America's Car-Mart (CRMT)

Used-car retailer America’s Car-Mart (NASDAQ:CRMT) beat Wall Street’s revenue expectations in Q4 CY2024, with sales up 8.7% year on year to $325.7 million. Its GAAP profit of $0.37 per share was significantly above analysts’ consensus estimates.

Company Overview

With a strong presence in the Southern and Central US, America’s Car-Mart (NASDAQ:CRMT) sells used cars to budget-conscious consumers.

Buying a vehicle is a big decision and usually the second-largest purchase behind a home for many people, so retailers that sell new and used cars try to offer selection, convenience, and customer service to shoppers. While there is online competition, especially for research and discovery, the vehicle sales market is still very fragmented and localized given the magnitude of the purchase and the logistical costs associated with moving cars over long distances. At the end of the day, a large swath of the population relies on cars to get from point A to point B, and vehicle sellers are acutely aware of this need.

Competitors in the auto retail space include AutoNation (NYSE:AN), CarMax (NYSE:KMX), and Group 1 Automotive (NYSE:GPI).

Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.

With $1.38 billion in revenue over the past 12 months, America's Car-Mart is a small retailer, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with suppliers. On the bright side, it can grow faster because it has more white space to build new stores.

As you can see below, America's Car-Mart’s sales grew at a solid 13.8% compounded annual growth rate over the last five years (we compare to 2019 to normalize for COVID-19 impacts) despite not opening many new stores.

This quarter, America's Car-Mart reported year-on-year revenue growth of 8.7%, and its $325.7 million of revenue exceeded Wall Street’s estimates by 15.2%.

Looking ahead, sell-side analysts expect revenue to decline by 3.4% over the next 12 months, a deceleration versus the last five years. This projection doesn't excite us and suggests its products will see some demand headwinds.

Number of Stores

The number of stores a retailer operates is a critical driver of how quickly company-level sales can grow.

America's Car-Mart operated 154 locations in the latest quarter, and over the last two years, has kept its store count flat while other consumer retail businesses have opted for growth.

When a retailer keeps its store footprint steady, it usually means demand is stable and it’s focusing on operational efficiency to increase profitability.

Same-Store Sales

The change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales is an industry measure of whether revenue is growing at those existing stores and is driven by customer visits (often called traffic) and the average spending per customer (ticket).

America's Car-Mart’s demand within its existing locations has barely increased over the last two years as its same-store sales were flat. This performance isn’t ideal, and we’d be skeptical if America's Car-Mart starts opening new stores to artificially boost revenue growth.

In the latest quarter, America's Car-Mart’s same-store sales rose 3.1% year on year. This growth was a well-appreciated turnaround from its historical levels, showing the business is regaining momentum.

America's Car-Mart has bad unit economics for a retailer, signaling it operates in a competitive market and lacks pricing power because its inventory is sold in many places. As you can see below, it averaged a 17.1% gross margin over the last two years. Said differently, America's Car-Mart had to pay a chunky $82.91 to its suppliers for every $100 in revenue.

America's Car-Mart’s gross profit margin came in at 21.4% this quarter, up 4.1 percentage points year on year but still falling way short of analysts’ estimates. America's Car-Mart’s full-year margin has also been trending up over the past 12 months, increasing by 5 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold.

America's Car-Mart was profitable over the last two years but held back by its large cost base. Its average operating margin of 3.8% was weak for a consumer retail business. This result isn’t too surprising given its low gross margin as a starting point.

On the plus side, America's Car-Mart’s operating margin rose by 4.5 percentage points over the last year, as its sales growth gave it immense operating leverage.

In Q4, America's Car-Mart generated an operating profit margin of 7.1%, up 5 percentage points year on year. The increase was encouraging, and since its operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as marketing, and administrative overhead.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for America's Car-Mart, its EPS declined by 35.7% annually over the last five years while its revenue grew by 13.8%. This tells us the company became less profitable on a per-share basis as it expanded.

In Q4, America's Car-Mart reported EPS at $0.37, up from negative $1.34 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects America's Car-Mart’s full-year EPS of $0.89 to grow 260%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

America's Car-Mart’s demanding reinvestments have consumed many resources over the last two years, contributing to an average free cash flow margin of negative 6%. This means it lit $6.03 of cash on fire for every $100 in revenue.

Taking a step back, we can see that America's Car-Mart failed to improve its margin over the last year. Its unexciting margin and trend likely have shareholders hoping for a change.

America's Car-Mart burned through $33.87 million of cash in Q4, equivalent to a negative 10.4% margin. The company’s cash flow turned negative after being positive in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

America's Car-Mart historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 9%, somewhat low compared to the best consumer retail companies that consistently pump out 25%+.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

America's Car-Mart burned through $85.42 million of cash over the last year, and its $795.4 million of debt exceeds the $8.53 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the America's Car-Mart’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of America's Car-Mart until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

We liked how America's Car-Mart beat analysts’ EBITDA and EPS expectations this quarter. This was a solid quarter. The stock traded up 3.9% to $39.90 immediately following the results.

Updated: May 22, 2025 at 10:39 PM EDT

When considering an investment in America's Car-Mart, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

We see the value of companies helping consumers, but in the case of America's Car-Mart, we’re out. Although its revenue growth was good over the last five years, it’s expected to deteriorate over the next 12 months and its gross margins make it more challenging to reach positive operating profits compared to other consumer retail businesses. And while the company’s projected EPS for the next year implies the company’s fundamentals will improve, the downside is its brand caters to a niche market.

America's Car-Mart’s P/E ratio based on the next 12 months is 15.1x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find better investment opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $52 on the company (compared to the current share price of $47.68).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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