What happened

Car-Mart's (CRMT 1.09%) stock price fell this week, declining 14% through the close of Thursday trading compared to a 1.6% drop in the broader market, according to data provided by S&P Global Market Intelligence. However, the regional vehicle retailer's stock is still up 13% year to date and beating the market.

This week's drop was sparked by a fiscal third-quarter 2023 update that left Wall Street wanting more.

So what

Car-Mart on Wednesday revealed that comparable-store sales rose just 1% in its fiscal third quarter, which ended Jan. 31. Many of its dealerships saw pricing pressures and weak demand. Gross profit per vehicle dove to 33.6% of sales, for example, compared to 36.7% of sales a year earlier. Car-Mart achieved only a modest 3% uptick in volume compared to the prior quarter's 7% increase.

Management highlighted the progress it was making in cutting costs and in keeping vehicles affordable for its customers, in part by extending the length of loan terms. "We continue to see market share gains attributable to our pricing decisions," CEO Jeff Williams said in a press release.

Now what

The automotive industry is cyclical, so investors shouldn't be surprised to see regular demand pullbacks like this one as consumer discretionary spending tightens. Prices are rising for vehicles, and financing is getting more expensive as interest rates rise, which makes it harder for sellers to keep increasing their sales volumes. On the bright side, Car-Mart noted a leveling off of this trend in recent months.

Still, shareholders are bracing for some potentially tough times ahead as demand slows and Car-Mart takes increasing losses associated with loan charge-offs. "Short-term operating conditions are difficult," Williams said in the earnings report.

In the meantime, the company is focused on keeping its cost profile in line with its growth rate. Car-Mart still has big plans to build a bigger dealership network over time, and those plans aren't seriously threatened by a potential recession in the industry.