Car-Mart(CRMT) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenues decreased by $19 million, or 5.2%, largely due to a decline in retail units sold [11] - Interest income increased by 7.2%, primarily due to the increase in the consumer contract interest rate to 18.25% [12] - Average units sold per dealership per month decreased from 34.2 to 30.9, or 9.6% [12] - Net charge-offs as a percentage of average finance receivables for the quarter were 6.4% compared to 5.8% [15] - SG&A expense was$ 46.7 million, a slight increase compared to last year's first quarter [18] Business Line Data and Key Metrics Changes - Gross margin improved by 30 basis points for the quarter [5] - Average retail sales price increased by 2.4%, primarily due to increases in ancillary products [12] - Downpayments for the quarter increased by 20 basis points to 5.2% [13] - Total collections increased by 4.3% over last year, with the monthly average total collected per active customer rising to $562 from$ 535 [14] Market Data and Key Metrics Changes - Website traffic increased both year-over-year and sequentially, indicating strong consumer demand [4] - Application volumes were slightly softer, contributing to the decline in sales [4] - Delinquencies dropped 90 basis points to 3.5% at quarter-end [15] Company Strategy and Development Direction - The company aims to improve vehicle affordability by reducing the average retail price during the fiscal year [20] - Continued optimization of the loan origination system is a priority, with 40% of the portfolio now originated through this system [21] - The partnership with Cox Automotive is expected to enhance gross profit margins and improve vehicle affordability [6][21] - The company is actively looking for acquisition opportunities to enhance growth and shareholder returns [21] Management's Comments on Operating Environment and Future Outlook - The management acknowledges the challenging economic environment for consumers and is focused on operational initiatives to improve business aspects [20] - There is a belief that used car prices will continue to fall at a normalized rate for the balance of the year [29] - The management is optimistic about the benefits from the loan origination system and expects it to drive better credit performance [30] Other Important Information - Inventory levels at quarter-end were up $7.1 million compared to fiscal year-end, primarily due to a recent acquisition [16] - Cash-on-cash returns for originated contracts in the first quarter are expected to be 72.4% [17] - Interest expense increased by$ 4 million, or 28.3%, due to a rise in rates and an increase in debt [19] Q&A Session Summary Question: Can you explain the headwind in SG&A that's coming from your acquisitions? - The company acquires SG&A costs from acquisitions without the corresponding customer portfolio, impacting initial profitability [22] Question: Can you explain how you think about the portfolio and how it sits today? - The back book of originations from fiscal years '21, '22, and '23 now represents less than 33% of the portfolio, with improvements expected as time progresses [24][26] Question: How much can affordability improve with your strategies? - The company is focused on reducing procurement costs by $500 to$ 800 per vehicle to enhance affordability [37] Question: What is the visibility on sales volume? - Website traffic has shown over 25% growth year-over-year, indicating strong demand, but application volumes are slightly down [36] Question: How is the competitive environment affecting the company? - Smaller competitors are facing financing challenges, creating acquisition opportunities for the company [32]