America's Car-Mart Continues To Struggle

| About: America's Car-Mart, (CRMT)
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In addition to reporting earnings Thursday, America's Car-Mart (NASDAQ:CRMT) announced Hank Henderson [COO] will succeed Skip Falgout as CEO, demonstrating the company has a succession plan (they were one of the few companies that never responded back to my survey).

As far as the results go, America's Car-Mart continues to struggle. But it sounded like they were moving in the right direction. Management indicated on the call that they have lowered the average term of loans to about 25 months while at the same time increasing the down payment (so hopefully making more "quality" sales), which has been leading to lower delinquencies.

Something I found interesting on the call was management constantly referring to efforts to improve the selection of vehicles. Most used vehicle technology vendors seem to ignore this segment of the market (buy here pay here) because they think of it as purely a finance business (where the customer is basically told what car they will drive home in).

I am not as convinced. If you can figure out how to put the right vehicle with the right customer (i.e. better inventory/merchandising management, I think someone can make a lot of money in this space. Admittedly, better merchandising in the buy here pay here space is something that requires a merger of art and science. But more sophisticated players (willing to invest capital for the long term) entering the market could gain some serious share by improving the current approach to merchandising. Because right now it seems almost all "art" driven (gut feeling by the store manager).

Also Car-Mart management said it is difficult to find many $5,000 vehicles that are still in good mechanical condition (I think those vehicles more and more are getting exported through the international rebuilder market). So Car-Mart has been moving up the sales price spectrum in the $8,000 to $9,000 range.

I should point out that the trend toward "higher ticket" seems to be something happening throughout the personal transportation market (across customer segments). A couple days ago, CarMax's CEO (Tom Folliard) at the Goldman Sachs conference said that he never would have expected a $17,000 average sales price and have the company still doing the volumes they are doing.

Beyond that. I didn't learn too much on the call.

So let me just give you some important metrics from Car-Mart's results.

Key Metrics

Metric/Period 1Q08 1Q07 % Chg
Revenue per dealership $638,120 $706,716 -9.7%
Gross per dealership $295,190 $350,481 -15.8%
Operating income per dealership $231,504 $173,505 -25.1%
Accounts 30 days or more past due 4.1% 5.6% -1.5%
Gross per unit (rev less cost and provision) $4,645 $4,491 +3.4%
Operating income per unit $2,730 $2,967 -8.0%
Provision for credit losses as % of total revenues 19.6% 20.3% -0.7%
Finance receivables as % of total assets 81.2% 83.4%
Total stores 92 88 +4.5%

Source: Company reports