Why America's Car-Mart (CRMT) Stock Is Trading Lower Today

Max Juang /
2024/06/18 12:14 pm EDT

What Happened:

Shares of used-car retailer America’s Car-Mart (NASDAQ:CRMT) fell 8.4% in the morning session after the company reported first quarter earnings results with gross margin and EPS missing Wall Street's estimates. While revenue came in slightly ahead of Wall Street's estimates, topline sales growth declined year on year. The weak topline was driven by decrease in retail units sold. Retail units sold came in at 15,251 (down 13.6%). Management cited macro challenges, adding " the persistent inflationary environment driven by macro trends disproportionately impacted our customer base." Overall, this was a bad quarter for America's Car-Mart.

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What is the market telling us:

America's Car-Mart's shares are not very volatile than the market average and over the last year have had only 26 moves greater than 5%. 

The biggest move we wrote about over the last year was 7 months ago, when the stock dropped 25.5% on the news that 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.

America's Car-Mart is down 16.7% since the beginning of the year, and at $57.47 per share it is trading 52.2% 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 $676.91.

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