Q1 2022 America's CAR-MART Inc Earnings Call
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Okay.
Good morning, everyone. Thank you for holding.
And welcome to America's car Mart first quarter fiscal 2022 conference call.
Topic of this call will be the earnings and operating results for the company's first quarter fiscal year 2022.
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.
The dial in numbers and access information are included in last Night's press release, which can be found on America's car Mart's website at Ww Dot car dashboard Dot com.
As you all know some of managements comments today may include forward looking statements.
Which inherently involve risks and uncertainties that could cause actual results to differ materially from management's present view.
These statements are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
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 one of the company's annual report on Form 10-K for the fiscal year ended April 30 of 2021.
And its current and quarterly reports furnished to or filed with the Securities Exchange Commission on forms 8-K and 10-Q.
Participating on the call. This morning are Jeff Williams, the company's President and Chief Executive Officer.
Vickie, Judy Chief Financial Officer.
And now I'd like to turn the call over to the company's Chief Executive Officer, Jeff Williams.
Oh, good morning, and thank you for joining us and thank you for your interest in America's car Mart.
We're very excited to be celebrating 40 years in business.
Supporting our associates, our customers and making our communities better.
We will carry on these great traditions and continue to improve as our industry changes in the next 40 years will be even better.
We will stay close to the consumer and focus on customer experience.
<unk> unmatched support after the sale, but keeping our customers on the road.
Giving them peace of mind.
Being part of the car Mart family.
We have to deliver legendary service as we move this great company forward.
We're making good progress with our various initiatives.
Which are foundational and focused on supporting our shift.
From a 40 year old collections company to a sale of a company that's very good at collections.
Our goal is to continue to gain market share and support an ever increasing customer base.
Allowing our field associates.
Led by our talented general managers.
To have more time to focus on growing and improving their businesses.
We have the balance sheet to support their growth.
This sales focus shift.
Darts and ends with our ability to efficiently and effectively source good affordable vehicles at increasing quantities.
We're making good progress with our procurement and inventory management effort.
Still in the early innings.
And we will continue to improve in this critically important area.
We ended the quarter was 604 customers per dealership.
That's an increase of 21.
About three 6%.
For the fourth for the first quarter.
We have significant opportunity and room to continue to serve more customers.
And as we stated.
We believe most of our dealerships.
Can support one or more customers in the future.
We continue to centralize some key.
Inventory procurement and management aspects and some other non core support functions.
I'll now turn it over to Vicki to go over the numbers Vickie.
Good morning, everyone. Our total revenue for the quarter increased 49, 2% up to $280 million that resulted from a 25% increase in retail units sold.
A 24% increase in the average retail sales price and our interest income increased by 33, 7% same.
Same store revenues were up 46, 7% with revenues from stores in the over 10 years of age up 48% stores in the five to 10 year category were up 56% and revenues for stores in the less than five years of age category, we're up to approximately $26 million or <unk>.
Activity improved to an average of $33 six units sold per store per month compared to 27 four over the prior year quarter.
Into 29 units per store per month for the quarter ended Sept, 31, 19 pre pandemic.
We continue to invest in inventory to accommodate the higher sales volume and to provide customers a quality mix of vehicles.
Our retail inventory was up due to higher quantities.
50% of the increase combined with higher pricing compared to the same time in the prior year.
At quarter end, 16, or 11% of our dealerships were from zero to five years old.
38, or 25% were from five to 10 years old and the remaining 97 or 10 years old or older.
Our 10 year plus lots produced 35, two units sold per month per lot for the quarter compared to $31. Two for 731.19 pre pandemic.
Our lots in the five to 10 year category produced 57.3 five for the quarter ended 731.19.
Our lots less than five years of age had productivity of $29 five units.
Per month per lot for the quarter.
Our down payment percentage was six 9% compared to seven 6% for the prior year quarter.
Collections as a percentage of average finance receivables was that 11, 5% compared to 13% for the prior year quarter our.
Our collections remain strong with the reduction in line with the expected change due to the average term increases.
The prior year also included the impact of the pandemic related stimulus payments payments, which contributed to a higher collection percentage.
The average originating contract term for the quarter was $38 eight months compared to 32 four for the prior year quarter and up from 37, one months sequentially.
The average selling price was up 24% or $2600 with a six four month increase in the term compared to the prior year first quarter.
Our time increases are necessary to be competitive and to ensure affordability for our customers as the retail sales price increases.
The quality of the vehicle in terms of age and mileage continues to improve as well and as always we will continue to be mindful of balancing the term link with affordability, but we believe we're putting a better customer and a higher quality vehicle for the most successful outcome combining that with our commitment to keep customers on the road.
With excellent service after the sale.
Our weighted average contract term for the entire portfolio, including modifications was $38 seven months compared to $33 nine for the prior year quarter. The weighted average age of the portfolio decreased slightly from approximately nine months to eight two months.
Interest income increased $8.5 million or 33, 7% compared to the prior year quarter, primarily due to the $217.1 million increase in average finance receivables of 34, 4% increase.
The weighted average interest rate for all finance receivables at the end of the quarter was approximately 16, 5% relatively flat from the prior year quarter.
Total gross profit per retail unit increased $596 to 6175, or 10, 7% increase compared to the prior year first quarter.
The gross profit percentage was 38, 1% compared to 41, 7% for the prior year quarter.
Also down from the sequential quarter at 42%.
The reduction in gross profit percentage resulted primarily from the lower margin on the retail units.
Partially offset by slightly lower repair cost.
An increasing average selling prices result in lower gross margin percentages, but higher gross margin dollars per unit as our gross margins are.
Our lower at a higher selling price and increasing average selling price will continue to put pressure on our gross profit percentage.
The mix of the type of vehicles sold was comparable to the sequential quarter with increases in car and SUV sales and pickup trucks decreasing due to the high price impact supply of trucks.
SG&A for the quarter was up $10 million compared to the prior year quarter and up $2.7 million sequentially, but down as a percentage of sales to 15, 7% compared to 17, 7% for the prior year quarter and up from 14, 5% sequentially.
SG&A as a percentage of total revenue less cost of sales and provision for credit losses is an important metric for our integrated sales and finance business is a large part of our efforts are focused on keeping our customers on the road.
This metric was 52, 8% compared to 55% for the prior year quarter. The prior year first quarter reflected significantly reduced expenses and credit losses due to the impact of COVID-19.
We are now serving over 91000 customers an increase of more than 9400. Since this time last year with over 2100 associates.
The SG&A increases have primarily been investments in our associates with increased head count.
Increased wages and benefits and increased commissions related to the higher net income.
We're also continuing our investments in our infrastructure with our ERP and CRM projects.
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And our goal of increasing market share.
All of this while continuing our commitment and investments in recruiting training and retention, our inventory procurement and management customer experience and our digital efforts.
For the current quarter net charge offs as a percentage of average finance receivables was four 3% down.
Down from four 8% in the prior year first quarter and down from five 4% for the quarter ended 731.19 pre pandemic.
Both our frequency of losses and severity of losses on a relative basis were improved compared to the prior year quarter.
Recovery rates of repossessed units also contributed to the decrease in net charge offs recovery rates for the quarter were approximately 28, 7% compared to 24, 5% in the prior year quarter.
Our accounts 30, plus past due were at three 3% compared to two 6% in the prior year first quarter and three 8% at 731.19 pre pandemic.
Although our portfolio continues to perform well and our focus is to support and serve our customers at the highest levels.
There is still much uncertainty as the enhanced unemployment and stimulus payments in and the Delta variant continues to impact businesses and our customers' labs.
The effective income tax rate was 21, 4% for the first quarter of fiscal 'twenty, two compared to 23, 4% for the prior year quarter.
Income tax expense included an income tax benefit of 644090.1000 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 272 million, we had $2.7 million in cash and approximately $53 million in additional availability under our revolving credit facilities.
Our current debt net of cash to finance receivables ratio is 32% compared to 25, 4% at this time last year.
A large part of this increase relates to the increase in our inventory investment compared to this time last year, which was historically low due to the pandemic.
An additional $48 million.
And also due to our repurchases of our common stock.
During this last quarter, we added $80.9 million in receivables.
Increased inventory by $14.8 million.
We repurchased $11.6 million of our common stock.
And funded $1.7 million in capital expenditures, a total of $109 million with only a $46.1 million increase in debt net of cash.
We are well positioned to serve more customers and grow our market share.
Thank you and now I'll turn it back to Jeff.
Okay, well, thank you Vicky.
Again, we're pleased with our growth, especially our productivity progress ending the quarter with $33 six units sold per dealership per month.
We believe we have significant opportunity to continue to grow the business.
From our locations we currently have.
We did reach an agreement to purchase the retail finance business of the core man in El Reno, Oklahoma from Jake Heller.
Jason It was our best preferred vendors and we're excited to have a new car Mart location in El Reno, which will open very soon and have Jake shift over and focus his efforts on expanding our preferred vendor relationship.
Additionally, we expect to open our Norman Oklahoma dealership in the second quarter.
We will continue to open new dealerships and look for acquisition opportunities alongside and in conjunction with our investments aimed at increasing our market share in existing dealerships. We have a lot of room to grow from our existing dealership base and that will be a focus of ours.
And we will see the continuing productivity improvements that we've seen in the recent history.
Past 18 months has been difficult with the pandemic, social and political unrest now the delta variant.
The extreme shortage of used cores.
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And more so with our vendor partners.
Has put additional strain and stress on our entire team.
But we had resilient people here at core Mark who are committed to our mission, our vision and our values and truly love. The purpose in our work also we have lot of very smart people here, we see the potential we have a window of opportunity that we have to make these foundational investments in key areas.
With the sense of urgency.
We're getting better each day.
This is a hard work and the work we do is hard and it takes a very special group of people to do what we've done over the last few years.
And we're even more optimistic about our future. So we will now open it up for questions operator.
Thank you at this time participants will now answer questions from the callers I would like to reiterate that earlier comments regarding forward looking statements apply to both to the participants' prepared remarks and to anything that may come up during the Q&A.
Ladies and gentlemen to ask a question you will need to press. The Star then the one key on your Touchtone telephone.
To withdraw your question press the pound key please.
Please limit yourself to one question and one follow up.
You may re queue for any additional questions.
Please standby, while we compile the Q&A Boston.
My first question coming from the line of Kyle Joseph with Jefferies. Your line is open.
Hey, good morning, Jeff and I Hope you guys are well thanks for taking my questions.
Just a quick question.
And in terms of the child tax credit changes do you see any any impacts of the distributions in July and August and kind of give us your expectations for how that impacts the seasonality of the business going forward.
It's a little early to see the effect, we are seeing some improvements in collections.
The 15th but it's a little early to tell but we do expect.
A good percentage of our customers to benefit from those payments for.
For the rest of this fall.
Got it and then on the on the margin side.
Italy, I understand pressure, there frankly surprised.
We haven't seen it really yet but.
Just wondering is do you think this is kind of a good run rate was there any kind of one time things in the quarter.
My head of your selling inventory source that kind of peak Manhattan levels and since then we've kind of seen the Mannheim come down so.
Have you seen any easing in terms of the tight supply.
Yes, it's getting a little better at certain price points.
The color that we're looking for then wholesale car under 10 Grand is still pretty tight supply and we think it's going to stay that way for an extended period of time, but we are starting to see a little more availability.
And.
We do expect.
Gross margin dollar amount to continue to increase with the sales price increases the percentage itself may be a little.
The challenge is just a little bit.
But we are seeing.
Share gains so the pricing of our product and the sourcing of our product.
Is being well received by consumers with the market share unless we see so.
We're.
We're thinking that the used car market for the product we offer.
Stay pretty tight for for an extended period of time. The car. We are looking for is in high demand.
We think it's going to stay that way.
But our volumes are improving significantly.
The quality of the core the quality of the customer and the.
Credit results have all been good and we're going to leverage our SG&A investments as we go forward, but that gross margin percentage.
Certainly.
Just a little lower and they go a little bit lower as we go forward depending on the sales price of the core but.
And we're picking up good market share good customers good colors.
Leveraging the SG&A costs.
Got it very helpful. Thanks, very much for answering my questions.
Hey, Joe.
Our next question coming from the line of Vincent <unk> with Stephens. Your line is open.
Good morning, Thanks for taking my questions I guess.
First question. So your sales productivity was better than expected.
Quarter kind of continuous what you've done last quarter.
But when you think about that versus affordability discussion I'm sort of wondering how youre thinking about.
Productivity and sales volumes going forward.
The levers that you have been able to pull for example go higher.
Loan terms how.
How much.
Longer term could you go or are there other things that you could do to sustain.
The sales productivity.
With still affordability being a challenge.
Yes that is the challenge for us.
But even at the 38.39 months.
Term.
We're still significantly below the competition.
So we've got a little room to go there we do.
Sure.
Many of our customers do appreciate.
Given that pay for quicker and shorter terms are viewed as a positive but it does have to be affordable. We know we have competition on the payment amount.
So we will continue to try to balance.
The.
The attractiveness of our offering to those customers that do have choices that do focus on term.
No offer of shorter term with our lower interest rate.
Those folks that are more focused on getting that getting that core paid for it's a balance for us. It always has been and it always will be.
And.
We look to the market and the.
Competition in the choices, our consumers have and try to strike that balance.
With our efforts.
We'll stay focused on that affordability is very important.
We do feel like.
We are way below competition on that term.
We do have some room there.
Consumer demand pushed in that direction.
Got it thanks, Jeff.
And then second question just actually a follow up to cause gross margin question I think the gross margins.
Whats driving the stock this morning, but.
Is it simply so gross margin percentages is that going to simply be.
Just following what used car prices are doing or are there actions.
You can take or other things that can be done in order to improve the margins since.
I remember in the past, we've talked about different ways of sourcing inventory.
Another other ways, but I was just wondering is this something where we should just be.
Just looking at used car prices and building it in from 38%.
Order.
Or is there something else that you can.
Thank you.
Well, yes.
Price of the core with the significant.
The increase in the price of used cars, it's just mathematically in the and the way we price cars based on what we pay for the core.
It's just a factor and resulting from a.
Higher dollar gross profit.
But the percentage itself is going to be lower as you go up the price chain, we are working on efficiencies and <unk>.
<unk> management and everything that is underneath the cost of the core the purchase cost and we'll continue to squeeze out some efficiencies there.
But.
The retail sales price of the car and the competition in the markets.
And the overall ability to pass on the full percentages that we've had in the past with a higher dollar.
<unk>.
He is going to it's going to be a challenge for us if you want to call. It a challenge, but again, we're picking up market share or pricing at the retail side is is matching up very nicely.
That's a big reason that we're seeing our volume.
Improvements in a pretty difficult market with higher prices.
Folks that had choices are looking at our offering and look at our pricing and deciding that that's a good choice.
Everything we're doing and after the sale service contract of oil changes roadside assistance.
Everything we do here to keep those customers on the road.
I think that is the reason that we are seeing increased.
Our market share and expect to continue to see productivity improvements as we go forward but.
Again, those gross margin percentages.
Probably going to.
To stay in that.
38% range and maybe even go a little lower as we go up on sales price.
Just to level off net sales price.
But some of that is dictated by the market whats out there for us to buy.
We will adjust.
Accordingly.
We'd love to see a steadier more consistent flow of product at the lower price points.
Two to allow even more customers.
To come into our family. We do think that pricing is is listen folks out of the market just based on a facility, we'd love to see more availability at the lower price points.
Be at higher gross margin percentages.
But that's that's a little bit out of our control at this point with the with what's going on with the used car market.
Yes.
Understood very helpful. Thanks, so much.
Thank you Vincent.
As a reminder to ask a question. Please press star one.
And our next question coming from the line of John Rowan with Janney Montgomery Scott Your line is open.
Good afternoon, everyone.
Good morning, just to make sure I heard this right you were at $38 eight months of duration currently correct versus $32 four last year.
Yes.
And then how much of the decrease in the.
The cash conversion cycle there.
Relative to finance receivables was a function of duration versus reduced down payment.
It was all a reduction in the tariff due to the term increase.
Okay.
We actually had some positives there.
The offset it so.
The term increase was the contributing factor to the lower collections.
Okay.
I only look back over the last few years.
This cash collection rate.
Have you ever had mission.
Right before I don't see a number of the slow over the past few years and looking for a longer look back as to whether or not there is a precedent.
Relative to the history of the company for closer to the 11.
5%. Thank you.
Yes.
Yes. It is.
Is strongest average term, we've had and it all relates to the.
The supply demand imbalance for used cars so.
We're doing our best to.
To find a good solid mechanically sound color at a low price and we're doing a good job there.
But there is a commodity aspect to the business and.
And that term is going to have to go out but again, we think we're buying a better car putting it under a better customer.
Collection results have been.
Been good.
And.
And good customers do have choices and some make choices based on that payment amount. So we have to be in the game.
And again, our term is a lot shorter than others.
We love to see it.
The even shorter than it is.
But that plays into it.
Consumer demand affordability.
And good kosher customers with choices.
Have to.
We have to recognize that.
That.
Term does play into those decisions on the retail side.
Okay. Thank you very much thank.
Thank you John.
Okay.
Our next question is coming from Vincent <unk> with Stephens. Your line is open.
Thanks for taking my follow up separate questions about credit.
You talked about getting better quality cars.
And also attracting different customers higher up.
Just wondering when you think about the credit reserve ratio the 24%.
Booking.
And your net loss rate has been improving as well just wondering if that 24%.
Is the right range or how youre thinking about it going forward. This year you of course are improving.
Yes, sure Vincent we look at that each quarter based on our historical knowledge.
And then of course, taking into account our current portfolio as well.
We did see a slight uptick in delinquencies, we know theres again, a lot of uncertainty with Covid.
And then we don't have a lot of history with them these longer term contracts as well. So again, we think everything we're doing to support the customer the vehicle, we're putting them in the customer that we have on our books, we feel very good about our portfolio, but there are there is a lot of them.
Certainty out there, but we will continue to look at that each quarter and evaluate that and adjust accordingly.
Understood. Thanks again.
I'm showing no further questions at this time I would now like to turn the call back over to Mr. Jeff Williams for any closing remarks.
Okay, well again, thank you for joining us on this morning's call.
We are very optimistic.
About our business.
We are.
Convinced that most of our dealerships could and should be supporting a thousand customers reward.
The productivity improvements we saw in the quarter outstanding.
We have a very solid balance sheet.
And we're excited about funding our individual general managers as they grow their business and improved market share in their local markets.
Did buyback $12 million of stock during the quarter.
Very well stocked on inventory.
And we've got a lot of good things going on on these operational foundational investments.
Mikey to allow us to serve an increasing number of customers. So very excited about the business.
Where we're at the people we have in place.
And very much enthusiastic.
Our future and our place in the world. So thank you and have a great day.
Okay.
Ladies and gentlemen that does <unk> conference call today. Thank you for your participation you may now disconnect.
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