Car-Mart’s profits up 23 percent

Sales growth outweighs firm’s credit losses

Despite increased credit losses, profits for used-car dealer America’s Car-Mart increased 23 percent in its most recent quarter, reaching $4.5 million, fueled mostly by sales growth at stores open at least one year.

Revenues increased 20 percent to $43.3 million during the company’s first fiscal quarter of 2004, or the three months that ended June 30.

Earnings per share beat its forecast of 50 cents, hitting 55 cents per diluted share. The higher earnings caused the company to revise its earnings outlook for the entire fiscal year to $2.06 a share.

Same-store sales, or sales at stores open at least a year, increased 16 percent, which drove the Bentonville-based car retailer’s performance during the quarter, chief executive officer T.J. Falgout said in a conference call.

Unit sales increased 15 percent to 6,066 cars, and the company opened two new dealerships, in Longview and Tyler, Texas, bringing its total number of dealerships to 66.

While sales increased during the quarter, credit losses were up as well, with net charge-offs reaching $6.3 million.

“The truth is, we haven’t done as good a job of underwriting and collecting loans as we should have. In general, collecting loans is most important.,” Falgout said.

Car-Mart specializes in the “buy here/pay here” segment of the used-car market. Most of its clients are low or moderate-income customers, who actually pay their car notes at the dealership on a weekly basis.

Credit losses result when clients default on loans. To address the issue, the company is hiring four full-time employees to train employees about credit collections.

The company’s reliance on a more risky client base will not be affected if an economic recovery materializes over the

CAR-MART,

next year, said Dennis Telzrow, certified financial analyst with Little Rock-based Stephens Inc.

The company is dealing with a very large customer base and it operates mostly in small towns, so it won’t necessarily be affected by larger economic trends, he said.

Car-Mart’s stock has steadily risen since last October, when it bottomed out at $9.61 a share. It has been trading in the low $20s for the past several weeks, and the company is considering a stock split, Falgout said.

In trading Wednesday, CarMart’s stock rose 5.89 percent to close at $23.40., a new 52-week high.

“The price of our stock over the last six months has appreciated about 40 percent,” Falgout said. He did not provide a timeline as to when the company might make a decision on the split.

When asked if the company might consider dividend payments , Falgout said it was not likely.

“Even though we have sufficient liquidity, we would rather retain those funds for growth,” he said.

Over the next few months, the company is planning to open three more dealerships in Paris, Lufkin and Nacogdoches, Texas.