Car-Mart(CRMT) - 2026 Q3 - Quarterly Report

Sales Performance - For the first nine months of fiscal 2026, sales decreased by 6.1% compared to the prior-year period, driven by a 9.4% decline in retail units sold (37,480 units vs. 41,373 units), partially offset by a 2.6% increase in the average retail sales price to $20,041[164] - Total revenues decreased by $38.9 million, or 12%, for the three months ended January 31, 2026, primarily due to lower retail sales volumes[176] - Retail units sold decreased by 9.4% to 37,480 units for the nine months ended January 31, 2026, compared to 41,373 units in the prior-year period[184] Financial Performance - The Company reported a net loss of $104.9 million for the nine months ended January 31, 2026, compared to a net income of $7.3 million for the same period in 2025[200] - Total revenues decreased by $42.1 million, or 4.1%, for the nine months ended January 31, 2026, primarily due to a 6.1% decline in sales revenue[184] - The Company's gross profit margin as a percentage of sales for the first nine months of fiscal 2026 was 36.7%, consistent with the prior year period[170] Credit Losses and Allowances - The provision for credit losses as a percentage of sales increased to 41.7% for the first nine months of fiscal 2026, compared to 33.7% for the same period in fiscal 2025, resulting in a $24.5 million increase to the allowance for credit losses[166] - Provision for credit losses increased to 41.7% of sales for the nine months ended January 31, 2026, compared to 33.7% in the prior year, with an increase of $45.7 million to $327.3 million[188] - Provision for credit losses as a percentage of sales rose to 47.3% for the three months ended January 31, 2026, compared to 32.9% in the prior year, with an absolute increase of $18.5 million to $105.2 million[181] Interest Income and Expense - Interest income rose by 5.0% for the first nine months of fiscal 2026[164] - Interest expense increased to 9.8% of sales for the three months ended January 31, 2026, up from 6.4% in the prior year, with a dollar increase of $4.9 million to $21.8 million[182] - The Company’s earnings are impacted by net interest income, which is the difference between income earned on interest-bearing assets and interest paid on notes payable[226] Inventory and Finance Receivables - Finance receivables, net decreased by 5.6% to $1,114.7 million as of January 31, 2026, reflecting lower originations due to reduced retail unit sales[190] - Inventory decreased by $11.0 million, or 9.8%, compared to April 30, 2025, due to disciplined inventory management and moderated purchasing activity[191] - The allowance for credit losses increased to $347.6 million, representing 25.53% of the principal balance in finance receivables of $1.5 billion as of January 31, 2026, up from 24.31% a year earlier[213] Operational Changes - The Company operated 136 dealerships as of January 31, 2026, after consolidating eighteen locations as part of a footprint optimization strategy[163] - The Company implemented a new loan origination system in 127 of its 136 dealerships, enhancing credit application processes and decision-making[173] - The Company has implemented process improvements to mitigate credit loss risks, including an upgraded payments platform to facilitate online payments[205] Future Expectations and Strategies - The Company expects to maintain efficient operations and selectively grow its finance receivables portfolio using cash from operations and other financing sources[207] - The Company expects to adopt ASU 2023-09 related to income tax disclosures in its Annual Report for the fiscal year ending April 30, 2026, with no material effect anticipated on consolidated financial statements[220] - The Company is evaluating the impact of ASU 2024-03, which requires enhanced disclosures of natural expense categories, effective for annual periods beginning after December 15, 2026[221] Market and Economic Factors - The allowance for credit losses is influenced by external factors such as industry trends, geopolitical events, and economic conditions, requiring management to project future loan performance[222] - The Company’s exposure to market risk is primarily related to changes in interest rates, particularly the federal primary credit rate and the prime interest rate of its lender[224] - Historically, the Company's third fiscal quarter (November through January) has been the slowest for vehicle sales, while the first and fourth quarters (May through July and February through April) are the busiest[222]