America’s Car-Mart (CRMT) delivered a sharp surprise loss Tuesday for its fiscal second quarter as it set aside more money for credit that could go bad. CRMT stock plunged, with other used-car dealers falling, including Carvana (CVNA), AutoNation (AN) and CarMax (KMX).
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The company, a used-car retailer and lender geared toward financially strained customers, tied credit loss increases to the impact of stubborn inflation on existing customers. Policy makers hiked interest rates to fight rapid inflation.
America’s Car-Mart Earnings
The company lost $4.30 per share on revenue of $361.6 million for the quarter ended Oct. 31.
Analysts were expecting earnings per share of 79 cents and sales of $376 million, FactSet shows.
Unit sales fell nearly 5% during the quarter. Allowance for credit loss grew to 26% from about 24% in the prior quarter, resulting in a $28 million charge that weighed on earnings, the company said.
America’s Car-Mart runs more than 150 locations across 12 states in the central and southern U.S.
CRMT Stock Action
Shares of America’s Car-Mart sank as much as 26% on the stock market today, hitting a 52-week low intraday. CRMT stock pared losses but was still down nearly 16% to 68.07 in afternoon trade. Shares gapped below the 50-day moving average on Tuesday.
America’s Car-Mart stock regained that key technical level Monday ahead of earnings.
Ally Financial (ALLY), one of the largest car loan issuers, lost 1% Tuesday. The Detroit-based company said in April it expects to finance few car loans this year due to an uncertain economy.
Carvana stock fell 4.8% on Tuesday, after surging 13.8% on Monday and 12.4% on Friday. AutoNation stock sank 2.9% and CarMax shed 4.5%; both are below their 200-day lines.
Used-Car Dealership: ‘Buy Here, Pay Here’
America’s Car-Mart calls itself “a buy here, pay here” used-car dealership. It touts one of the lowest interest rates and shortest contract terms in the industry.
In fiscal Q2, the higher allowances for credit losses underscored “the challenges and economic pressure on our subprime consumer,” the company said.
It expects these headwinds to be “shorter term in nature,” the America’s Car-Mart earning release said.
“As vehicle prices normalize and potentially decrease over time, credit losses are expected to decline,” the release added.
Subprime Auto Loans Worsen In October
Auto loan performance deteriorated in October, Cox Automotive said on Nov. 20.
Almost 2% of auto loans and 7% of subprime loans were severely delinquent in October. That was unchanged from September and was the highest October rate dating back to at least 2006.
Defaults of auto loans grew by 4% in October from September and were up 31% from a year ago. Defaults of subprime auto loans rose by 5% and were up 20% vs. a year earlier.
The default rate year-to-date through October is 2.69%, Cox Automotive said.
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