"What are we, chopped liver?"

I have to imagine that this thought nags at the management of America's Car-Mart (NASDAQ:CRMT) these days. After all, recent weeks have brought news that Warren Buffett is buying into CarMax (NYSE:KMX), while Eddie Lampert is upping his stake in AutoNation (NYSE:AN). But no one, it seems, wants anything to do with Car-Mart.

Surely there's a billionaire out there somewhere who would love to own this stock? Perhaps that wealthy individual is just waiting to see how this quarter's earnings turn out. If so, the wait shouldn't be long. Fiscal Q2 2008 earnings are due out Tuesday morning.

What analysts say:

  • Buy, sell, or waffle? Car-Mart has seating for five analysts: two buyers, and three holders.
  • Revenues. On average, they're looking for sales to inch up 2% to $60.9 million.
  • Earnings. Analysts predict the company will post $0.16 per share.

What management says:
Car-Mart continued to struggle last quarter, with retail unit sales falling 15%, revenue down 6%, and profits declining by nearly half in comparison to the first quarter. Even so, CEO Skip Falgout described himself as "very pleased" with the turnaround's progress, as "credit losses, collections and current receivables all improved as compared to the first quarter of 2007 and as compared to recent quarters."

What management does:
But while Car-Mart is cleaning up its balance sheet, the income statement continues to be a mess. Gross, operating, and net margins have all continued to slide -- a trend that's well over a year in the making now.

Margins

4/06

7/06

10/06

1/07

4/07

7/07

Gross

29.4%

29.2%

26.1%

23.5%

21.7%

21.0%

Operating

12.4%

11.9%

8.7%

5.9%

3.9%

2.6%

Net

7.1%

6.7%

4.6%

2.8%

1.8%

0.9%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Can there be a worse time to switch drivers than while executing a turn in the middle of a highway? Yet Car-Mart's doing just that. At the same time it was reporting progress in the turnaround engineered by Falgout, Car-Mart announced that it was hitting the ejection button on Falgout's CEO seat. President Hank Henderson will be taking the wheel from now on, though Falgout remains chairman.

With Falgout now out of the driver's seat, let's take a quick look at how Henderson plans to continue turning the corner. As you may recall, the problems at Car-Mart stem primarily from customers buying cars that they subsequently find themselves unwilling or unable to pay for. Car-Mart has taken a number of steps to try to address the problem, and the one Henderson seems most keen on is selling his customers a "Payment Protection Plan" that provides insurance against the event that they become unable to make their car payments.

For example, when a car gets stolen or wrecked, and a customer is temporarily faced with the prospect of paying for both the absent car and its replacement. New customers are reportedly choosing to buy this insurance on 85% of new sales, giving the company an apparently reliable new revenue stream that, when combined with a move toward higher down payments engineered under Falgout, could improve Car-Mart's cash flow considerably.

CarMax is an Inside Value pick. Check out the newsletter free for 30 days.

Fool contributor Rich Smith does not own shares of any company named above. Why do we tell you this? Because The Motley Fool has a disclosure policy.