Q2 2024 America's Car-Mart Inc Earnings Call
Yes.
Thank you for standing by and welcome to America's Car Mart second quarter 2024 earnings Conference call. At this time, all participants are in a listen only mode.
After the Speakers' presentation, there'll be a question and answer session.
To ask a question at that time. Please press Star then one on your telephone.
Today's call is being recorded I would now.
I'll turn the call to your host MS Vickie, Judy America's car Mart's CFO. Please begin.
Thank you and welcome to America's car Mart second quarter 2024 earnings call. Joining me today is Doug Campbell, who took over as our company's CEO on October one 2023.
Issued a news release earlier this morning, and it is available on our website.
We've updated our reporting format with a simplified look providing an efficient and easy comparison of important metrics against the prior corresponding quarter and commentary about our result.
In addition, we will post a transcript of our prepared remarks following this call.
And we're also going to be posting some slides to our website and supplementary materials. We are having some technical difficulties. This morning, but those should be up shortly.
Doug will help further illustrate many of the talking points that we're going to cover in our call today.
The Q&A session will be available through the webcast after the call.
We believe that this process will help enhance how we share our quarterly results with you and we welcome your feedback.
During today's call certain statements, we make may be considered forward looking and 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 provision 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 such forward looking statements.
For more information, including important cautionary notes. Please see part one of the company's annual report on Form 10-K for the fiscal year ended April 32023, and our current and quarterly reports furnished to or filed with the Securities and Exchange Commission on forms 8-K and 10.
Q.
I will now turn it over to Doug for his introductory comments about our second quarter.
Good morning, and thank you for joining us and for your interest in our company first.
First I'd like to thank our associates for their relentless focus on keeping our customers on the road.
I also appreciate all the many messages have received in my appointment as CEO. It means a lot. So thanks for that.
I wanted to take a moment to recognize the passing of Hank Henderson, one of our board members and CEO prior to Jeff Williams. His contributions here at the company and in the community to his family leave an indelible Mark He was a valued board member and a long time shareholder.
He has pointed advice to me about the opportunity to be CEO has a different meaning today. So thank you Hank.
During the quarter, we identified someone with a similar profile that has a long term view of the business as such we recently added Jonathan Duboe from Manta Hailer capital management to our board.
He brings many years of experience within specialty finance, including subprime installment lending part.
On lending and lease to own retail.
He is a shareholder as well and we're excited to have him join our board.
Now I'd like to address the quarter.
If I'm on the other end of this call and have a lot of questions about the results and particularly credit losses.
And ask you to bring into context that GAAP accounting requires us to report our results as a retailer with an accounts receivable balance of almost one 5 billion.
Originated over the last four years as the business grows the impact of reserves and credit adjustments on our portfolio originated over four year period becomes even larger in relation to the quarterly results.
The way we measure our business is the cash we collect overtime relative to the money that we put out on the street.
And if you look over time, we've never had a pool of loans in which we earn cumulative cash returns less than 50% in excess of the cash outlay over the life of the contracts.
What has changed is that it takes longer to recognize it but 10 years ago, we put a dollar out on the street and get approximately $1 60 back overtime and Thats still the case.
Let me also tell you why I came to <unk>.
Over the last five or six fiscal years, the business has generated almost $600 million in free cash flow.
The company has repurchased 156 million shares.
Our balanced by $739 million.
But at various capital expenditures of almost $78 million.
While funding increased inventory of $79 million and a growing business.
They've been able to do this because of the underlying pools of receivables that the company has originated.
Have consistently produce cash flows in excess of the cost to operate the business over time.
This remains the case.
Additionally, this segment of automotive is large and growing part of our industry.
The ability to really help consumers, who have little to no access to credit from an industry leader with a great track record and an abundance of opportunity made it attractive.
Especially when you consider the opportunity to feather in my skill set and industry best practices with <unk> unique culture. It has power to take the business to the next level.
That's what I'm focused on.
Today, we reported revenue increase of two 8%.
That was primarily driven from a 23% increase in interest income.
Sales volumes were down four 6%, but sales revenue only saw a decline of 4%.
The muted sales revenue was a product of a five 6% increase in the quarterly average selling price moving from $18025 to $19035 year over year.
A proxy approximately 40% of this increase was related to the vehicle selling price, but 60% was related to the increased revenue for ancillary products sequentially. The quarterly average selling price was relatively flat.
As far as sales volumes, we finished the quarter with 15162 units versus 15885 units sold last year.
<unk> September had respectable volumes and collectively posted a gain in sales year over year, but October sales results were down.
Several items contributed to the sales decline witnessed in October.
And I'll talk about that not here web traffic was consistent and still posted gains year over year and online credit applications for the quarter were also positive by 19% yet there was a decrease in showroom traffic.
Additionally, launching several states onto our new loan origination system or LLS was a contributing factor I'll speak to more in a minute.
Overall, we're trying to balance sales volume with our new system on boarding new stores and introducing new underwriting underwriting guidelines.
We spent the better part of last year rolling out the consumer application quarter for us, which allows the consumer to apply faster have a soft credit pool during the application process and get a response via text as to the status of their application as well as centralized appointment setting.
We're now in the second phase of our Pos rollout, which is related to underwriting and how sales are being originated.
During the quarter, we on boarded three additional states, bringing the total to five states, which accounts for about 45% of our revenue at quarter end.
We started out the fiscal year rolling out the dealer facing portion of this tool.
As a reference our legacy system had limited ability to influence outcomes, but served as a stable platform to originate deals and managed associated costs.
Our original intent was to roll the system out with similar underwriting rules as our legacy system, Alice allowing users to learn the system over time, but giving us enhanced data and visibility however, with a backdrop of increasing credit losses. We've made the strategic decision to implement new underwriting rules, which primarily start to decrease terms and increased.
On payments the initial results were very positive.
When looking at originating terms, we finished at $44 one months for the quarter. While this is up year over year, it's down sequentially by six months.
Largest decrease we've seen since July 2019.
The originating terms during the quarter for our legacy system were approximately 44 months and 42 months on the new LLS.
Originating terms were both down.
Down in both systems and bill trended downward throughout the quarter.
Average down payments for the quarter were four 9% and relatively flat when viewed sequentially, but down 30 basis points year over year yet.
Yet when comparing the two originating systems, we collected nearly a point more in down payment on the new LLS generating five 5% down and four 6% in Alice.
This demonstrates how effective the system us and our teams are pushing for improved deal structures. Despite the seasonality, we normally see with cash down payment percentages.
The benefits of <unk> are no longer theoretical is deployed in about half of our stores already and we couldnt think of a more opportune time to begin testing its capabilities.
These combined results show that we can more quickly and precisely adjust parameters and as with any new system. There are growing pains.
We're projecting to have the lowest completely rolled out in the third quarter prior to tax season.
Ultimately, we're striving to achieve higher volumes with better deal structures to help our customers be more successful and we're confident the investment will have long term positive impacts.
While adding a level of sophistication to our underwriting as critical a large part of our result is a function of our servicing efforts after the sale, which we must continue to execute at a high level.
Sure.
The gross margin initiatives, we are focused on continue to bear fruit and improved materially year over year.
Sequentially there was a small decrease but this was a function of the sales mix discussed earlier.
We also continued to improve the age and mileage of vehicles, we're purchasing compared to the prior year.
During the quarter, we were able to bring down our purchase cost average vehicles, despite the UAW strike and any noise. It created.
If you reference slide four in the supplemental.
Supplemental material on the web site I've included two charts in the first chart, our put our purchase cost average up against Cox's MMR index, which tracks price movement throughout the year on a set basket of goods where.
We're improving our timing here, which ultimately reduce how we own that vehicle.
To a given book value at the time of contract origination.
It's evident we're moving with the market better despite us doing this with lead times are three to four weeks.
The second chart shows during the same period that we've improved the quality of the assets by purchasing newer and lower mileage vehicles.
These are material changes, which low repair cost during initial reconditioning and while under service contract contributing to better gross margins.
When combined with the inventory procurement and marketing management processes implemented last year, we're delivering operational improvements for our customers and the company.
We've made great strides in both our procurement and remarketing Cape It capabilities and a key driver going forward will be our ability to reach some more of these vehicles that are repossessed.
The opportunity today is considerable and continues to grow as newer vehicles cycled through our portfolio, we've engaged a national provider to perform reconditioning and improved vehicle quality.
Which will in turn help drive the overall average cost down improved gross margin reduced credit loss and enhanced cash flow.
We will launch this during the third quarter.
This is also critically important to addressing the affordability headwinds for our consumers.
I wanted to touch on net charge offs and overall credit losses.
Although the macro environment has seen some cooling of inflation over the quarter.
The lingering financial and psychological effects of the worst part of inflation of four decades continues to impact our consumers.
Goods and services are still far pricier than they are just three years ago with the economic inflationary pressures on our customers now more prevalent in all areas of their lives.
Things like higher energy costs food housing and auto insurance just to name a few.
This is the largest contributing factor that drove an increase to the frequency of losses during the quarter of 24%.
The unit losses on Repossessions peaked in September and came down slightly in October.
Our 30 day plus delinquencies also improved during that same timeframe, which are both positive signs, but we remain cautiously optimistic about this movement.
I will now turn things over to Vicki on more details on the financials.
Thank you, Doug and my commentary the comparisons that I will cover will be the second quarter of 2024 versus second quarter of 2023, unless otherwise noted.
Our revenues for the second quarter were $361 6 million.
Two 8% from last year's prior period the.
The year over year increase is primarily due to the 23% higher interest income.
As Doug mentioned, we did have a decrease in unit volumes, our sales volumes became more challenging as we move throughout the quarter and most of this decline came in the last month of the quarter.
Although we did have some operational challenges as we implemented our new LLS. There was also a dampening in the overall used vehicle market because of continued affordability challenges for our consumer.
When combined the softness in the market. The continued elevated vehicle prices and onboarding stores to the LLS, we have less predictability in short term sales volumes than we would've otherwise expected to have.
But with that said the application volumes remain robust.
LLS Onboarding will be completed in the third quarter and the work we are doing to improve affordability should mitigate some of these challenges.
The gross profit dollars per retail unit sold improved by 11, 5% and the gross profit percentage increased 220 basis points.
A result of the initiatives around inventory lifecycle efficiencies from the procurement reconditioning wholesaling efforts and repairs after the sale.
Sequentially gross profit dollars improved slightly by 1% and the gross margin percentage was 30 basis points lower primarily due to the lower sales volumes in October.
We expect further improvements in our gross margin percentage as volumes improve and we scale and fully operationalize our initial our initiatives.
Due to our operational efficiencies our inventory dollars decreased $16 5 million from the prior year quarter.
Quarterly inventory turns improved to seven one compared to six 7% annualized.
SG&A was $44 9 million or 14, 9% of sales.
From the prior year quarter of $42 $9 million, but down sequentially, one 6 million.
From $46 5 million.
The primary reduction sequentially was a $3 2 million stock reduction or reduction in stock based compensation, partially offset by increased cost and collection expenses and professional fees related to the implementation of our new technologies.
Since the quarter end, we have made adjustments to our operating expense structure.
First we reduced the size of our corporate workforce by 10% through a series of strategic decisions.
Also limited hiring reduced our marketing spend and curtailed the use of some professional services.
We will continue to evaluate spend at both the dealership and the corporate level and we're committed to driving cost efficiencies in the business and implementing cost savings initiatives over the next quarter.
When combined with our technology and business investments, we expect to provide SG&A costs leveraging opportunities as we move forward.
However, we continue to serve an expanding customer base with over 104000 customers.
A 6% increase over the prior year quarter.
SG&A per average account improved and was $424 compared to $439 in the prior year and $449 sequentially.
On the credit losses, our net charge offs as a percentage of average finance receivables was seven 2% versus five 8%.
This compares to our prior 10 year average for second quarters of six 2% and that includes the positive COVID-19 periods.
As a comparison to pre COVID-19 periods, our average net charge offs for the five year period pre pandemic were 7% for second quarter.
The frequency of losses accounted for over two thirds of the credit loss increase.
Severity was also higher than usual cause Boston rapid vehicle depreciation exhibited last year that made some of the originations in the calendar year of 'twenty, one and 'twenty two pauls experience, both higher frequency and severity of losses and that's a great point Vicki If you reference chart one on <unk>.
Slide five we've index wholesale prices back to 2017 to show what happens over a three year period with price in a normalized environment.
Specifically called out two points to illustrate what happens with price between an origination and a default as an example in.
In chart, one the periods I've identified for origination default show approximately a nine or 10%.
Reduction in depreciation.
Chart, two reflects the wholesale price movement from 2021% to 2023 year to date.
As shown similar timing of origination and default and includes shows the price degrading in excess of 25%.
This is why severity is more pronounced than normal.
It is not a dynamic that is specific to <unk>, but an industry wide issue, which most lenders will have to contend with at some point.
Yes, Thank you Doug.
Those are the nature of our contracts being shorter it's our belief that we are witnessing some of this first many industry metrics, which measure delinquency and default rates, which have historically moved in tandem now show delinquencies continuing to rise without defaults moving at a similar rate.
As a management team, we've decided not to deviate from our historical collection practices because of our deep experience in dealing with subprime customers. The good news is that we are through the largest percentage of losses expected from these tools. While these pools are challenging nonetheless, they produced over 50% cash on cash returns.
And approximately a 35% IRR.
As a result of the increased losses in our quarterly analysis. The company did increase the allowance for credit loss from $23 nine 1% to 26, 4% sequentially.
<unk> and a $28 million charge to the provision expense.
Earnings per loss earnings per share loss of $3 40 after tax.
The structural changes to our portfolio of our recent years, driven by higher vehicle costs and longer term links as well as the current economic state of our customer continue to drive an increase in the provision for credit losses.
As our allowance represents an expectation of losses on a $1 5 billion portfolio. The result of a change can have a large impact on any periods quarterly earnings, especially based on our retail businesses sales in a given quarter.
Our pools have consistently produced positive cash on cash returns and attractive irr's.
As vehicle prices have risen in terms of increase from approximately 30 months to approximately 44 months, our time to breakeven has been pushed out and irr's have declined although still at very good returns.
Please refer to slides three and six on our website to see how these pools have performed over time.
Our account 30, plus days past due were three 6% consistent with last year's quarter and improved from four 4% sequentially.
As a percentage of accounts receivable, our total dollars past due improved 213 basis points sequentially.
This is especially important given that the quarter closed on a Tuesday, which is historically the highest delinquency day of the week.
The average originating contract term for the quarter was $44 one months compared to $42 six months and improved sequentially from $44 seven.
The lower delinquencies should result in improved losses over the next quarter.
Our weighted average contract term for the entire portfolio, including modifications was 47 three months compared to $44 eight for the prior year quarter and $46 nine sequentially.
The weighted average age of the portfolio improved to 10 eight months.
The percentage of our portfolio held by the highest credit quality customers continues to improve compared to the prior year and was flat sequentially.
You should expect us to be more aggressive on capital allocation going forward. During this quarter, we closed another location, bringing the total to three for the fiscal year.
We will be adding a newly acquired dealership during the third quarter moving capital from underperforming stores to higher performing assets, which has cascading benefit throughout the company. We will continue to review and monitor our capital invested in each dealership and other investments to maximize returns.
Our interest expense continues to significantly impact our earnings potential over 60% of the increase is due to higher interest rates with the remaining a result of an increase in average borrowings.
The company's total securitized nonrecourse notes payable was $489 million net of $90 million in restricted cash related to these notes.
We are also currently considering redeeming our first series of asset backed nonrecourse notes issued in April of 2022, as we have satisfied the conditions to repurchase the securitized receivable under the terms of the note.
Subject to notification to the note holders this will free up some well seasoned collateral.
At quarter end, we had $4 3 million in unrestricted cash and approximately $86 million in additional availability under our revolving credit facilities based on our current borrowing base of receivables and inventory.
Access to capital with our $600 million revolving credit facility. The successful securitization program and an active shelf registration gives us flexibility and a distinct advantage over many competitors. Many competitors may experience, even more pressure in accessing capital in the future.
Our nonrecourse securitized notes represent the bulk of our funding and our cost of funds fluctuate with the level of interest rates and credit spreads.
Summarize the key drivers and their impact on EPS in the quarter on slide seven.
In conclusion, we remain committed to growth and prudent financial management, we're focused on delivering value to our shareholders through strategic investments operational efficiency.
And our steadfast dedication to keep our customers on the road.
Thanks, and I'll, let Doug close this out.
Thanks Vicki.
We continue to optimize our footprint and leverage our investments in technology and infrastructure. Our ERP implementation begins next calendar year, which will reduce the need for several menu and redundant processes.
We're excited to have central auto sales is a new addition to our dealership group that we expect to close in December.
We're actively evaluating several opportunities in our market geographies to acquire productive stores, which offer operators an exit strategy and continue their great work in servicing customers and their communities.
This last acquisition has sales volume on part with our largest stores in the country and we're excited to have some new partners help us growth.
Before we take questions I want to reiterate that our team is extremely focused on executing our strategy for the back half of fiscal year 2024.
Overall, we believe our keen focus on operational efficiencies, reducing costs and prudent capital management will enhance our competitive advantages.
The overall macro environment remains challenging for <unk> core customers, both existing and perspective, but they need the service we provide.
While we are disappointed to show a loss during the current quarter quarter, the underlying cash generative nature of our business continues to position us for long term profitable growth now.
Now, we'll open up the line for questions. Operator, please provide instructions to do so.
Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press star one on your telephone again to ask a question. Please press star one one we do ask that you. Please limit yourself to one question on a follow up. Thank you one moment for our first question.
Okay.
Our first question comes from the line of John Rowan.
Of Janney Montgomery Scott Your line is open.
<unk>.
Doug I want to Echo your sentiment on Hank, especially since I'm going to reference I'm hearing more of my questions.
You mentioned that the cash on cash return is still the same at one six times than it was.
Historically for the company.
I just want to make sure I understand that metric correctly, whether or not we have to adjusted for timing because you say its the same but it's taking.
At a $45 44 months duration is taking 50% longer to get to that return I mean, I remember my first meeting with Hank in his when he was the CEO and Jeff <unk> CFO. He said, we're never going over 30 months duration right is that still the right metric to look at given.
How much longer it's taking to collect the cash.
Yes, so that's in and discounted return John So again, putting a dollar out and getting $1 60 back.
When you discount that back for the time and the longer terms.
That's when I was mentioning the irr's.
Which are certainly lower.
But still very positive.
Do you think about the last couple of years and I think we've talked about this on a few calls.
We could have we could have chosen just to sit out of the market and not serve these customers.
<unk>.
We chose to go ahead and participate extend the term.
We're really working on the quality of the vehicle.
And have improved that since that COVID-19 period of time.
So again.
We're all in over time, it's still a good return on the output of those pools, yes John.
I also echo Vicki sentiments and I appreciate your commentary about Hank I'm sure.
Went back in time and asked them Hey can you envision a day, we're going to sell 60, plus thousand cars at $19000 of peace, we probably would have pushed back on that too, but the environment has changed and.
I think with other large competitors closing it creates opportunity for us as well and we're feeling ourselves out for what that rate term is and I think that's why it's so important to have these new initiatives like the Pos that will enable us to drive that and have some centralized start about what term should be and how we can actually get there.
Alright.
Your press release, you had mentioned some underwriting changes in October.
<unk> volume what were those I mean, obviously with the rollout of the LOI should we look for a reduction in originating term obviously.
The average contract term was up pretty sharply sequentially I assume there was heightened level of modifications in there since the originating term came down can you just kind of break those two pieces out and what the underwriting changes were.
Yes.
As I mentioned before the underwriting changes primarily focused around turbine downpayment, we had made some mild adjustments at the very beginning of the quarter and as we saw credit losses change, we pulled back and really wanted to focus on highly rated customers in downpayment, we weren't sure how much effect that would have on sales and so on.
Or really what what we could execute on and we were really surprised by the results I think we're still trying to figure out what the right term is because what we need to balance is that and sales volumes.
Historically, we've served the customer that we underwrite and it provides a good return, but now we really are able to dial in and really focus on highly rated customers and to us that's the real upside of the opportunity to try and augment the portfolio. So we're trying to we're trying to juggle all of that while continuing to onboard the remaining stores that adds any clarity John.
Okay.
Dresser, whether or not there was increased modifications.
We have not seen an increase in modifications compared to historical trends now and I think the the overall portfolio.
Term was up four months, including those modifications. So again, yes, we are working with our customers in this environment.
Same as we have historically, but I think we mentioned too that we're also ensuring that anything thats not going to be a producing asset or the consumer is not able to keep making payments while are not kicking those down the road we're taking.
Taking our lumps as we go here, yes, one more thing on that it's one of the things that Vicki called out when you look at delinquency rates and default rates in the divergence of those two which historically have moved in tandem.
Our experience in working with these customers is continue to run our play our deep experience, we have to trust, our playbook and saying things don't materially get better over time working with this tranche of customers and when you got to cycle through these through our portfolio. If that's what it means and so we're just we're staying focused on running our play.
And then just two more I'll lump them into one question.
What's the outlook for share repurchases.
Obviously, given the loss you reported here and where they are.
Anywhere close to any amortization events in the ABS facilities.
Yes, so share repurchases will continue to be part of our capital allocation as we look ahead.
We do want to ensure that we're taking advantage of the opportunities that we have in front of US right now on these acquisitions.
And not Miss out on any of those in the current market that repurchases will continue to be a part of that.
On the ABL side.
We are working on our renewal of our ABL currently we have a good relationship with our banks, we keep them updated on our business and very transparent with them.
They understand our business.
Yes.
Got it good covenant in there I just want make sure youre not close to it.
Or is it a turbo amortization.
Yes, no we have.
We have availability triggers that we watch and review closely and as I mentioned, we have $86 million of additional availability at the end of October.
We're not expecting to trip any covenant triggers there and then we have our <unk>.
That we're going to call here in the next 30 days or so or less this month in December which will bring some additional collateral into that ABL pool and then we're also looking at another securitization later in the month. So we've got flexibility there and then as I mentioned to you. We also have our active shelf out there.
Should we need to use some other type of funding in the future.
Okay. Thank you.
Thank you Josh.
Thank you one moment please.
Yes.
Our next question comes from the line of Vincent <unk> of Stephens. Your line is open.
Hey, good morning, guys. Thanks for taking my questions first on credit. So I appreciate all the detail you gave with that.
The 30 day accounts 30 days past due came down quarter over quarter, yet the credit provisions.
And so im curious whats changed in your thinking that drove the critical missions higher.
In the press release, it says higher credit provisions were onetime so I'm wondering if the.
The higher credit provisions related to say, one time higher credit losses that we see.
This quarter and so reserves should come down.
The bulk of the portfolio.
It comes down over time.
Is credit is the consumer deteriorating further going forward. So we should expect to keep this higher credit reserve rates.
Going forward. Thank you.
Sure. So a large piece of that credit reserve analysis. The analysis is just based on.
Actual losses that have happened and so when you see an increase of losses in the quarter likely saw that's going to.
Well through the entire portfolio with an expectation that some piece of that continues so some of it is just a math equation.
That results in that higher output.
Yes.
You know as we look at our delinquencies as we look at the pools that we have out there, yes, there would be some expectation.
As we move forward here.
That would be able to be reduced at some point in time in the future, but we've got to work through what currently in our portfolio and we will continue to review that quarterly.
I would add also.
The increase in those unit losses during the quarter was really really sharp again, I've mentioned, peaking in September coming down in October and then again most recently in November came down yet again, so we're encouraged by that but its tough its tough for us to sort of gauge where that is going to end up but as keeping our delinquencies in line.
<unk> seen positive trends in terms of the unit losses.
They are really good indicators, but we got to see what sort of pans out the environment is still challenge for our consumers and that doesn't seem to be going away anytime soon and were doing everything we can to help them be successful.
Okay. That's very helpful. Thank you.
Maybe put another way is is there a way to say that hey, your underwriting.
Has changed such that Youre targeting.
Certain loss rate, that's lower than where we are now.
Maybe if you could give some detail of what I think I understand that the current book Folio that was written.
This past year is probably.
The tough spot I'm trying to get a sense.
The portfolio that you are writing going forward.
Tom.
Are you targeting something that's lower than where the bank portfolio.
Yeah. So there's a couple of drivers there Vincent I think about it this way.
If we're targeting higher down payments and better rated customers I would expect the loss rate to come down, especially when you feather in the fact that we're really focused on the asset and how it performs in the portfolio, which should drive better recovery rates, but all of that remains to be seen we have to prove that out but we're doing all the things.
To sort of get us to that future place, so you're 100% right.
That's where we're headed and Thats, where we want to be focused on we don't know what that means yet right. We need to get these car cycled through and keep more of these cars and helped drive cheaper cars into our portfolio also which help with default rates. So there's a lot going on but we're trying to do all of those things to drive a differentiated result here than we've experienced recently.
Vince and I would also add to that.
It is a subprime consumer.
And we're working to structure the deals for success as best we can but as you know these consumers live paycheck to paycheck and that's why our servicing after the sale and how we help them through those events. After the sale are so important and how we service them. So.
Again, we have to keep that in mind.
The consumer that we're dealing with in the aspect of that.
Okay.
That's helpful. Thank you and then.
Separately on sales activity. So on the sales per store per month decline in this quarter.
I was wondering if you can give us specifically October since that seems to be the weakest quarter and then how.
How much of the impact was driven by the Onboarding of LLS system, you pay them a lot of stores now within that so im just wondering maybe what what sales would've been without that onboarding.
And just generally how you expect.
To be going forward is there still more pressure in question unless you are tighter underwriting or.
Alright, the changes you're making now.
Some sales force going forward. Thank you.
Yes, I think Vicki touched on that in her remarks, there about there being less predictability today and I think that's really driven by.
Partially by the rollout of the Pos.
Our teams in our stores are learning how to use the system. It's new we haven't changed it in over a decade and so there's a learning curve, there, which does impact some productivity right.
Aware of that the best thing we can do is continue to roll it out roll it out quickly to support the stores as best as we can and then get that behind us.
In addition to that there was some softness in the environment and what we're trying to do is reconcile okay. We were up again and online credit apps, 19%.
Our unique visitors to our website was also up 23%.
So it's like there's no shortage of demand right. What we're trying to do is balance the right customers in our portfolio and rollout. This new system. There was a little bit of softness in showroom traffic and so we're trying to figure out is that in us problem right or is that driven by the environment and it's really really early to tell it was a sort of sharp drop off in October and so sort of <unk>.
To be seen where we're trying to give ourselves some elasticity on the sales volume for the third quarter here because it is important to us to get the right customers in our portfolio.
And that's.
That's the most thing that's most important thing we're really focused on.
Yes, and there is still the affordability.
<unk> I mean, I think Cox has come out that there is somewhere around 50% of the market that may be setting out data affordability. So the improvements that we're working on in terms of the vehicle.
Should help with that also.
Thank you.
That's a great point.
I touched on that the ability to sell more of our repossessions.
When we do that our early indicators in our pilot as we can shave a couple of thousand dollars off the transaction price for our consumer.
We can generate demand when we scale that and so that's why it's so important and we're really focused on that and that does rollout here in the third quarter. So.
I am not really answering your question directly but these are all the things that are sort of in play. We know we can drive some of that we know the top side demand is really strong and we know we're also looking at underwriting restrictions and guidelines in and trying to balance all of that with Onboarding new stores. So I wish I could give you a more clear answer but.
It's not on the demand side.
Okay understood.
Very helpful. Thanks, so much.
Thank you Vincent.
Thank you one moment please.
Our next question comes from the line of Kyle Joseph of Jefferies. Your line is open.
Hey, good morning, Thanks for taking my questions.
Just a few more on credit if you will.
I think you referenced kind of went back at kind of pre pandemic average loss rates for.
The second quarter, but if we look back at kind of pre pandemic reserve levels. I think they are more in that 24, 525% range. Obviously youre above that now is that is that a function of.
The portfolio duration or just the uncertain outlook.
Then in addition to that any specific macro changes that triggered the reserve or is it more just a function of performance and.
Enduring.
Inflation.
Yes, I would say that most of it is based on the performance.
<unk>.
The severity is a piece of that increased reserve as well and then there are.
Qualitative factors such as the inflationary environment that also play into that so it's a combination of all of those things.
That causes that reserve to need to be at a higher percentage.
Got it and then yes, I think this was referenced earlier, but obviously early stage <unk> continued to perform well. So is this the <unk>.
Back book and then.
Ongoing inflation thats driving less caring.
Back book.
Yes, I think thats a piece of it just the consumer and the environment they're in.
<unk>.
But I think where we ended the quarter, especially you know like I said, our closing on a Tuesday, which is typically our highest delinquency day of the week and then looking at both our 30 plus being lower as well as our less than 30 day delinquencies being lower was a really positive sign.
Got it thanks very much for taking my questions.
Thank you.
You.
I'm showing no further questions at this time I will turn the call back over to Doug Campbell for any closing remarks.
Okay.
Well.
I'd like to thank everybody for joining the call.
Obviously, a lot going on a lot of positive things for our company, we're really excited about our future.
And really focused on some of these high line items like our ERP and our lowest which our tech investments that we've made over the last couple of years, all of which will help our customers be more successful.
I think the affordability is a key part of this equation and knowing that we have a path to help engineer more affordable vehicles for our consumers and generate demand. Despite the external environment is also a big piece of that and then lastly, we're really excited about our acquisition posture.
We were able to get one of these done and when you. When you can add stores that are were on par with some of your larger stores in the country. How can you not be excited about that and the other ones that are in our pipeline and some of them are two and three times the size of that so.
We couldnt be more excited about our future I appreciate everybody for joining the call and thank you very much for your interest in America's car Mart.
Thank you ladies and gentlemen, this does conclude today's conference. Thank you all participating you may now disconnect have a great day.
Okay.
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