements. The recent enactment of the One Big Beautiful Bill Act (OBBBA), which permanently reinstated 100% bonus depreciation and reverted interest limitation rules, is currently being evaluated for its potential impact on deferred taxes and future tax obligations.

Despite this positive momentum, CRMT faces several pertinent risks. The inherent nature of financing subprime borrowers means a higher risk of delinquency and default, making the company susceptible to adverse economic conditions. The allowance for credit losses, a critical accounting estimate, relies on subjective judgments and macroeconomic forecasts, introducing a degree of uncertainty. Furthermore, the company recently identified a material weakness in its internal control over financial reporting related to inadequate disclosure controls, which led to a restatement of prior financial statements for disclosure purposes (though without impact on reported financial results). Remediation efforts are underway, including leadership changes and process improvements. Geographic concentration, with 28% of revenues from Arkansas, also exposes CRMT to local economic downturns.

Conclusion

America's Car-Mart has demonstrated a compelling turnaround in fiscal year 2025, transforming a net loss into a significant net income. This resurgence is not merely a cyclical rebound but a testament to a deliberate and comprehensive strategic overhaul. By leveraging its advanced Loan Origination System, implementing a sophisticated risk-based pricing model, and expanding its "Pay Your Way" payment infrastructure, CRMT is fundamentally reshaping its operations to achieve more precise risk management, enhanced efficiency, and a superior customer experience for its unique subprime demographic.

The company's proactive approach to capital structure optimization, marked by successful ABS transactions and an upsized ABL facility, underscores a commitment to financial resilience and competitive advantage in a tightening credit market. While macroeconomic headwinds persist, CRMT's focused strategy on affordability, disciplined underwriting, and technological leadership positions it to not only weather these challenges but to potentially expand its market share by effectively serving a segment that other lenders increasingly shy away from. For discerning investors, CRMT represents a compelling narrative of transformation, where strategic investments in technology and operational excellence are expected to yield sustained, profitable growth and improved risk-adjusted returns in the years ahead.