Q4 2021 America's CAR-MART Inc Earnings Call
Okay.
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Okay.
Good morning, everyone. Thank you for holding and welcome to America's car Mart.
Fourth quarter fiscal 'twenty 'twenty, 1 conference call.
Topic on this call will be the earnings and operating results for the company's fourth quarter and full fiscal year 2021 before.
Before we begin I would like to remind everyone that this call is being recorded and will be available for replay for the next 30 days.
Dial in number and access information are included in last Night's press release, which can be found on America's car Mart's website at.
W. W Dot car Dash Mart dotcom.
As you all know some of managements comments today may include forward looking statements, which inherently involve risks and uncertainties uncertainties that could cause actual results to differ materially from managements present pricing.
View.
Statements are made pursuant to the Safe Harbor Harbor provisions of the private Securities Litigation Reform Act of 1990 fives.
The company cannot guarantee the accuracy of any forecast or estimates nor does it undertake any obligation to update such forward looking statements.
For more information regarding forward looking information. Please see part 1 of the company's annual report on.
On form 10-K for the fiscal year ended April 30th 2020, and its current and quarterly reports furnished to or filed with the Securities Exchange Commission on farm forms 8-K and 10-Q.
Participating on the call. This morning are Jeff Williams, the company's President and Chief Exec Executive Officer, and Vickie, Judy Chief Financial Officer, and now I'd like to turn the call over to the company's Chief Executive Officer, Jeff Williams.
Okay, well, thank you for joining us this morning.
We are proud of our work and we're pleased to see the continuing benefits from our various investments and initiatives.
You are aimed at allowing us to leverage scale and grow the business by improving the customer experience journey.
There are many touch points and opportunities to exceed customer expectations in our business we.
We believe that no other company can keep customers on the road.
Reduce the stress related to local transportation needs like America's car Mart Kian and.
And we will only get better over time.
On a ground level local personalized offering combined with our technology and scale.
His unique advantages in our market.
We will continue to look to centralize non core field functions that can be performed more efficiently with corporate support without losing the benefits of our decentralized decision decision, making at ground level and close to the customer.
This will allow our associates in the field to focus on service and growing the number of customers we serve.
Our investments in the areas of customer experience.
Accrued in training and retention inventory procurement and management are allowing us the ability to grow market share and move from a collections company to a sales company that's very good at collections.
We're making good progress in all areas and our efforts in the technology area will continue to give us additional opportunities to utilize data to our advantage.
And we have a very high expectation for our consumer facing digital experiences as we move forward.
Our community based bricks and mortar presence combined with our digital opportunities.
Our model real strength.
We will continue to invest in our business to allow us to be the market leader over the long term.
Our corporate customer experienced team is making great progress and is directly involved with our consumers and working with our dealership personnel.
To ensure our customers have.
And really great experiences.
We will continue to look the industry partnerships, which are becoming a bigger part of our overall efforts. Our current profits are strong.
We have an obligation to reinvest these current profits for our future.
Customers need what we do and we have an obligation to serve more customers over time.
Our new service contracts that are rolling out company wide and the customer response has been very positive and very strong on.
Associates are proud to be offering these new products that include extended terms roadside assistance on oil changes.
All of them with keeping you on the road pledge.
We're making great progress with our inventory management efforts and we are optimistic that we will continue to see significant benefits from this area of the business.
We've put together a strong team to lead our inventory transfer transformation.
Again industry partnerships are playing a key role in our progress.
We're very proud of our company and the hard work and dedication of our associates.
Last fiscal year, which started on may <unk> of 2020.
That was extremely difficult, but our associates continued to rise to the occasion working many hours under very difficult and uncertain conditions never wavering in their efforts to support each other our customers and our communities.
We showed the resourcefulness and creativity and how nimble our business can be because of the quality of our associates that we have in place and their dedication to our purpose.
Now I will turn it over to Vicki to go over some numbers Vickie.
Hello, and good morning.
Total revenue increased 42, 6% up to $279 million, resulting from a $24.3 increased in retail units sold.
From 15, 9% increase in average retail sales price and interest income increased by 28, 1% on.
Same store revenues were up 37, 6%.
Revenues from stores in the over 10 years of age category were up 41% store.
<unk> in the 5 to 10 year category of about 48 per cent and revenues per stores in the less than 5 years of age category was up to about 15 million.
Our associates across the company worked tirelessly this past year on throughout the fourth quarter to serve our customers with exceptional service, which translated into productivity improvements have an average of 36 and a half unit sold per store per month.
This was also possible due to the investments in our inventory and our procurement processes, including our preferred vendor partner relationships.
Our retail inventory was up due to higher quantities and combined with higher pricing.
As a reminder, the inventory levels that April 30 of 2020 were low due to the pandemic environment.
At quarter end, 16, or 11% of our dealerships were from zero to 5 years old.
39, or 26% were from 5 to 10 years old and the remaining 96 or 10 years old or older are.
Our overall productivity was 36 and a half unit sold per store per month compared to 32 for the prior year quarter and 31, 1 for the sequential quarter.
Our 10 year, plus lots produced $38.1 units sold per month per lot for the quarter compared to 30 and a half for the prior year quarter.
Lots in the 5 to 10 year category produced 34.4 compared to $27.4 for the prior year quarter.
And a lot less than 5 years of age had productivity of $32.3 compared to $23.5 for the fourth quarter of last year.
Our down payment percentage was 8.7% compared to 7.8 per cent for the prior year quarter collab.
Collections as a percentage of average finance receivables were at 14, 9% compared to 15% from the prior year quarter.
Collection percentages were positively impacted by tax time refund stimulus payments and the cares unemployment.
The average originating contract term was 37, 1 months compared to $31.8 for the prior year quarter and up from 35 months sequentially.
The average selling price was up 15, 9% on $1900.79 with a $5.3 month increase in the term compared to the prior year fourth quarter.
These term increases are necessary to ensure share affordability for our customers as the retail sales price increases.
Quality of the vehicle in terms of age and mileage continues to improve as well.
We will continue to be mindful of balancing this term linked with affordability, but believe we are putting a better customer and higher quality vehicles for the most successful outcome.
Our weighted average contract term for the entire portfolio, including modifications was 37.3 months compared to $33.3 for the prior year quarter.
And the weighted average age of the portfolio decreased slightly from approximately $8.8 months to 8.2 months.
Interest income increased $6.7 million or 28, 1% compared to the prior year quarter, primarily due to the 158 million increase in average finance receivables of 25, 6% increase in.
The weighted average interest rate from finance receivables at the end of the quarter was approximately 16, 5% relatively flat from the prior year quarter.
Gross profit per retail unit also increased by $800 to $6032. This was a 15, 3% increase.
Paired to the prior year fourth quarter.
The gross profit percentage was 42 per cent compared to 45% for the prior year quarter.
And down from the sequential quarter at 46 per cent.
The reduction in gross profit resulted from the lower margin on the retail units, partially offset by improved wholesale margins due to the strong demand in the used car market and.
Also lower repair costs.
The income increasing average selling prices result in lower gross margin percentages, but higher gross margin dollars per unit as our gross margin percentages are lower at higher selling prices.
The mix of the type of vehicles sold had increases in car and SUV sales over the prior quarter and pick up sales decreasing due to the high price and tight supply of trucks.
Our SG&A for the quarter was up $5.7 million compared to the prior year quarter, but down as a percentage of sales to 14, 5% compared to 17, 7% from the prior year quarter.
SG&A as a percentage of total revenues less cost of sales and provision for credit losses was 45, 6% compared to 54, 6% for the prior year quarter, excluding the impact of the allowance changes.
The metric is important for our integrated sales and finance business is a large part of our efforts are focused on keeping customers on the road.
Our investments continue to be primarily payroll focused as we build our customer experience team invest in our procurement team and combined with increased commissions because of the higher net income.
Our new customer relationship module of our ERP system went live in May of 'twenty, 1 and we will continue to invest and improve our technology and digital platforms to enhance the customer experience as we move forward.
Well also be investing in additional marketing as we continue to promote our brand image with our new tagline and our new service contracts.
As always our expectation is that we will continue to leverage these investments with market share growth over the long term.
We are now serving over 7400 additional customers compared to this time last year at an improved service level.
For the current quarter net charge offs as a percentage of average finance receivables was 4.8% down from 5.6% in the prior year fourth quarter.
And down from 6.4% for the quarter ended 430.19 pre pandemic.
We saw improvements in delinquent accounts and our account 30, plus past due with at 2.6 per cent compared to 6.2% for the prior year fourth quarter.
The cares act enhanced unemployment benefits and stimulus payments certainly contributed to this improvement along with our increased effort working with our customers to help them through these challenging times.
Covering Reits have repossessed units also contributed to the decrease in net charge offs recovery rates for the quarter were approximately 28, 5% compared to 26, 7% in the prior year quarter.
As a result of these improved delinquencies are overall credit loss result, and our outlook for projected losses, we have lowered our allowance for credit losses from 26, 5% to 24, 5% as a percentage of finance receivables net of deferred revenue.
This decrease in the allowance resulted in a $15.1 million pre tax decrease in the provision for credit losses.
This impact was the diluted earnings per share increase of $1.65, resulting in diluted earnings per share $4.54, excluding the allowance change for the fourth quarter of 'twenty 1.
The effective income tax rate was 21, 5% for the fourth quarter of fiscal 'twenty, 1 compared to 15% for the prior year quarter.
Income tax expense included an income tax benefit of 729000, and 160000 related to share based compensation for the current quarter and the prior year quarter respectively.
We expect our base effective tax rate to be approximately 24% going forward prior to any excess tax benefits from stock option exercises.
At quarter end, our total debt was approximately $226 million, we had $3 million in cash and approximately 99 million in additional availability under our revolving credit facilities.
Our current debt net of cash to finance receivables ratio is 27, 6% compared to 25, 1% at this time last year.
This percentage increase relates to the increase in our inventory investment compared to this time last year and an additional $45.8 million.
During the fiscal year, we added $188.4 million in receivables, we increased inventory by $45.8 million repurchased $10.6 million of our common stock and funded $9 million in capital expenditures, a total of $253.8 million with only a 6.
$7 million increase in debt net of cash we are well positioned to serve more customers and grow our market share now.
Now I'll turn it back to Jeff.
Okay, well, thank you Vicky.
Is the inventory, we do expect to see some continuing supply issues and related inflation with inventory.
Our team has done nice work to ensure we have product to meet the increasing consumer demand for our offering.
Prices are certainly higher than we would like.
But we have been and will continue to be nimble.
And improve our inventory management processes as we go forward.
Overall, our inventory is in very good shape going into the summer months.
As the growth we are pleased with our productivity for the quarter.
As we move towards serving more customers per dealership.
We are looking to pick up market share and grow volumes in an environment without stimulus money.
Our primary source of growth over the next few years as productivity improvements from me from.
Existing dealerships.
We ended the year.
With 593 customers per dealership as our average.
And as we've stated previously we do believe that a majority of our dealerships.
Can and should be supporting a thousand or more customers over time.
We will also opened some new stores and continue to look for acquisition opportunities.
Once again, we are very proud of the year, but we have a lot of work to do.
We believe that we are in the early innings with our key initiatives and priorities and we are pushing hard with a sense of urgency in all areas.
<unk> of the changes that we have been and are making are substantial.
And as a decentralized company.
We must always ensure that the rate of change can be digested in the field and we believe we've been able to make these changes and improve the business at the right pace and we do expect the pace to quicken as we go forward.
We have great associates at all levels and recognize the magnitude of the opportunities we have in front of us.
And they continue to take on more responsibilities.
And enthusiastically embraced the changes, we're making for our future.
Thank you again and.
And we will now open it up for your questions operator.
At this time the participants we will now answer questions from the callers.
I'd like to reiterate that my earlier comments regarding forward looking statements apply both to the participants' prepared remarks and to anything that may come up during the Q&A.
At this time, if you would like to ask a question press star 1 on your telephone to.
Withdraw your question press the pound key.
Please standby, while we compile the Q&A roster.
Your first question comes from the line of John Murphy with Bank of America.
Good morning, everybody. Thanks.
Thanks for all the detail here.
Jeff I guess just a.
First question can you talk about what the customer facing digital opportunities or how youre going after them.
And what you think the upside over time is and I think theres been in the retail community our belief that the higher end consumer.
We have a higher propensity to.
Use online tools, but it actually seems sort of like the subprime and lower to mid consumers actually where there is a lot more activity. So I'm just curious how youre going after this digital opportunity on what it means from the company.
Yeah John.
The online credit application process the on.
Online inventory.
That.
That we're showing.
As with.
We're making progress in that area.
The.
Loan origination system, we're working on our loan origination system too.
To push more of <unk>.
Transaction online.
We do have capabilities of home deliveries and curbside deliveries and we're going to improve those processes as we move forward.
A lot of our customers will choose long term to come into the dealership for some aspect of the transaction, but we feel like we have in place.
We're going to be as good as anybody from the digital side of things when we finish our efforts.
When you combine that with the bricks and mortar and a lot of consumers still want to come in and finish that transaction test drive that car at the dealership.
We believe that.
We're going to see more and more folks starting the transaction online as we go forward.
And we plan to invest.
Significant time, and resources and talent and making sure that our digital presence out there from a consumer standpoint.
As good as anything you will see from any other car dealership. So we're very excited about the opportunities there and for US, it's all about making the transaction and the process seamless and intuitive and user friendly from the consumer standpoint.
Our consumer being a subprime and deep subprime as you mentioned they are very savvy and very used to dealing online and we're going to meet those needs for our consumer base and we believe at the end of the day.
We're going to have as good of an online presence and offering as anybody out there.
And John I might just add to that what this customer relationship module that we just got implemented in may there will be a continued whether it's pre sale or post sale.
Line of communication with the customer the way they want to communicate whether that's calling or going into the dealership. But then they'll also have the opportunity to make a phone call to the customer Caroline here corporately or a text.
And again that may be post sale for.
For our repair issue or a question or a payment issue or it may be pre sale regarding you know the inventory that's online or set or a question about.
The type of credit so I think all of that combined is going to give a much better customer digital experience.
Okay.
Bob I'd imagine, it's very early days, but I mean are there any transactions that are going almost completely online and that you have in home delivery.
<unk>.
And where do you see that go on over time.
It has not been.
A significant part of our business, we did a little bit of that during the pandemic, but on our consumers still require quite a bit on hand, holding and I do want to come in for the most part and drive that car but.
But we are we are going to have a system set up and.
And pushing toward.
The area if home delivery is a big requirement, we're going to be able to meet that requirement. If curbside pickup is is something consumers won't we're going to be able to meet that there hasn't been a big demand from our consumer base, yet to do things on 100% online and have that car delivered to a home but we're.
We're working in that direction, if and when that demand.
<unk> real for us in our consumer base will be ready, but it has not been <unk>.
<unk> piece of our business at all to this point.
Okay. That's helpful. And then second question on when you're talking about supporting 1000 on more customers.
Per dealership over time, I mean, thats essentially a doubling from where you are right now or depending on how far this gross maybe even more than that.
What are the key drivers on that I mean, you've shown a propensity to increase productivity lower over time, but that's a that's a big step. So I mean, what are the key.
Tools to get there and what is a reasonable amount of time and we're talking 3 years 5 years 10 years I mean, what's the what's the thought process on that target.
Well it is more of a mid to long term goal. We don't have an exact timeline, but all the efforts, we're putting into improving that customer experience, increasing repeat business, making sure that our very best customers.
Day in the family.
Historically, we've kind of congratulated customers for improving their credit and given them a wave as they went down the street.
Maybe the used car division of the new car dealerships and we've discovered that there is no reason to lose these good customers, we can supply a better car we can supply.
A better cost to the transaction.
All costs.
On the in the transaction, we offer a very competitive offering from a cost standpoint, and then the support that we give a consumer after the sale. We believe is.
Is outstanding and better than they can get elsewhere in the market. So really focused on keeping customers for life, improving the product that we offer.
Significantly improving the customer experience there is a lot of stress involved with.
Car ownership in the areas, we serve and we can give customers true peace of mind, we can put their minds at ease.
Is it related to the car and those car payments and the car maintenance and other issues that pop up that caused so much stress and if we can do that at a price point on Halloween price point that makes sense, then we believe focusing on repeat business focusing on customer experience focusing on.
On improving the quality of the core.
We believe that.
Over time.
Repeat business and our.
The number of customers, we can serve per dealership.
Combined with the fact that we have the balance sheet and we have the capital to be investing in these markets Thats 1 thing thats extremely important we know these markets, we know where our staff.
The existing customer base.
For us too.
Push more investment into the markets, we already know is.
He is certainly very attractive to us from a profit standpoint, a volume standpoint, and a risk standpoint.
So this is something that our balance sheet and how strong our balance sheet is certainly going to support our efforts to increase the number of customers served per dealership. We do believe those markets are out there and it's up to us to go out there by market and figure out how to increase the number of customers served.
Over time, we don't have a specific timeline on that but we.
We do feel like consumers and the communities are better.
When car Mart is there and when car margin expanding business.
And serving more customers. So we're.
We're very excited about the opportunities the opportunities we have to leverage the structure, we already have.
And then just lastly, I mean, you mentioned improving inventory management, but it sounds like that also means in some cases, increasing inventory. So you can increase sales. So what exactly is going on on on inventory management. It's obviously very difficult right now because theres not a lot of.
Flow and the market inventory, if you will as each day is tight.
What does that mean and where are you going on improving inventory management what are the key.
<unk> targets, we should be thinking of.
Well as you know.
Like I've mentioned, a couple of areas our preferred vendor efforts.
We are partnering with some very talented long term wholesalers in our markets geographically.
These are folks that are very good at buying cars.
Repairing cars and getting them ready to sell.
And very talented entrepreneurial folks in the markets. We serve these are folks who we've known for years, but they have an interest in growing with our company and giving us a steady supply of high quality ready to sell units.
They're in good spots geographically to work with us they are very interested in partnering with us to grow their businesses.
So that they.
That effort is continuing and will expand as we go forward but.
Another area is.
Is going to be recon.
Historically, we've not done reconditioning.
Wholesale is off cars into the wholesale market.
But as supply becomes tight and we realize that.
They have a steady flow of units at the lower price points.
We really have to take a second and third look at it the metal that's already in our network and have the ability.
To do some recon work within our system.
To turn a piece of metal into a good solid mechanically sound retail transaction for somebody who's maybe.
Maybe looking for a lower price point, so a lot of good work going on with that.
The recon side of things we're also.
Looking at recon outside of.
The cars, we already have in terms of auction purchases and reconditioning at the end of auction processes.
Looking at.
Buying cars on a more dispersed basis nationwide to take advantage of.
A different areas that maybe we haven't looked at in the past we also.
I have a lot of power in our model from a 151 general managers that have the ability to keep a close eye on local supply and local opportunities.
So when you combine the corporate efforts we have in place with the fact that we do have a lot of talented gms out there that do have the ability to.
To cherry pick and take advantage of local opportunities.
We've got a pretty unique.
Our model here and I think Thats why youre seeing.
Has come through.
The fourth quarter with additional sales.
And ending the quarter with a lot of products that are available for sale going into the summer months, where other folks might be struggling with some inventory.
Availability and having cars on the dealership so.
Just pretty nimble in all these areas.
Corporate <unk>, some key aspects to our procurement.
Logistics efforts, we're also buying.
Buying a fair amount of cars from.
From the rental car chain that there may be a little higher price point that will support our higher end consumers that historically may have left us for another offering because we didn't offer a newer.
Option with lower miles. So that's also a part of our mix and something that we're forming some partnerships with as we go forward.
I'm very optimistic about.
The procurement.
Just takes the inventory management side, we're in the very early innings of some of these efforts, but what we're seeing so far.
Gives us a lot of optimism for the direction were going.
I'm, sorry, if I can sneak 1 so it seems like you're spreading to a lower end vehicle or an older vehicle at a younger vehicles that a fair statement that you are kind of spreading the dispersion on what what you're offering to the customer going down down market a little bit on upmarket a little bit is that is that a fair characterization.
Well I don't think that's at the expense of the Middle section either we wanted to join a company that can supply.
All of the price point, so we're not deemphasizing the middle we're just spending with the supply situation. The way. It is the shortage of cars, we're having to get a little more creative on the low end.
We don't want to lose the middle section and we have been talking about making sure we have offerings for that side.
For a number of years now on this.
This is just us in our efforts to make sure that.
Tumor and in our.
In our towns can come to car Mart for all any price point, any and all price points and we've got a good offering in all areas.
Great. Thank you very much.
Thank you.
Your next question comes from the line of Kyle Joseph with Jefferies.
Hey, good morning, Jeff and congratulations on a really really good quarter and year for that matter.
Thank you Tony.
Obviously, there is a lot going on in the quarter with tax refunds and stimulus just wanted to get a sense per house, how sales trended by month, if you can give us.
High level doesn't even need to be numbers, but how sales have trended in February versus March and into April.
Yeah.
We had 3 really solid months.
<unk>.
I guess it was maybe a little bit more.
February but not deliberate on March this year I'm, sorry, the tax refunds were a little bit like some of the stimulus was in March maybe a little bit more in March but February was strong.
Finish in April so all in all it was.
It was a good quarter and each month within the quarter was good.
Got it and then on.
Everyone knows our used car prices are elevated and recognize you're offsetting a portion of that with the term charter extension, but can you give us a sense for how that the average monthly payment.
Has it been trending kind of over the last year.
Yeah.
Certainly with the increased sales prices and the amount financed.
We we.
We have seen an increase in the average payment.
I don't know $30.35 for the year on the average payment overall.
And.
But we keep a close eye on on the quality of the applicant the affordability of the transaction and with our increase in the.
The quality.
Of the car, we're offering we are seeing a higher quality.
Customer.
So affordability is still still strong but.
Certainly with these price increases we are seeing some.
Increases in the monthly payments.
Got it that makes sense.
Then last question from me good inventory growth year over year, I know you talked about that.
Bearing to pandemic levels you get.
Just a sense for how much of that is actual units versus price appreciation.
Yes, just looking at the retail side.
The units.
On hand are up about close to 50%.
From this time last year, we're carrying about 50% more units at the end of April this year than we were last year now some of that was a reaction to the pandemic.
And <unk>.
Really squeezing inventory.
At the end of April of 'twenty.
But from that point to this point.
Our units are up about 50% from where they started the year.
Got it.
Thanks, Anish on all my questions I appreciate it.
Thank you Kyle.
Your next question comes from the line of Vincent <unk> with Stephens.
Hey, Thanks. Good morning, Thanks for taking my questions I guess first 1 a quick 1.
We had really really strong productivity per store at the $36 per car sold a month.
And I know that the fiscal fourth quarter is typically the strongest but.
The 36 and a half is that a good number to run rate going forward.
Maybe should we temper that down as we think about.
When we were modeling fiscal 2022.
Well, our objective is to improve and increase productivity.
Productivity.
We don't have a specific number, but we're making a lot of investments.
And <unk>.
Focusing a lot of efforts on moving from a a 40 year old collection company.
2 a sales company that can collect.
And so we do.
To to continue to bump up productivity.
And.
All the efforts and all the investments we're making.
Certainly are in line.
With that effort and we do expect to leverage these costs as Vicki mentioned as we go forward.
But we are very focused on improving productivity.
And growing sales and growing customer account accounts.
Over time as we go forward I don't have a specific.
Number for you.
Well, they're definitely would've been some stimulus impact in that how much of it was stimulus how much of it was regular tax time, how much of it was due to the improvements that we're making in our business is obviously fuzzy.
But.
Definitely a lot of good things just going on in our business for sure.
Alright understood Yeah, I guess I'm trying to parse out how much of that is your.
On investments, which really sound like they're taking hold on getting traction. So that's great. Thank you.
<unk>.
Hey, Vincent when you think about 36.
Sales per month per dealership.
I think that.
Overtime, we again, we don't have a timeline.
But <unk>.
Company, that's as established as we are in doing the great things that we're doing.
We do expect.
Productivity.
To improve significantly over time 36 sales per dealership per month.
Is not anything that anyone would consider to be.
An acceptable long term sales right. So there's a lot of productivity out there and the investments we're making.
It should allow us to certainly.
Be more productive as we as we go forward 36 sales per month is not very high.
Great. That's very helpful color. Thank you.
That points towards your 1000.
Customers per dealerships I really appreciate that.
Question. Your performance has been really impressive even as used car prices have been increasing and I.
I, usually think about used car prices being higher is sort of a negative 4.
Car Mart, all else being equal, but it's been very positive.
Had really positive results.
I'm wondering if we're still on the same environment with higher used car prices and it seems like it's going to be that way through the rest of calendar year 2021.
Is that.
Something that should we expect kind of the same strong results here it doesn't seem like that might be a drag at some point or is.
This is actually.
An opportunity or on.
A very opportune environments environment for you. Thank you.
Well.
Yeah.
It's hard to know where prices are going to go we don't expect prices to go up again in the next 12 months like they have the previous 12, but.
There is a certain commodity aspect to the business we're in.
And we have to participate.
Or sit out.
Changes in commodity prices, if you will.
We're not going to sit it out.
We think that we can be nimble enough to make some really smart decisions.
And.
To conditions as we need to adjust.
But we believe that.
Car prices are certainly not going to be.
Going down it's just a question of how much they're going to be going up.
For the next.
So a year and a half.
So.
We are building our efforts.
Yeah.
To survive and thrive and grow and prosper and get better.
In an environment, where.
The cost of inventory is increasing at least over the short term it does.
Benefit us.
In a couple of ways, 1 would be the fact that to operate in this business the cost of capital the cost of entry cost.
Cost to fund this business with car prices up.
Is much much more expensive than it was in.
Our balance sheet.
Our low leverage and are.
Financial situation.
How's us to participate in a big way and pick up some market share.
From folks that might not have the ability.
To take advantage of situations as they come up.
So we're going to remain nimble and adjust to the market, we're going to control the things that we can control, but there is a commodity aspect to this business and.
And we need to be fully participating because we can keep customers on the road, we can keep them on in their cars and successful.
We believe in our markets better than anyone.
So we need to be out there and fully participate.
Fully participating.
And the.
We'd certainly like to see a leveling off of.
Of used car prices, but that doesn't look like it's going to be the case anytime soon.
Okay, great Yeah, it's been very impressive that you've been able to pass along.
The car prices I appreciate it thanks very much.
Thank you.
As a reminder to ask a question press star 1 on your telephone.
Your next question comes from the line of John Rowan with Janney.
Good morning, guys.
Good morning, good morning.
Quick question, obviously, the gross profit came down a little bit can you remind me if that obviously you mentioned the higher sales price is there any function in there related to the service contracts.
And whether or not the expense related to the service contracts, maybe actually in the different expense line that'll be it from me. Thank you.
No. It it would be in that same category, we have not seen really any additional cost per se. If you will related to the new service contracts yet we just started rolling those out on them across most of our states in February.
And we've been piloting them in a in a few locations for about a year now so the cost aspect of the new service contracts is very minimal.
Now.
But going forward could it impact gross profit margin.
Your next year, all right yeah, our expectation is that once the revenue is fully baked in and the costs are fully baked in that our gross profit on the service contracts will remain.
The same as it has been historically.
Okay. Thank you.
Uh huh.
Thank you.
You have no further questions at this time, so I will turn the call back over for any closing remarks.
Okay, well once again, thank you for your interest in America's car Mart and thank you for listening into our call. This morning.
We appreciate our associates and their dedication to.
Making our company better.
We really have been through a pretty tough year from an associate standpoint.
With the pandemic and social unrest in our group and our team has really stuck together and.
And we're very proud of.
What we what we've done.
But we're even more proud of where we're going to go with the company and very.
About our future and we sure appreciate all of our great associates that are out there taking care of our customers and taking care of each other and making our communities better soon.
Thank you and have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.
Yes.
Okay.
Okay.
Okay.
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On.