AMERICA'S CAR-MART, INC. FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Overview of America’s Car-Mart’s Financial Performance

America’s Car-Mart, Inc. is one of the largest publicly held automotive retailers in the United States focused on the “Integrated Auto Sales and Finance” segment of the used car market. The company primarily sells older model used vehicles and provides financing for substantially all of its customers, many of whom have limited financial resources and would not qualify for conventional financing.

Over the last ten fiscal years, the company’s revenue growth has averaged 11.4%. However, revenue declined 0.8% in the first nine months of fiscal 2025 compared to the same period in the prior year, primarily due to a 3.2% decrease in retail units sold. This was partially offset by a 2.5% increase in the average retail sales price and a 5.3% increase in interest income.

The company has been focused on improving vehicle quality by bringing lower mileage and newer model-year vehicles to its consumers, while balancing this with affordability. This is expected to drive down customer repair costs, reduce service contract repair expenses, and lead to better recovery values in the event of repossession. When combined with inventory procurement efficiencies, these changes are expected to improve the customer experience and contribute to better gross margins.

Trends in Revenue and Profit

Over the last five fiscal years, the company’s provision for credit losses as a percentage of sales averaged 26.36%, with a pre-pandemic rate of 23.71% in fiscal 2019. During fiscal 2024, credit losses well exceeded pre-pandemic levels, partially due to inflationary pressure on customers and increasing interest rates. For the first nine months of fiscal 2025, the provision for credit losses as a percentage of sales declined to 33.7%, compared to 37.6% for the same period of fiscal 2024, with lower sales partially offsetting a 12.4% improvement in provision for credit losses.

The company’s gross profit dollars per retail unit sold increased by $562, or 8.2%, during the first nine months of fiscal 2025 compared to the first nine months of fiscal 2024. Gross margin as a percentage of sales for the first nine months of fiscal 2025 increased to 36.7% of sales, including a 1.0% benefit from the impact of a service contract accounting change. The company’s initiatives around pricing discipline, reduced transportation costs and lower vehicle repair costs also contributed to the increase in gross profit dollars.

Analysis of Strengths and Weaknesses

A key strength of the company is its focus on improving vehicle quality and procurement efficiencies, which is expected to drive down customer repair costs, reduce service contract repair expenses, and lead to better recovery values in the event of repossession. This, combined with pricing discipline and cost controls, has contributed to the increase in gross profit dollars per retail unit sold.

However, the company continues to face challenges with credit losses, which have exceeded pre-pandemic levels. While the provision for credit losses as a percentage of sales has declined in the first nine months of fiscal 2025, it remains elevated at 33.7%. The company’s credit losses are impacted by macroeconomic factors such as inflation and unemployment levels, as well as the personal income levels of its customers.

Another weakness is the company’s reliance on leasing the majority of its dealership properties, which exposes it to fluctuations in rental costs. Additionally, the company’s ability to add new dealerships and implement operating initiatives is limited by the availability of trained managers and support personnel, and excessive turnover could impact the company’s growth plans.

Outlook and Future Prospects

The company continues to prioritize investments to improve its products and services and operate more efficiently over time. One of the company’s largest recent investments has been improving its processes and technology for credit applications and decision-making through a new loan origination system. This is expected to help the company tighten its credit approval standards and improve the customer experience.

The company’s liquidity is primarily supported by income from operations, proceeds from non-recourse notes payable issued under asset-backed securitization transactions, warehouse facilities, borrowings under its revolving credit facilities, and other potential debt or equity financing sources. The company believes it will have adequate liquidity to continue to grow its revenues and satisfy its capital needs for at least one year from the financial statement issuance date.

However, the company’s liquidity and capital resources are subject to various risks and uncertainties, including the ability to successfully identify, complete and integrate new acquisitions; the occurrence and impact of adverse weather events or other natural disasters; and potential business and economic disruptions and uncertainty that may result from any future public health crises.

Overall, America’s Car-Mart has demonstrated revenue growth and improvements in gross profit, but continues to face challenges with elevated credit losses. The company’s focus on improving vehicle quality, procurement efficiencies, and credit underwriting processes, as well as its investments in technology and infrastructure, are expected to contribute to its future performance. However, the company’s growth and profitability remain subject to various macroeconomic and operational risks.