America's Car-Mart's stock tumbles as stressed subprime customers push company to loss
By Ciara Linnane
Credit losses increased in latest quarter amid continued high inflation
America's Car-Mart Inc.'s stock tumbled 17% Tuesday and weighed on rivals, after the used-car retailer swung to a surprise fiscal second-quarter loss and posted revenue that lagged estimates.
The Rogers, Ark.-based company (CRMT), which describes itself as a "Buy Here Pay Here" dealership, targets subprime, or more credit-challenged customers, who are still struggling with higher prices for essentials.
"The persistent inflationary environment impacted existing customers, which was evident in our credit losses," Chief Executive Doug Campbell said in a statement. "This required an increase in the allowance for credit losses which subsequently impacted the bottom line for the quarter."
Read now: 'A tale of two consumers': Beneath reports of robust spending, subprime consumers are showing strains
The company swung to a loss of $27.5 million, or $4.30 a share, for the quarter, after income of $3.1 million, or 48 cents a share, in the year-earlier period. Revenue rose 2.8% to $361.6 million from $351.8 million a year ago.
The FactSet consensus was for per-share earnings of 79 cents and revenue of $364.0 million.
Net charge-offs - the debt owed to a company that is unlikely to be recovered - as a percentage of average finance receivables rose to 7.2% compared to 5.8% during the prior year's second quarter. The company said that's a return to prepandemic percentages.
The company set aside more money to cover potential credit losses than in the prior quarter, resulting in a $28 million charge to the provision, or a loss of $3.40 per share. The move was mostly due to subprime customers, but the company is expecting the effect to be temporary as car prices normalize and even fall over time.
Read now: Subprime car-loan rates are hitting 17%-22%. Should investors be worried?
On a call with analysts, Campbell, who has been in the CEO role since Oct. 1, said the underlying pools of receivables that the company has generated consistently produce cash flows over the cost to operate the business over time - and that remains the case.
"The overall macro environment remains challenging for Car-Mart's core customers, both existing and prospective, but they need the service we provide," he told analysts, according to a FactSet transcript.
"While we're disappointed to show a loss during the current quarter, the underlying cash generative nature of our business continues to position us for long term profitable growth."
Other car retailers and lenders' stocks also fell Tuesday. CarMax Inc. (KMX) was down 5%, Carvana Co. (CVNA) was down 5.5%, Ally Financial Inc. (ALLY) was down 0.1% and AutoNation Inc. (AN) was down 3.3%.
The S&P 500 SPX was down 0.1%.
-Ciara Linnane
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
12-06-23 0826ET
Copyright (c) 2023 Dow Jones & Company, Inc.-
What History Tells Us About the Fed’s Next Move
-
What’s Happening In the Markets This Week
-
Alphabet’s New Dividend: What Investors Need to Know
-
Going Into Earnings, Is Palantir Stock a Buy, a Sell, or Fairly Valued?
-
Going Into Earnings, Is Eli Lilly Stock a Buy, a Sell, or Fairly Valued?
-
What’s the Difference Between the CPI and PCE Indexes?
-
5 Stocks to Buy That We Still Like After They’ve Run Up
-
Markets Brief: Stocks Are Starting to Look Cheap Again
-
AbbVie Earnings: Next-Generation Immunology Drugs Help Offset Humira Biosimilar Pressure
-
Exxon Earnings: Ignore Earnings Shortfall as Long-Term Growth and Improvement on Track
-
American Airlines Earnings: We See Costs Overshadowing Market Share This Year
-
Snap Earnings: Advertising Growth and Snapchat+ Drive Monetization
-
STMicro Earnings: We Still See an Attractive Margin of Safety Despite a Poor First-Half Forecast
-
Alphabet Shares Surge on Strong Earnings, Dividend Surprise
-
Microsoft Earnings: Firm Beats Forecasts on Strong AI and Cloud Demand
-
PG&E Earnings: Near-Term Regulatory Certainty Supports Industry-Leading Earnings Growth