Q2 2023 America's CAR-MART Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
Yeah.
Good morning, everyone. Thank you for holding and welcome to America's car Mart's second quarter fiscal 2023 conference call.
Topic of this call will be the earnings and operating results for the company's second quarter of fiscal year 2023.
Before we begin today's call is being recorded and will be available for replay for the next 12 months as a reminder, some of management's 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 estimate nor does it undertake any obligation to update forward looking statements.
For more information regarding forward looking statements. Please see part one of the company's annual report on Form 10-K for the fiscal year ended April 30th 2022, and its current and quarterly reports furnished to or filed with Securities Exchange Commission on forms 8-K and 10-Q.
Participating on the call. This morning are Jeff Williams, the company's Chief Executive Officer, Doug Campbell, President Mbeki, 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 today and thank you for your interest in America's car Mart.
I'd like to welcome Doug Campbell, our new President to the call and Doug will have some comments just a few minutes.
As stated in the press release, we are pleased with our sales volume productivity improvements and market share gains.
The consumer demand for our offering as high and as credit continues to tighten we expect demand to increase even more.
Absolute consumer affordability challenges, our volume and profit opportunities would be higher.
We will be ready to support the expected increase in customers that we will see in the future.
Our long term outlook for the business and our place in the market is solid and the investments, we're making will ensure that we continue to be the clear leader in our segment.
Yes.
We're excited about the addition of key leaders to our experienced and dedicated team.
Will be vital in our efforts going forward.
Yeah, great cultural fits with a mix of specific industry knowledge and experience and Theyre very excited about the initiatives in process and the opportunities we have to take the company to the next level.
As for gross margin external factors are playing into our results supply and demand imbalances have continued and resulted in a shortage of vehicles in our price categories.
Inflationary pressures with parts labor logistics, and all indirect cost of sales are contributing to this difficult operating environment.
Even in this market, we expect to be performing at a much higher level as we move forward.
The challenges with buying shipping and repairing vehicles.
Did not pass along all of our costs and our selling prices to consumers overall, having an approximate 200 basis point negative effect on gross margin percentages for the quarter.
Additionally, significant wholesale drag resulted from quality challenges due to product shortages, our inability to get repairs processed timely for cars that were designated for retail, but because of delays in capacity issues.
The wholesale.
And the decrease in wholesale prices for older model older model cars, which began in the early summer months.
Overall, our wholesale challenges at another negative 200 basis point effect on overall gross margin percentages.
With our retailers service contract price adjustments mentioned in the press release, we expect to recapture this gross margin percentage over time, as we move forward and the market conditions normalize.
Our corporate procurement efforts are designed to supply our dealerships with most of their product needs good prices in retail ready condition allow.
Allowing our talented and dedicated dealership staff led by the general managers to spend their time working on the business and profitably growing the number of customers we serve.
When a portion of cars show up to dealerships not retail ready a direct negative effects, we're seeing broadly.
Valuable management time is lost reconditioning costs increase wholesale losses are higher and repossessions increase improved procurement and inventory management provides significant indirect opportunities for efficiencies.
Including increased turns better utilization of data and leveraging the centralization of key functions such as wholesale management titles and logistics, we did bring inventory down about $15 million in the quarter.
Tax time, just around the corner.
This will allow us to move our product out efficiently as we go forward, we will be increasing turns as we move forward.
At the end of the day, our most important opportunities of companies leveraging our size and scale.
Supplying our customers with affordable.
<unk> sell vehicles, while minimizing a lot level time and effort and car related friction points.
Along with the expectation that used vehicle prices will continue to level off and decrease.
We expect to be taking significant costs out of our procurement channels, while at the same time, improving quality, while leveraging strong partnerships throughout the chain specifically reconditioning partners.
Our centralization efforts have been directed at gaining scale in procurement HR collections and eliminating manual processes that can be performed more efficiently and effectively by a dedicated group of less turnover. Examples include certain collection processes.
Title processing procurement logistics customer insurance tracking online sales exited protection plan product claims administration.
All of this with the goal of freeing up time at the dealerships to increase productivity by serving more customers.
Since 2019, we estimate that we're investing from five to 10 million more annually in corporate SG&A to support our ERP CRM and L. O S efforts and projects at other centralization initiatives.
This is really at the heart of the initiatives initiatives I mentioned earlier and described in our press release, we had the opportunity to serve more customers and efficiencies throughout the organization remove tasks from the field and offer better more affordable vehicles.
That is also a focus and a senior talent that we've added to our team and we're excited I'm excited for the enhancements that will that they will make and have already begun to make to our company.
As to credit losses as mentioned in the press release credit losses are higher than anticipated as inflation continues to run at extremely high levels affecting our customers' disproportionately.
At present losses, if simply reverted to historical levels. After a sustained period of below average losses.
Ben the Canary in a coal mine with credit losses due to how closely are to the ground.
That being said it does appear likely that industry credit losses, I referenced 260 plus pass.
These delinquencies in subprime used auto could be much higher down the road for competition.
Are you seeing competition scaling back and even closing locations something we've not seen in many years in our industry and of course that creates tremendous opportunity for us.
We do expect net charge off levels to level off.
The competitive landscape for credit continues to tighten.
We are strengthening our deal structures to help more customers succeed.
Okay.
With vehicle prices coming down some our procurement efforts improving quickly and the.
L O S rolling out.
We will be in a great spot to pick a higher credit quality customers as we've seen during prior recessionary periods.
While we hope for the best and prepare for the worst we do expect inflation to come down over time from all time highs that we've seen recently elite alleviating some of the intense pressure on consumers. Although this is not a requirement for us to resume earning above average returns.
We spent 37 million of long term capital expenditures over the last 18 months approximately $10 million of that is related and the remainder the remainder is primarily related to store relocations remodels and rebranding upgrades.
We've opened three new store locations completed significant remodels at six locations.
And relocated six dealerships with one more in process.
We expanded the expenditures have been made at locations that have the potential of a surge to get significantly more customers that did not have the physical facilities to allow for it.
Our physical facilities are very important and attracting the best associates in the better credit customers.
And we've had some catch up to do recently.
We are confident that capital expenditures have appropriate returns and will lead to greater volume and productivity measures.
And we've been pleased with our results.
We've had great success with a limited number of acquisitions. We made we believe we will see more opportunities come our way as conditions in the industry become more difficult.
Cited at this opportunity.
We believe there are good operators that would love to join our team.
It is reposition Steve Taylor is the perfect person to lead this effort and he's actively making contactless.
We can and will do better as we've done for 40 years.
Our industry has gone through one of the most dramatic and rapid changes that we've seen in our lifetimes, we have numerous tools at our disposal.
Confident that we are in a far better position than the vast majority of our competition to succeed over the long term.
That said, we recognize that our job is to earn consistently high returns and we will not hesitate to make changes required that allow us to earn appropriate returns in any environment.
We'll continue to adapt.
Thank you and I'll now I will now turn it over to Doug Doug.
Thanks, Jeff and good morning, everyone, it's nice to be with you today.
I'll start with some color on why he chose America's car Mart, there are many reasons, but I'll limit it to the biggest drivers in my decision making process.
First is the opportunity regarding the buying and selling of vehicles and associated logistics.
It's an area within car market has tremendous opportunity and the potential to drive significant cost savings.
I have over 25 years of experience in both the automotive retail and wholesale sectors of our industry.
My most recent role in leading both the acquisition and disposal of vehicles, one of the largest fleets in the world should align nicely with the work in front of us and proven valuable for our collective futures.
Second was the belief that it was the right fit for my wife, and two children Northwest, Arkansas, Arkansas is vibrant and a fantastic place to raise a family Theyre looking forward to the transition in the upcoming months and becoming part of the northwest Arkansas community.
Lastly, what's the culture of the company and what drives them.
Over there 40 40 year history, we have remained disciplined in their purpose to help people, which is capturing their mission vision and values.
There is strong alignment here between the company and me.
I know it sounds somewhat cliche, but one of the more difficult attributes of an organization.
<unk> and the perpetuation of a strong culture and my first couple of weeks here I've had a chance to spend time with thought leaders in the field and at headquarters, which is only bolstered and supported my decision to come here I'm very fortunate to become part of what is already a fantastic team and enhance these cultural elements.
I wanted to shift over to some comments, Jeff as mentioned over the last couple of quarters about the investment in areas of the business as it relates to the centralization of certain functions, the leveraging of data and inventory.
I'll briefly take the opportunity to touch on some of these initiatives in more detail now.
Start with inventory.
Over time, we've been transitioning inventory procurement from our stores with local purchasing agents to larger vendors, who help both acquire and prep units for sale.
We're now centralizing some of those efforts by launching several pilots to both scale the acquisition and reconditioning of vehicles with strategic partners, who have a footprint that closely aligns in the markets. We operate units out of these production environments will have improved quality consistency and overall lower cost.
During the quarter were seeing initial results look promising promising and meaningful in terms of reducing the cost of sale of these assets. We're.
We're still looking at how we might leverage associated financial benefits as we could utilize those savings to increase gross profit margins <unk> grow market share.
All while reducing the incidence of credit losses in the future getting these retail ready inventory units ready for our stores is essential and leveraging these partnerships in a challenging environment should work in our favor lastly.
Lastly, it will represent a significant increase in our overall procurement capacity, allowing for future growth, while creating additional bandwidth for our operators of our stores.
More to come about this in the future we're still in our preliminary stages of the pilot and are optimistic regarding their outcomes.
I'll pick it now over to B O S. Our loan origination system.
Customers come to us primarily for credit.
<unk> is designed to increase our funnel of potential customers by giving them a great online application experience with loan pre approvals in hand.
Our current platform Alice has served us well for several decades.
Although it has gone through several iterations, we know the data collected on both vehicles customer performance has not been fully optimized with respect to qualifying scores are improving our customers. This.
This was some of the rationale and creating a modernized platform with the obvious benefits of being faster leveraging our historical information while consolidating some of the systems. We use became evident throughout its development, but it also serves as an opportunity to future proof certain parts of our business as it relates to digital retailing.
While most of our customers aren't asking for some of the functionality that's being introduced in the marketplace. Today, we wanted to ensure that we can participate in those areas if needed.
Our aim in the short term is to move the application and approval process online and have the customers time spent at the dealership around product selection and <unk>.
Functionality can and will be introduced over time, but I'd like to focus on what we launched during the quarter regarding the MLS.
We launched our pilot of our <unk> in the month of September with nine of our stores in October we activate it adds an additional 27 stores, enabling nearly a quarter of our locations to utilize the new L. O S and their customers to have an improved online experience.
Billet pace would be out west is having the following benefits.
A large part of our existing business is generating.
Perfect for our stores through our online credit application portal. The stores would then reach out to customers thats more qualifying questions and instead appointments. The new LLS is now pre qualifying and pre approving customers without the interaction from the stores. Once preapproved, we can centrally scheduled these appointments on behalf of the stores.
Now the stores to leverage our resources in a differentiated way and create capacity to serve more customers and spend that time on collections and other business critical efforts.
<unk> is an important metric is the submission of an <unk> or online credit application it.
It's a measurement of digital traffic that will mature into floor traffic, but is also act as a lead generator for our stores.
Our kpis, we've tracked over time as a conversion ratio of credit applications to sales and we utilize this to augment advertising dollars or to drive more traffic when needed.
For the stores that are on the pilot online application of cell ratios are showing meaningful increases. We're also seeing a level of enthusiasm from our customers who are arriving at our lots who are now powered with these pre approvals at retail locations.
While the concept of preapproved customers is not new it's unique within this cohort of credit quality and financial demographic of customer.
This will be an essential tool for market share growth is new customers entering from the upper end of our credit spectrum might be accustomed to this level of both visibility and service. It also serves as a differentiator from many of our current competitors and allows us to compete with these upper funnel customers, who might have more options available to them.
Lastly, it's around the consolidation of systems storage currently are using a couple of separate systems to perform but underwriting function during the sales process.
This does require a certain level of proficiency to operate and can be problematic with employee turnover or high foot traffic environment.
Our new system is now in consolidating and simplifying its operation by integrating those external tools needed with Apis and a faster overall operating system.
All of these benefits will make it quicker and easier to get to approval and declination decisions, while maintaining a higher level of business continuity and provide the ability to perform a regression analysis on customers, who did not back from us well.
We look forward to updating you in the future quarters, as we progress and I'll now turn it over to Vickie to cover both sales and financial results.
Thank you, Doug and good morning, everyone.
A 13% increase in the retail sales price.
With a 30% increase in interest income of 24% revenue increase over the prior year quarter. Additionally.
Additionally, while many of our competitors are down in volume, we had a 7% sales volume increase.
Our per store productivity increased to $34 or 5% over the prior year quarter.
As Jeff mentioned this demonstrates the demand for our products even in a tough environment and the result of some of our investments that we've been making.
The gross profit dollars per unit increased slightly to $61 32, and the gross profit percentage was 32, 1% down from a sequential quarter 34, 4%.
This decrease primarily resulted from increased cost of repair parts transportation fees steel costs and other cost of sales expenses.
And declining wholesale prices and internal efficiencies in our inventory and procurement also contributed to this margin decline.
For the current quarter net charge offs as a percentage of finance receivables.
But there is the increased frequency of losses were five 8%. This was in line with our prior five year average and below our 10 year average of six 3% for a second quarters.
This compared to four 4% in the prior year quarter.
For historical comparison pre pandemic net charge offs were also five 8% for the quarter ended 10 31 19.
Primary driver of the increased charge offs or the increased frequency of losses.
He also experienced a smaller increase in the relative severity of losses.
The declining wholesale prices had an effect as well recovery rates decreased about 50 basis points to just under 30%.
As the credit environment normalizes and credit above us tightens now is the time that we need to work with our customers to keep them in their car and on the road our dealerships will be focused on that especially as we approach the holidays over the third quarter and the upcoming income tax rates on time.
Our account 30.
With a three 6% compared to 4% in the prior year quarter and in line with historical quarters pre pandemic and three 5% at 10 31 19.
Total collections were up over 12% to 151 million and total collections per active customer were up.
6% to $514.
We added $74 million of finance receivable principal balance during the quarter and $293 million over the last 12 months.
This growth resulted in a larger provision requirement and the resulting higher credit loss reserve on the balance sheet our.
Our deferred revenue from ancillary products is at $107 million and has increased $31 million during the last 12 months.
The average originating contract term for the quarter was 42 six months compared to $39 seven for the prior year quarter and down slightly from 42 eight months sequentially. The.
The average selling price was up $2099 with a $2 nine month increase in the term compared to the prior year second quarter.
We did see a slight decrease in.
And the average selling price sequentially, we continue to remain focused on timely and strong underwriting and we were able to reduce term slightly as prices moderate.
Our weighted average contract term for the entire portfolio, including modifications was $44 eight months compared to <unk> 40 for the prior year and the weighted average age of the portfolio increased 10% from approximately $8 format to nine three months. This demonstrates our ability to work with customers and keep them.
I'm on the road.
Our SG&A spend increased $5 8 million over the prior year quarter S.
SG&A was up due in large part to an inflation from the prior year.
Current quarter does include the costs for the key leaders, who recently joined our team.
And for the prior year quarter costs were still somewhat muted from the lingering pandemic conditions. However, the last 12 months have seen significant inflation, especially in the labor market.
Another way in the prior year's quarter, we benefited from a far more affordable car east car environment without the corresponding increase in costs that dynamic has now reversed most of the SG&A increase relates to wage inflation as we need to remain competitive in the marketplace over.
Over 72% of our SG&A is people costs.
Since 2019, our revenues are up over 200% annualized the.
The number of customers, we serve is up 32% from 75000.
We believe we have the opportunity to serve a much larger customer base at appropriate returns.
Many of our people investments have been discretionary investment that are viewed as necessary to grow and scale. The business. Our expectation is to leverage these investments by serving more customers.
At quarter end, our revolving debt was approximately $302 million, we had $4 5 million in cash and approximately $50 million in additional availability under our revolving credit facilities based on our current borrowing base of receivables and inventory.
Our securitized nonrecourse notes payable by $250 million with $33 million in restricted cash related to those notes.
We are preparing for our second securitization expected to be towards the end of the third quarter. We will continue to be mindful of efficiencies in our funding cost in terms of advance rate.
Cost and other funding costs, while ensuring we have access to the capital necessary brokering business.
Total debt net of cash to finance receivables.
Ratio is 49% our solid balance sheet strong operating history and access to the securitization market should provide us with the appropriate access to capital moving forward, although that cost of capital does continue to increase.
As we find the growing receivable base with higher retail sales process in longer terms the business requires a higher debt level. Our cash on cash returns are still attractive and growing our finance receivable and customer base is the best use of our capital.
During the quarter, we grew finance receivables by $74 million, we decreased inventory about 15 million and we funded $8 million in capital expenditures.
Thank you and I will let Jeff part of the South.
Thank you Vicky.
We're convinced of our unique place in the World and the fact that our business model is the best way to serve our customer base.
With capital constraints affecting competition market share opportunities are real in the year.
As we've said repeatedly over the years ultra low interest rates have supported some marginal competition that will now have to raise prices shrink or even close.
Over 40 years, we've been nimble and adaptable.
Our current and future value proposition is solid and we've leaned into the challenges and opportunities to scale the business.
To allow for productivity improvements.
Blending data and digital with our bricks and mortar footprint, which is powerful from a consumer's viewpoint.
The market later today, and we're investing to be the market leader five and 10 years from now.
The market, we serve has been disrupted which will be a good thing for us over the near and longer term.
For the quarter were low.
We're investing today and expect benefits tomorrow.
We're choosing to make these investments in people technology and facilities, because we see the opportunity as the enormous for us.
We will now open it up for questions operator.
As a reminder to ask a question you will need to press star one on your telephone again that is star one one please standby, while we compile the Q&A roster and one moment for your first question.
Okay.
And our first question comes from John Rowan from Janney. Your line is now open.
Good morning.
Maybe just a couple for Vicki first so there was a change in the allowance on a historical basis right. So there was a restatement.
The allowance was adjusted lower.
If I can see the prior period.
Yes.
<unk> on the allowance that didn't affect the provision expense this quarter correct, meaning that there will be a reversal of provision expense because of the reduction in the prior period allowance.
That's correct.
There was no impact right.
Okay, just want to make sure.
What percent of your debt right now is floating versus fixed.
The fixed the securitization debt is fixed and our revolver is floating.
Okay. So almost 50 50.
Yes.
Okay, and then Jeff just kind of a longer term.
As always.
How to strategy if you will.
Cheap cars.
Get people on the road obviously.
In recent years it shifted to more expensive cars out of necessity, what's going on with competition.
In this environment do you think you'd be better off with kind of the old strategy of smaller less expensive cars do you foresee a return to that type of strategy I'm, just trying to figure out how.
Now.
The company's position now relative to what they were 510 years ago and what's the best fit going forward yes.
Yes.
It's a good question, John we would love.
To be selling a lot more cars at lower price points and that is something we're working on with some of these reconditioning partnerships and other activities we have in place.
The supplier that car has been extremely short over the last couple of years and we think our volumes.
And our productivity numbers would be quite a bit higher.
The availability of that product been out there in the marketplace, but we're not.
We're not giving up on that lower price product market.
We hope it comes back at some point.
Just.
Is additive to what we're already doing a lot of our <unk>.
Improvements in cars offered at price points has been keeping.
Car Mart.
Customers in the family longer so prior to the pandemic and the shortage of cars. We were already focused on how do we keep somebody in the family.
Been a good long term car.
Carmack customer who's paid off several cars with us how do we not lose them to competition down the street. So that part of our model has worked as designed over the last few years, what's what's been a struggle is finding low cars at the lower lower priced cars at the lower end to improve volumes and provide a cheaper car to entry level.
Consumers. So we're very much interested focused on the lower price points. You think we can dovetail that volume in with what were already doing down the road as maybe supply gets a little more.
Normalized.
Alright, thank you.
Thank you and thank you.
And one moment our next question.
And our next question comes from Kyle Joseph from Jefferies. Your line is now open.
Hey, good morning, guys. Thanks for taking my questions.
Regarding.
Credit, obviously, we track subprime auto finance credit broadly entertaining.
We're seeing the same things that you sell I was pleasantly surprised to see that your credit was.
Relatively stable both in terms of <unk> and charge offs. Just wondering if you can give.
Give us a sense for some of the severity frequency and severity trends youre seeing and give us a sense for the.
The health of your underlying consumer obviously inflation negatively impacting them, but just how youre able to sustain good credit performance in this environment.
Okay.
Yes, certainly so the frequency of losses was the biggest contributor.
Severity was the smaller piece of that.
As we've talked about before our consumers. We believe we are still pretty healthy.
The job markets are still good wages are still up.
Ours are still up in terms of what they're working.
There is some adjustment here to this inflationary environment.
Higher <unk> and maybe what they've historically been meeting that.
And as you mentioned overall.
Things are pretty positive we feel good about it we've been working with consumers for 40 years. It used to working through situations like this with them and that's what we'll be focused on.
And our customer base has seen some very nice wage increases over the last year.
And there's still a shortage of workers in those categories that most of our.
Customers working so a good wage base, there and increasing wages is offsetting a lot of this inflation, but it's still pretty tight from a consumer standpoint.
Got it very helpful and then.
Was it was nice to see the good volume recovery, particularly in terms of units. There is that a function of I know you mentioned that.
Credit is getting a little tighter in the in the sub Prime Auto Finance World.
Is that kind of a function of your consumer getting priced out of being by higher rates and being able to shop at kind of franchise or larger dealerships or is that a function of the consumer just being a little bit more bargain savvy and preparing the.
The inventory you guys have.
I think it's probably a little both I think the competition is tightening some of the smaller competitors are having trouble with funding their businesses.
And then plus our product offering is attractive.
It's a combination of all those factors.
Got it and then just one last one from me.
We track Manheim, and obviously your margins were under pressure in the quarter I think from your commentary that was.
More higher procurement costs, rather than ongoing increases in used car prices and just how quickly.
And.
That used car prices coming starting to come down year over year.
Sequentially as well.
To support that gross profit margin, even if we have elevated procurement costs.
We've seen a decrease in the last several more since the beginning of the summer and wholesale prices and then we are getting closer to tax time now so that's leveled off in the.
The availability for the specific car, we're trying to supply.
It doesn't always follow those same.
Depreciation curve so.
We're thinking that we're going to see some leveling off in some decreases in prices over the next several months.
And maybe see some deflation over a longer period of time.
But.
Anything to add to that yes, well listen I'll sort of the Manheim index is incredibly valuable to attracted by sort of looked at the time period and locked in January one.
And sort of restated that index from January one 2020, our prices ran up probably close to 40% on the cohort of vehicles, we really stay focused on.
Sort of reaching a crescendo here in December of last year.
Come down about 17% since that point, and we expect that to sort of level off throughout the balance of the user.
Sort of into the spring market and there's a little bit more robustness around there, but we still don't see a more normalized depreciation going forward, which will capitalize on so I think the very first question around <unk>.
Of the vehicles, if you sort of like think about that continuum I just mentioned prices have come down nearly 20%, but are still 20% higher than pre pandemic levels I think our pricing and the vehicles that we're selling as a function of whats available in the marketplace and the fact that prices are still very much elevated.
We can.
And we will participate in I think for.
For those customers in the lower end of the credit spectrum that becomes accretive to our volume.
Got it very helpful. Thanks for answering all my questions.
Thank you and thank you.
And.
One moment for our next question.
And our next question comes from Vincent <unk> from Stephens. Your line is now open.
Hey, Thanks, Thanks for taking my questions I guess first I wanted to delve in on the inventories.
And your sense of.
Approximately when do you.
What's the plan for working through that and maybe some stats Mike.
The average days in inventory right now because I would think that maybe some of this inventory came before used car prices.
Turning to client, but maybe even more now in a favorable environment. So perhaps it's ed.
Mix issuer or a matter of time. Thank you.
Yes, we're on and about 55% or 56 days of sales and inventory, we did take $15 million out of the investment during.
During the quarter.
And we're right around the corner from tax time, so we have the opportunity.
Two.
To be smart.
With our pricing.
In our credit during tax time.
And minimize any negatives that you might otherwise see.
From prices floating down a little bit so we're trying to manage the inventory car by car.
And our mix is better than it was we've got fewer dollars out there.
And think that we can we can make it through the next.
Six to nine months.
With moving through our inventory.
Efficient.
Ineffective.
Wei and utilized tax time to work through inventory one car at a time without any kind of major disruptions.
Okay. Thank you for that and then second question just around the so you highlighted some of the pressures for the gross profit margin in the second part that you were discussing about the 200 basis points related to quality challenges.
The wholesaling of course, if you could go through that in more detail what's driving that.
How much.
That impact is that going to be going forward or is the business changes next year.
Thanks Jay.
Yes.
Yes.
Again as mentioned in the press release that related to.
Us.
A lot of cars designated for retail, but then due to some capacity issues.
Some cost issues, we werent able to get those cars processed in retail condition. So we ended up choosing the wholesale.
Avenue and lane.
For that product.
And then we had some other other challenges in the wholesale area that we are considering to be transitional.
<unk>.
We'll work through over time.
We probably got another another quarter or so so wholesale challenges, but we consider those to be temporary.
And.
That's something that we can work through and we'll work through.
Overtime.
Okay, great. Thank you and last one for me just use.
Used car prices the industry uses.
Started to decline.
Any sense for kind of the.
The sensitivity of your your gross profit margins or how how quickly with turnover and start to accrete to your to your margins. Thank you.
Yes, we don't have any.
Specific.
We're working through the issues and putting efficiencies into the processes as quickly as possible. We expect to see some some some quick improvements in some of the improvements are going to take just a little bit longer so.
It's hard to be exactly specific but we do expect.
To see the bottom line effect of some of our improvements were making relatively quickly.
And with a longer term view being that we've got significant opportunities to pick up.
Several hundred basis points on gross margin percentages.
Improvements in the areas we mentioned.
Okay, Great. That's very helpful. Thanks, so much.
Thank you and thank you for your question.
And if you would like to ask a question that is star one one again, if you would like to ask a question that is star one one and one moment.
Quick questions.
And I am showing no questions and I would like to turn the call back to Jeff Williams for closing remarks.
Okay, well once again, thank you for joining our call today. We appreciate you and your interest in America's car Mart.
And I'd like to as always say, thanks to all of our great Associates out there who are dedicated to keeping our customers on the road, giving them peace of mind and keeping them in the car Mart family for life. So thank you and have a good day.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.