America’s Car-Mart Inc.’s stock tumbled 17% Tuesday and weighed on rivals, after the used-car retailer swung to a surprise fiscal second-quarter loss and posted revenue that lagged estimates.
The Rogers, Ark.-based company
CRMT,
-17.99%,
which describes itself as a “Buy Here Pay Here” dealership, targets subprime, or more credit-challenged customers, who are still struggling with higher prices for essentials.
“The persistent inflationary environment impacted existing customers, which was evident in our credit losses,” Chief Executive Doug Campbell said in a statement. “This required an increase in the allowance for credit losses which subsequently impacted the bottom line for the quarter.”
The company swung to a loss of $27.5 million, or $4.30 a share, for the quarter, after income of $3.1 million, or 48 cents a share, in the year-earlier period. Revenue rose 2.8% to $361.6 million from $351.8 million a year ago.
The FactSet consensus was for per-share earnings of 79 cents and revenue of $364.0 million.
Net charge-offs — the debt owed to a company that is unlikely to be recovered — as a percentage of average finance receivables rose to 7.2% compared to 5.8% during the prior year’s second quarter. The company said that’s a return to prepandemic percentages.
The company set aside more money to cover potential credit losses than in the prior quarter, resulting in a $28 million charge to the provision, or a loss of $3.40 per share. The move was mostly due to subprime customers, but the company is expecting the effect to be temporary as car prices normalize and even fall over time.
Read now: Subprime car-loan rates are hitting 17%-22%. Should investors be worried?
On a call with analysts, Campbell, who has been in the CEO role since Oct. 1, said the underlying pools of receivables that the company has generated consistently produce cash flows over the cost to operate the business over time — and that remains the case.
“The overall macro environment remains challenging for Car-Mart’s core customers, both existing and prospective, but they need the service we provide,” he told analysts, according to a FactSet transcript.
“While we’re disappointed to show a loss during the current quarter, the underlying cash generative nature of our business continues to position us for long term profitable growth.”
Other car retailers and lenders’ stocks also fell Tuesday. CarMax Inc.
KMX,
-4.35%
was down 5%, Carvana Co.
CVNA,
-3.27%
was down 5.5%, Ally Financial Inc.
ALLY,
+0.10%
was down 0.1% and AutoNation Inc.
AN,
-2.82%
was down 3.3%.
The S&P 500
SPX
was down 0.1%.
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