Car-Mart(CRMT) - 2026 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a net loss of $22.5 million for Q2 FY2026, which includes approximately $20 million in non-cash reserve adjustments and one-time charges related to strategic actions [4] - Revenue increased by 0.8% year over year, primarily driven by higher interest income and a nominal increase in average retail sales price [11] - Gross profit margin was 37.5%, down from 39.4% in the prior year, but adjusted margins improved by approximately 100 basis points year over year [12] - SG&A totaled $57.2 million, with a reported SG&A as a percentage of sales at 20.0% [18] Business Line Data and Key Metrics Changes - Credit applications grew by 14.6% year over year, indicating strong consumer demand despite economic uncertainty [10] - The company executed a multi-phase plan to optimize its footprint, resulting in a 10% reduction in store count and expected annualized SG&A savings of over $20 million [6][19] - The enhanced underwriting platform, LOS V2, has led to 76.5% of volume coming from higher-ranked customers, a 12% improvement compared to the prior year [11] Market Data and Key Metrics Changes - The company experienced a 6.8% variance in inventory levels year over year, reflecting lower-than-normal inventory throughout the quarter [10] - The wholesale market effects have subsided, and while elevated compared to the prior year, they continue to decline seasonally [5] Company Strategy and Development Direction - The company is focused on repositioning its business through strategic investments and operational optimizations, including consolidating underperforming stores and enhancing its capital structure [4][5] - Future priorities include completing capital structure transformation, normalizing inventory levels, and executing cost reduction initiatives [28] Management's Comments on Operating Environment and Future Outlook - Management noted that the current macro environment presents challenges, but the company is well-positioned to navigate these by focusing on higher-quality customers and operational efficiencies [40] - The company expects to return to positive earnings as it executes its strategic initiatives and capitalizes on strong consumer demand during tax season [28] Other Important Information - The company closed a transformative $300 million term loan, which has removed previous capital constraints and allowed for more decisive actions regarding store optimization [5][23] - Total cash increased to $251 million as of October 31, 2025, up from $125 million at the end of the previous fiscal year [25] Q&A Session Summary Question: Can you quantify the performance of newer vintages compared to legacy ones? - Management indicated that newer vintages are performing better, with a 18%-20% improvement in performance metrics compared to legacy loans [32] Question: How is the competitive environment affecting strategy? - Management noted that the sector is under pressure, with challenges in capital procurement and inventory availability, but they are differentiating themselves through technology and operational improvements [36] Question: What factors are being monitored for signs of improvement in the industry? - Management emphasized the importance of optimizing cost structures and focusing on higher-quality customers as key strategies to navigate the current environment [40] Question: What is the timing for rebuilding inventory to meet demand? - Management expects to rebuild inventory in Q3, particularly in preparation for the tax season, which is anticipated to drive sales [48] Question: How will the new capital structure affect future operations? - The new term loan provides flexibility for future capital structure improvements, including the introduction of warehouse facilities [50]