Investors in used car dealer America Car Mart (CRMT -22.68%) They found themselves in a one-car backlog on Thursday, with their inventory damaged 22.2% as of 1:40 p.m. ET after reporting a huge profit loss (but exceeding sales) last night.
Heading into the first fiscal quarter of 2023, analysts expect Car-Mart to earn $3.14 per share on sales of just $322.4 million. It beat those sales expectations, raising $344.8 million in the quarter. The problem was that it didn’t earn nearly as much from those sales as expected, with earnings of $2 per share.
That was the opposite of what I reported three months ago, when a Q4 2022 report showed the company outperforming both sales and profits, and in fact, nearly $1.14 outpaced profits it missed last night.
Amid a huge used-car supply shortfall, Car-Mart’s earnings jumped to $4.01 per share last quarter. But with the arrival of the new fiscal year, it now appears that Car-Mart is returning those windfall profits in a big way.
Although the volume of cars sold grew just 2% year over year, the company posted a 23% increase in its dollar sales value thanks to inflated prices for used car inventory. Hence sales won.
The problem is that Car-Mart’s costs of purchasing inventory are also rising, reducing the company’s gross profit margin per vehicle to about 37.5%, down from 40.1% a year ago. When combined with increased selling, general and administrative expenses and a much higher provision for credit losses, that nearly halved earnings, to just $13.2 million, or $2 per share, in the first quarter of 2023.
The good news, though, is that car prices are starting to stabilize (the prices Car-Mart pays, and what they sell for cars), and CEO Jeff Williams expects “gradual flattening.” The company believes that higher car prices may scare some of its potential customers, and moderation in prices could mean more sales.
Meanwhile, investors are simply reacting to the sharp drop in earnings today, and are selling US Car-Mart shares in droves. Although they value a trailing dividend of less than 10 times, they worry the stock will look more expensive if earnings continue to slump. And he might be right.
Rich Smith does not hold a position in any of the stocks mentioned. The Motley Fool does not have a position in any of the stocks mentioned. Motley Fool has a disclosure policy.