Car-Mart(US:CRMT)2020-08-18 20:19Financial Data and Key Metrics Changes - The company reported a revenue increase of 9.3% to $188 million, driven by an 8.5% increase in sales and a 12.2% increase in average sales price, partially offset by a 2.8% decrease in retail units sold [6][9] - Interest income increased by 15.2%, and same-store revenues were up 5.5% [6][9] - Gross profit per retail unit sold increased by $693 to $5,579, up 14.2% compared to the prior year quarter [9] - The effective income tax rate was 23.4% for the first quarter, compared to 21.8% for the prior year [15] Business Line Data and Key Metrics Changes - Revenues from stores over 10 years old increased by 5%, while stores aged 5 to 10 years saw a 7% increase, and stores less than 5 years old experienced a significant 63% increase to about $18 million [6] - Overall productivity was 27.4 units per month per lot, down from 29 units in the prior year quarter [7] - The down payment percentage increased to 7.6% from 6.5% in the prior year quarter [8] Market Data and Key Metrics Changes - The average selling price increased by $1,390, with an average monthly payment of approximately $430 [8] - The weighted average interest rate for all finance receivables remained flat at approximately 16.4% [9] - The company noted that inventory volumes are back up to pre-pandemic levels, allowing for the acquisition of newer model, lower mileage vehicles at affordable prices [10] Company Strategy and Development Direction - The company aims to serve significantly more customers over time by investing in recruiting, training, and retention of associates, particularly general managers [18] - There is a focus on enhancing service contract offerings and improving inventory procurement to leverage size and improve vehicle quality [19] - The company opened new locations in Cabot, Arkansas, and Chattanooga, Tennessee, with plans for further expansion [19] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about consumer demand, noting that stimulus funds have positively impacted credit performance [22] - There is uncertainty regarding the economic environment due to the pandemic, but the company expects to increase market share [28] - Management acknowledged challenges in sourcing lower-priced vehicles but remains confident in the ability to meet customer demand as inventory levels improve [30] Other Important Information - The company reduced expenses significantly in response to COVID-19, but all associates are now back to normal working hours [12] - Net charge-offs as a percentage of average finance receivables decreased to 4.8% from 5.4% in the prior year [14] - The company maintains a strong balance sheet with total debt of approximately $214 million and $50.6 million in cash [16] Q&A Session Summary Question: Health of underlying consumer and impact of government stimulus - Management indicated that the reduction in unit sales was primarily due to inventory shortages, particularly at lower price points, while stimulus funds helped improve credit performance [22] Question: Sales cadence throughout the quarter - Management reported that sales improved from May to July, with August showing positive trends as well [23] Question: Used vehicle pricing and its impact on margins - Management noted that used car prices have risen unexpectedly due to low supply and stimulus funds, with expectations for continued price increases in the short term [24] Question: August trends and forward outlook - Management described August as solid for collections and sales, but highlighted uncertainties related to the pandemic and economic conditions [28] Question: Inventory issues and pent-up demand - Management confirmed that inventory levels are back to pre-pandemic levels, but noted ongoing challenges in sourcing lower-priced vehicles [30] Question: Lending competition and evidence of tightening - Management acknowledged anecdotal evidence of tightening in lending but did not see direct evidence affecting their operations [33] Question: Acquisition opportunities among independent dealers - Management expressed confidence in potential acquisitions of independent dealers facing inventory sourcing challenges [34] Question: Reserve levels and credit performance - Management decided to maintain higher reserve levels due to macroeconomic uncertainties, despite improvements in credit metrics [36] Question: Share buyback program status - Management confirmed the buyback program is still in place but emphasized prioritizing investments in business growth over share repurchases [41] Question: SG&A expenses and future expectations - Management indicated that SG&A expenses are expected to grow alongside revenue as the company invests in supporting a larger business [45]