Charles Dickens, author of the "best of times, worst of times" bit, would have appreciated this one. Although quarterly sales at America's Car-Mart
Revenue climbed nearly 16% for the quarter, with unit growth (that is, cars sold) increasing more than 7% and average price per unit rising by just under 7%. An interest income increase of more than 22% accounts for the remainder of total revenue growth.
Top-line results were also solid at the store level, with same-store sales climbing 12.6% -- an impressive performance given sales' 7.8% year-ago growth. Though units sold per store dipped slightly, a nearly 10% increase in the number of stores more than made up the difference. Importantly, accounts more than 30 days past due stayed steady at 3%, suggesting that the company isn't lowering its standards just to chase revenue.
The expense side of the story isn't quite so pretty. Every major line item of expense grew faster than revenue. While I understand that Sarbanes-Oxley compliance costs inflated SG&A, that doesn't account for the higher cost-of-goods-sold or provisioning lines. In any event, higher costs led to lower operating and net profits, and the company posted a 7% drop in income and diluted earnings per share.
Apparently expecting these higher cost trends to continue, management lowered guidance for the next fiscal year. While anticipated sales growth of 10 to 14% would exceed present analyst expectations, the EPS range of $1.63 to 1.70 falls below both the median estimate of $1.78 and the street-low estimate of $1.75.
At present, this looks like a tough company to value. On one hand, this company has a lot of experience targeting its customer base, and management plans to increase inventory and open more dealerships. On the other hand, near-term earnings growth doesn't seem likely to exceed the low teens, suggesting that the stock's trailing P/E of 15 isn't wholly out of line.
America's Car-Mart does have the advantage of diffuse competition -- companies such as Autonation
I'm not really sure how to resolve this push-and-pull. America's Car-Mart has a clean balance sheet, seems realistic about reserve policies, and targets a viable market. But it also appears more or less fully-valued based on near-term growth expectations. If you believe the company's growth can pick up again, take it for a test drive. Less optimistic investors may want to keep idling in neutral for now.
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At the time of publication, Fool contributor Stephen Simpson held no financial position in any stocks mentioned.