Why America's Car-Mart (CRMT) Shares Are Sliding Today

Max Juang /
2023/12/05 10:57 am EST

What Happened:

Shares of used-car retailer America’s Car-Mart (NASDAQ:CRMT) fell 25.5% in the morning session after the company reported second quarter results. Same-store sales missed, leading to a revenue shortfall vs. expectations. Most worrying was a huge step-up in provision for credit losses, which impacted margins and EPS. Management called out a "challenging economy" and added that the "persistent inflationary environment impacted existing customers, which was evident in our credit losses. This required an increase in the allowance for credit losses, which subsequently impacted the bottom line for the quarter." Overall, it was a weak quarter for the company. As a reminder, allowances or provisions for credit losses are essentially expenses set aside by a company to cover potential future losses on loans and other credit exposures. It is established based on the company's expectations of future credit losses and serves as a buffer against potential financial setbacks due to borrower defaults or deteriorating credit quality.

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What is the market telling us:

America's Car-Mart's shares are quite volatile and over the last year have had 30 moves greater than 5%. But moves this big are very rare even for America's Car-Mart and that is indicating to us that this news had a significant impact on the market's perception of the business.

America's Car-Mart is down 6.4% since the beginning of the year, and at $65.44 per share it is trading 45.6% below its 52-week high of $120.20 from August 2023. Investors who bought $1,000 worth of America's Car-Mart's shares 5 years ago would now be looking at an investment worth $910.07.

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