What happened
Shares of America's Car-Mart (CRMT 2.03%) had collapsed by 12.2% as of 10:58 a.m. ET Tuesday after the used car dealer reported a big earnings miss and a change in management before the trading session opened.
Heading into its fiscal 2024 first-quarter report, analysts had forecast that America's Car-Mart would earn $0.91 per share on sales of $352.1 million. As it turned out, it beat that consensus revenue prediction, reporting sales of $368 million. However, it missed the earnings estimate badly, earning only $0.63 per share for the quarter.
So what
In its report to shareholders, America's Car-Mart did the logical thing and played up its "strong revenue growth." The top line was up 8.6% year over year on only a 2.4% increase in unit sales. And management explained away the earnings disappointment by asserting that the metric had been "negatively impacted by credit results."
Gross profit per car sold grew 3.7% year over year to $6,768. However, America's Car-Mart increased its provisions for expected losses on the loans it made by 500 basis points to 30.9% of sales, and charge-offs for unpaid-back loans increased 70 basis points to 5.8% of sales.
This may be the new normal for America's Car-Mart, as CEO Jeff Williams described the increases in charge-offs and loan loss provisions as "post-stimulus normalization of charge-offs." However, Williams then proceeded to apparently contradict himself, predicting that "this dynamic will reverse in the future leading to a more normalized reserve provision."
Now what
All of this makes it a bit difficult for an investor to figure out what "normal" is actually going to look like for this company.
One thing that does seem clear, though, is that its normal future profits probably won't resemble what America Car-Mart was raking in around about this time last year -- $2.07 per share. The company's fall to profits of just $0.63 per share in fiscal Q1 2024 represented a 70% decline, significantly worse than the 55% decline that analysts had predicted. This suggests, too, that the company may undershoot Wall Street's forecast for 61% earnings growth this year to $5.02 per share.
So what does this mean for investors? Basically, it means owners of America's Car-Mart stock are invested in a company with a market cap of $745 million, but that is earning only about $11 million a year, giving it a high price-to-earnings ratio of 67.7. And those earnings have been falling.
And at the same time as they found all of this out, investors were treated to the news that Williams is leaving the company, and being replaced as CEO by its current president, Doug Campbell.
Investors may want to take all this as their cue to exit America's Car-Mart stock as well, and follow Williams out the door.
