Investors in America's Car-Mart (CRMT -3.98%) may have experienced a few hours of panic Thursday morning. After the used car chain reported earnings for its fiscal 2022 third quarter Wednesday night, its stock opened Thursday's session down by nearly 13%.
That's the bad news. The good news is that all session long, America's Car-Mart has been regaining its lost ground and, as of 1 p.m. ET, it was well back in the green, and up by about 5%.
So what's going on with America's Car-Mart stock? Basically, the story goes like this:
The company reported a 28% increase in revenues for its fiscal Q3, which ended Jan. 31, to $292 million. The actual number of cars sold was up only slightly, reported CEO Jeff Williams, but the average price of each car sold rose by 24.8% to just above $17,000, which explains how revenues rose so much even though its unit sales didn't.
Interestingly, Williams noted that the year-over-year changes in units sold varied widely month-to-month during the quarter, first rising 20% in November, then decelerating to only a 7% increase in December, and then falling steeply by 21% in January. One imagines that it was the deceleration and shift into reverse that spooked the market and led to the stock's early-morning sell-off. But Williams explained that the company believes the omicron wave was "the primary cause of the decline in unit volume for January."
Now that the massive omicron COVID-19 surge is trailing off, America's Car-Mart is hoping that January's decline will turn out to have been a fluke and "largely a one-time event."
With this reassurance in hand, investors were free to focus on the good news -- the fact that America's Car-Mart grew sales faster than expected in fiscal Q3 to $292 million, topping the $273.8 million that Wall Street had forecast. Actual earnings, though, came in a bit below predictions -- $2.77 per share instead of the $2.82 per share that analysts had forecast.
Investors can also look ahead to better things later this year. As management pointed out, used car values are still elevated -- "the average wholesale vehicle value is up over 45% in the last twelve months and up over 65% in the last two years" -- which has helped America's Car-Mart roughly triple its per-share profits over the last four years. Management admits that from these elevated levels, "a potential rapid decline in used car prices is possible." That being said, "we don't believe that there will be a collapse" because of the continuing "overall shortage of good, basic, affordable vehicles," predicted the company.
While management didn't give specific guidance for the balance of this fiscal year, the overall tone struck in the earnings release was positive -- and investors seem to be responding positively to that.