What happened
Shares of America's Car-Mart (CRMT 3.59%) were soaring Tuesday after the car dealership chain posted better-than-expected results in its fiscal fourth-quarter earnings report.
As of 12:40 p.m. ET, the stock was up 22.9%, while the broader market was down.
Image source: Getty Images.
So what
America's Car-Mart owns 154 dealerships in the Southern and Central U.S., and focuses primarily on selling older used models. For its fiscal Q4 2022, which ended April 30, it posted record revenue of $352 million, up 26% from the year-ago period. That easily beat analysts' consensus estimate of $297.2 million. The company also said that its interest revenue, which has high margins, increased by 39% to $42 million.
Its top-line growth was driven by a 24% increase in average selling price to $17,860, while unit volume fell by 1%.
Adjusted earnings per share actually fell slightly as the company's cost of sales jumped 32%, reflecting that it also paid more for its inventory. For the quarter, it booked earnings of $4.01 per share, down from adjusted earnings of $4.54 per share in fiscal Q4 2021, though that still beat estimates of $3.10 per share.
"We are increasing market share while facing challenges stemming from ongoing supply and demand imbalances in the used car market, inflation, and declining consumer confidence," said CEO Jeff Williams. "We expect to see additional productivity improvements as we leverage our investments and competitive strengths."
Now what
Used car prices have remained elevated, though prices have begun declining on a month-over-month basis. The company should benefit from the year-over-year increase in used car prices for at least the next quarter or two. Higher interest rates could also be a boon, helping the company collect more interest income, but they could also cool off demand.
Still, after over a year in which new car production was impaired by supply chain issues and shutdowns, leading to shortages and sky-high used car prices, there's a healthy backlog of demand in the vehicle market. A normalizing environment wouldn't necessarily be a bad thing for dealers like America's Car-Mart, and the stock trades at a price-to-earnings ratio of less than 7. As such, it looks like a good value if it can hold on to most of these profits.