There’s nothing sexy about selling dependable cars to hardworking people in small- to medium-size towns across the South. But one Bentonville-based company is raking in record profits by doing just that.
Shares of America's Car-Mart Inc. traded at $40 after market hours Tuesday (June 19). The stock price was $29.49 exactly a year ago. In February, shares hit a 52-week high of $48.24 before profit-taking began.
America’s Car-Mart says it is poised to cruise ahead at a 10% annual growth rate. And with 115 dealerships already in operation, this buy here, pay here auto dealer could double in size in the next decade, according to Jeff Williams, chief financial officer who spoke at an investor conference in Nantucket, Mass., late Tuesday.
CEO Hank Henderson said earlier this month at the Stephens Inc. conference in New York, the company has already tagged 100 possible sites for dealerships that could be served under the existing corporate infrastructure. Car-Mart’s network now covers nine states across the Southeast.
Henderson said the company uses a grassfire approach to expansion, moving 30 miles or so down the road to the next town as it seeks out new growth opportunities. The company began fiscal 2013 on May 1 and has already had two new dealership openings.
“We will add 10 new sites this year fiscal year looking more closely at expanding into Georgia, one of our newer markets,” Henderson said.
Daniel Frutado, analyst with Jefferies, said Car-Mart is “a stalwart in the industry posting consistent 13% annual revenue growth over the past three years with bottom line earnings per share up 31%.”
Williams said future growth will come from two sources: leveraging the relationships the company has with its 54,000 customers, and through organic new store openings.
“We have 28 stores that are less than five years old and 28 stores between five and 10 years old, all of these are still ripe for expansion as they grow their customer base. We work hard to serve our customers from day one to final payment and that continues to pay off in a big way,” Williams said.
The company boasts one-third of its annual sales are from repeat customers and in veteran stores in Arkansas that rate is as high as 50%. One competitive advantage Car-Mart has over its competitors — mostly mom and pop owned lots — is its army of purchasing agents.
“We have 45 purchasing agents who drive and thoroughly inspect every vehicle they buy. They are shopping every day, where as a small dealer might only have one or two days a week to look for inventory,” Henderson said.
As new car sales continue to improve, Henderson said those trade-ins to dealers are more prevalent today and help ease the tight used car inventory.
Part of Car-Mart’s success is its ability find dependable inventory and then finance that vehicle over a 28-month contract at a price affordable to its core customer base. Williams said that core base lives paycheck to paycheck and relies on dependable transportation to get them to and from work. Most of the towns in which they operated do not have public transportation.
“Our average down payment last year was $646, the average bi-weekly payment was $178 and the term was 28 months, a little longer due to higher used car prices,” Williams said.
The company sold 37,722 vehicles in fiscal 2012, up 9.6% more than the previous year. The net annual average profit was $1,461 per car, according to Williams. Car-Mart’s book of auto loans total $320 million and carry an annual average interest rate of 14.6%.
In the past decade, Car-Mart has grown its receivables from $90 million. During that same time the company’s debt increased from $40 million to $78 million.
Williams said the company has aggressively repurchased $71 million in stock in the last couple of years which would have almost eliminated the company’s total’s debt.
“We will continue reinvest in infrastructure as we need too, we also spend up to 1% of our total revenue on advertising and marketing our brand, which is very effective in the rural markets where are located,” Henderson said.
Looking ahead, analysts expect Car-Mart net earnings to grow 11% to $3.60 per share in fiscal 2013 which began May 1. This comes on the heels of a 27.5% earnings increase from last year.
Top line revenue is expected to total $473.52 million this year, up from $430.1 million a year ago, according to analysts polled by Thomson Reuters.