America's Car-Mart (CRMT)

Used-car retailer America’s Car-Mart (NASDAQ:CRMT) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, with sales up 1.9% year on year to $370.2 million. Its GAAP profit of $1.26 per share was 46.1% 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 put up a good quarter or two, but many enduring ones grow for years.

With $1.39 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% compounded annual growth rate over the last six years (we compare to 2019 to normalize for COVID-19 impacts) despite not opening many new stores.

This quarter, America's Car-Mart reported modest year-on-year revenue growth of 1.9% but beat Wall Street’s estimates by 7.8%.

Looking ahead, sell-side analysts expect revenue to grow 4.7% over the next 12 months, a deceleration versus the last six years. Despite the slowdown, this projection is commendable and suggests the market is forecasting success for its products.

Number of Stores

A retailer’s store count often determines how much revenue it can generate.

America's Car-Mart listed 154 locations in the latest quarter and has kept its store count flat over the last two years 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

A company's store base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. 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 has been shrinking over the last two years as its same-store sales have averaged 2.7% annual declines. This performance isn’t ideal, and we’d be concerned 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 fell by 3.9% year on year. This decrease represents a further deceleration from its historical levels. We hope the business can get back on track.

Gross profit margins are an important measure of a retailer’s pricing power, product differentiation, and negotiating leverage.

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 17.8% gross margin over the last two years. That means America's Car-Mart paid its suppliers a lot of money ($82.22 for every $100 in revenue) to run its business.

America's Car-Mart produced a 21.7% gross profit margin in Q1, marking a 4.2 percentage point increase from 17.5% in the same quarter last year. America's Car-Mart’s full-year margin has also been trending up over the past 12 months, increasing by 5.7 percentage points. If this move continues, it could suggest a favorable environment where the company has better pricing power and leverage from its growing sales on the fixed portion of its cost of goods sold.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

America's Car-Mart was profitable over the last two years but held back by its large cost base. Its average operating margin of 4.4% 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 5.1 percentage points over the last year, as its sales growth gave it immense operating leverage.

This quarter, America's Car-Mart generated an operating margin profit margin of 8.6%, up 3.6 percentage points year on year. Since its gross margin expanded more than its operating margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.

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.

America's Car-Mart’s full-year EPS dropped 258%, or 29.1% annually, over the last five years. In a mature sector such as consumer retail, we tend to steer our readers away from companies with falling EPS because it could imply changing secular trends and preferences. If the tide turns unexpectedly, America's Car-Mart’s low margin of safety could leave its stock price susceptible to large downswings.

In Q1, America's Car-Mart reported EPS at $1.26, up from $0.06 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 $1.24 to grow 214%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

While America's Car-Mart posted positive free cash flow this quarter, the broader story hasn’t been so clean. 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 4.8%. This means it lit $4.78 of cash on fire for every $100 in revenue.

America's Car-Mart’s free cash flow clocked in at $18.44 million in Q1, equivalent to a 5% margin. Its cash flow turned positive after being negative in the same quarter last year, marking a potential inflection point.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative 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 9.2%, 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 $52.64 million of cash over the last year, and its $572 million of debt exceeds the $9.81 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 were impressed by how significantly America's Car-Mart blew past analysts’ revenue, EPS, and adjusted operating income expectations this quarter. Zooming out, we think this quarter featured some important positives. The stock traded up 6.9% to $61.75 immediately following the results.

Updated: July 9, 2025 at 10:32 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 cheer for all companies serving everyday consumers, but in the case of America's Car-Mart, we’ll be cheering from the sidelines. Although its revenue growth was solid over the last six years, it’s expected to deteriorate over the next 12 months and its declining EPS over the last five years makes it a less attractive asset to the public markets. And while the company’s projected EPS for the next year implies the company’s fundamentals will improve, the downside is its gross margins make it more challenging to reach positive operating profits compared to other consumer retail businesses.

America's Car-Mart’s P/E ratio based on the next 12 months is 15.6x. At this valuation, there’s a lot of good news priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $56.67 on the company (compared to the current share price of $60.45), implying they don’t see much short-term potential in America's Car-Mart.