Car-Mart(CRMT) - 2022 Q2 - Quarterly Report

Revenue Growth - Revenue increased by approximately $64.9 million, or 29.1%, for the three months ended October 31, 2021, compared to the same period in the prior fiscal year[132] - Revenues increased by approximately $157.4 million, or 38.3%, for the six months ended October 31, 2021, driven by a 20.5% increase in average retail sales price and a 14.7% increase in retail units sold[142] - Same store revenue change was 28.2% for the three months ended October 31, 2021, compared to 12.8% in the prior year[133] Interest and Finance Receivables - Interest income rose by 38.8%, contributing an increase of approximately $10.3 million for the three months ended October 31, 2021, due to a $261.3 million increase in average finance receivables[133] - Finance receivables increased by 19.7% since April 30, 2021, and 43.9% since October 31, 2020, while revenues grew 38.3% compared to the prior year period[148] - Finance receivables, net, increased by $123.1 million from April 30, 2021, to October 31, 2021[158] Credit Losses - Credit losses as a percentage of sales for the first six months of fiscal 2022 were 23.1%, showing improvement from previous years[123] - The provision for credit losses increased by 39.0% to $60.9 million for the three months ended October 31, 2021[133] - Provision for credit losses as a percentage of sales was 24.3% for the three months ended October 31, 2021, up from 22.3% in the prior year, attributed to a growth in finance receivables[138] - The provision for credit losses increased to $115.06 million from $79.95 million, indicating a rise of 43.9% year-over-year[156] - The allowance for credit losses at October 31, 2021, was $218.2 million, which is 24.5% of the principal balance in finance receivables of $966.4 million[173] Sales and Inventory - The average retail sales price increased by 21.1%, while retail units sold increased by 5.7% during the same period[133] - Average retail sales price for the second quarter of fiscal 2022 was $16,179, a $2,814 increase over the prior year quarter, with demand remaining high despite supply constraints[135] - Inventory increased by $26.7 million compared to April 30, 2021, to accommodate higher sales volumes and provide a quality mix of vehicles[149] Expenses and Margins - The gross margin percentage for the first six months of 2022 decreased to 37.8% from 41.1% in the prior year period, while gross margin dollars per retail unit sold increased by $615, or 10.9%[125] - Cost of sales increased to 62.5% for the three months ended October 31, 2021, compared to 59.3% for the same period last year, resulting in a gross margin of 37.5%[134] - Selling, general and administrative expenses as a percentage of sales decreased to 14.8%, with an increase of approximately $4.6 million in expenses due to higher payroll and benefits[137] - Selling, general and administrative expenses increased approximately $14.7 million for the six months ended October 31, 2021, primarily in payroll and benefits[144] Debt and Financing - Total debt increased by $98.9 million in the first six months of fiscal 2022, funding finance receivables growth and capital expenditures[155] - The Company had total indebtedness of $326.2 million outstanding under its revolving credit facilities as of October 31, 2021[187] - A 1% increase in interest rates on the Company's debt would result in an increased annual interest expense of approximately $3.3 million[187] - The Company's finance receivables carry fixed interest rates of 15% or 16.5% per annum, while its revolving credit facilities have variable interest rates[188] Future Outlook and Strategy - The Company expects to purchase property and equipment of approximately $25 million in the next 12 months for refurbishing existing dealerships and adding new ones[166] - The Company anticipates continued strong demand for vehicles in the sub-prime auto industry, despite increased competition leading to lower down payments and longer terms[160] - The Company expects the historical sales pattern to continue in future years, with potential adverse effects on revenues if vehicle sales are impaired during peak quarters[185] - The Company does not expect the implementation of recently issued accounting standards to have a material impact on its consolidated financial statements[181] - The Company plans to utilize optional guidance from the FASB's Reference Rate Reform, effective from March 12, 2020, through December 31, 2022, without expecting a material impact[182] Operational Improvements - The Company continues to invest in inventory procurement to maintain quality vehicle offerings amid supply challenges[122] - The Company has made improvements to its business processes to strengthen controls and support collections efforts, aiming to reduce credit losses[161] - The Company evaluates anticipated losses related to accident protection plans and records additional liabilities if necessary, with no such liability required as of October 31, 2021[180] - The Company's revolving credit facilities mature in September 2024, and it believes it could raise additional capital if necessary through the issuance of debt or equity securities[164] - The Company has historically been exposed to market risk from changes in interest rates, particularly related to its debt obligations[186]