America's Car-Mart, Inc. (CRMT) on Q4 2021 Results - Earnings Call Transcript
Operator: Good morning, everyone. Thank you for holding, and welcome to America's Car-Mart Fourth Quarter Fiscal 2021 Conference Call. Topic of this call will be the earnings and operating results for the company's fourth quarter and full fiscal year 2021. Before we begin, I would like to remind everyone that this call is being recorded and will be available for replay for the next 30 days. The dial-in number and access information are included in last night's press release which can be found on America's Car-Mart's website at www.car-mart.com. As you all know, some of management's comments today may include forward-looking statements, which inherently involve risks and uncertainties that could cause actual results to differ materially from management's present view. These statements are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. The company cannot guarantee the accuracy of any forecast or estimate nor does it undertake any obligation to update such forward-looking statements. For more information regarding forward-looking information, please see Part 1 of the company's Annual Report on Form 10-K for the fiscal year ended April 30, 2020 and its current and quarterly reports furnished to or filed with the Securities Exchange Commission on Forms 8-K and 10-Q.
Jeff Williams: Okay, well, thank you for joining us this morning. We are proud of our work and we're pleased to see the continuing benefits from our various investments and initiatives which are aimed at allowing us to leverage, scale and grow the business by improving the customer experience journey. There are many touch points and opportunities to exceed customer expectations in our business and we believe that no other company can keep customers on the road and reduce the stress related to local transportation needs like America's Car-Mart can and we will only get better overtime. Our ground level local personalized offering combined with our technology and scale give us unique advantages in our market. We will continue to look to centralize non-core field functions that could be performed more efficiently with corporate support without losing the benefits of our decentralized decision-making at ground level and close to the customer. This will allow our associates in the field to focus on service and growing the number of customers we serve. Our investments in the areas of customer experience, recruiting, training and retention, inventory procurement and management are allowing us the ability to grow market share and move from a collections company to a sales company that's very good at collections. We're making good progress in all areas and our efforts in the technology area will continue to give us additional opportunities to utilize data to our advantage and we have a very high expectation for our consumer-facing digital experiences as we move forward. Our community-based bricks and mortar presence combined with our digital opportunities give our model real strength. We will continue to invest in our business to allow us to be the market leader over the long-term. Our corporate customer experience team is making great progress and is directly involved with our consumers and working with our dealership personnel to ensure our customers have consistently great experiences. We will continue to look at the industry partnerships which are becoming a bigger part of our overall efforts. Our current profits are strong and we have an obligation to reinvest these current profits for our future. Customers need what we do and we have an obligation to serve more customers over time.
Vickie Judy: Hello and good morning. Our total revenue increased 42.6%, up to $279 million resulting from a 24.3% increase in retail units sold, a 15.9% increase in average retail sales price and interest income increased by 28.1%. Our same-store revenues were up 37.6%. Revenues from stores in the over 10 years of age category were up 41%, stores in the five- to 10-year category were up 48% and revenues for stores in the less than five years of age category was up to about $15 million. Our associates across the company worked tirelessly this past year and throughout the fourth quarter to serve our customers with exceptional service which translated into productivity improvements of an average of 36.5 units sold per store per month. This was also possible due to the investments in our inventory and our procurement processes, including our preferred vendor partner relationships. Our retail inventory was up due to higher quantities and combined with higher pricing. As a reminder, the inventory levels at April 30, 2020 were low due to the pandemic environment. At quarter end, 16 or 11% of our dealerships were from zero to five years old, 39 or 26% were from five to 10 years old and the remaining 96 were 10 years old or older. Our overall productivity was 36.5 units sold per store per month compared to 30.2 for the prior year quarter and 31.1 for the sequential quarter. Our 10-year plus lots produced 38.1 units sold per month per lot for the quarter compared to 30.5 for the prior year quarter. Lots in the five- to 10-year category produced 34.4 compared to 27.4 for the prior year quarter. And the lot less than five years of age had productivity of 32.3 compared to 23.5 for the fourth quarter of last year.
Jeff Williams: Okay. Well, thank you, Vicki. As the inventory, we do expect to see some continuing supply issues and related inflation with inventory. Our team has done nice work to ensure we have product to meet the increasing consumer demand for our offering. Prices are certainly higher than we would like, but we have been and will continue to be nimble and improve our inventory management processes as we go forward. Overall, our inventory is in very good shape going into the summer months. As the growth, we are pleased with our productivity for the quarter as we move towards serving more customers per dealership. We're looking to pick up market share and grow volumes in an environment without stimulus money. Our primary source of growth over the next few years is productivity improvements from existing dealerships. We ended the year with 583 customers per dealership as our average and as we've stated previously we do believe that a majority of our dealerships can and should be supporting 1,000 or more customers over time. We will also open some new stores and continue to look for acquisition opportunities. Once again, we are very proud of the year but we have a lot of work to do. We believe that we are in the early innings with our key initiatives and priorities and we are pushing hard with the sense of urgency in all areas. The magnitude of the changes that we have been and are making are substantial and as a decentralized company we must always ensure that the rate of change can be digested in the field and we believe we've been able to make these changes and improve the business at the right pace and we do expect the pace to quicken as we go forward. We have great associates at all levels, who recognize the magnitude of the opportunities we have in front of us and they continue to take on more responsibilities and enthusiastically embrace the changes we're making for our future. Thank you, again, and we will now open it up for your questions. Operator?
Operator: At this time, the participants will now answer questions from the callers. I would like to reiterate that my earlier comments regarding forward-looking statements apply both to the participants' prepared remarks and to anything that may come up during the Q&A. Your first question comes from the line of John Murphy with Bank of America.
John Murphy: Good morning, everybody, and thanks for all the detail here. Jeff, I guess just a first question, can you talk about what the customer facing digital opportunities are, how you're going after them and what you think the upside over time is? And I think there has been in the -- the retail community a belief that the higher end consumer, we have a higher propensity to use online tools but it actually seeing sort of like the subprime and lower to mid-consumer is actually where there is a lot more activity, so I'm just curious how you're going after this digital opportunity and what it means for the company?
Jeff Williams: Yes, John, the online credit application process, the online inventory that we're showing is we're making progress in that area. The loan origination system, we're working on our loan origination system to push more of transaction online. We do have capabilities of home deliveries and curbside deliveries and we're going to improve those processes as we move forward. A lot of our customers are -- will choose long-term to come into the dealership for some aspect of the transaction. But we feel like the effort we have in place, we're going to be as good as anybody from a digital side of things when we finish our efforts. And when you combine that with the bricks and mortar and a lot of consumers still want to come in and finish that transaction, test drive that car at the dealership, we believe that we're going to see more and more folks starting the transaction online as we go forward and we plan to invest significant time and resources and talent in making sure that our digital presence out there from a consumer standpoint is as good as anything they'll see from any other car dealership. So, we're very excited about the opportunities there, and for us, it's all about making the transaction and the process seamless and intuitive and user-friendly from the consumer standpoint, and our consumer being a subprime and deep subprime as you mentioned, they are very savvy and very used to dealing online and we're going to meet those needs for our consumer base and we will, at the end of the day, we're going to have as good of an online presence and offering as anybody out there.
Vickie Judy: And John, I might just add to that, with this customer relationship module that we just got implemented in May, there'll be a continued -- whether it's pre-sale or post-sale line of communication with the customer the way they want to communicate whether that's calling or going into the dealership, but then they will also have the opportunity to make a phone call to the customer care line here corporately or a text and again that maybe post-sale for a repair issue or a question or payment issue or it may be pre-sale regarding the inventory that's online or a question about the type of credit. So I think all of that combined is going to give a much better customer digital experience.
John Murphy: And just a follow-up, I'd imagine it's very early days, but I mean are there any transactions that are going almost completely online and that you have in-home delivery and where do you see that going over time?
Jeff Williams: It has not been a significant part of our business. We did a little bit of that during the pandemic, but our consumers still require quite a bit of handholding and I do want to come in for the most part and drive that car, but we are going to have a system set up and pushing toward the area. If home delivery is a big requirement, we're going to be able to meet that requirement. If curbside pickup is something consumers want, we're going to be able to meet that. There hasn't been a big demand from our consumer base yet to do things 100% online and have that car delivered to the home, but we're going to -- we're working in that direction if and when that demand becomes real for us and our consumer base will be ready, but it has not been a significant piece of our business at all to this point.
John Murphy: That's helpful. And then a second question, when you're talking about supporting a 1,000 or more customers per dealership over time. I mean that's essentially a doubling from where you are right now or depending on how far this goes maybe even more than that, what are the key drivers of that, I mean, you've shown the propensity to increase productivity over time, but that's a big step. So I mean what are the key tools to get there and what is a reasonable amount of time and we're talking three years, five years, 10 years, I mean, what's the thought process on that target?
Jeff Williams: It is more of a mid to long-term goal. We don't have an exact timeline, but all the efforts we're putting into improving that customer experience, increasing repeat business, making sure that our very best customers stay in the family. Historically, we've kind of congratulated customers for improving their credit and given them a wave as they went down the street to maybe the used car division of the new car dealerships and we've discovered that there is no reason to lose these good customers. We can supply a better car. We can supply a better cost to the transaction, all costs in the transaction, we offer a very competitive offering from a cost standpoint and then the support that we give a consumer after the sale, we believe is outstanding and better than they can get elsewhere in the market. So really focused on keeping customers for life, improving the product that we offer, significantly improving the customer experience, a lot of stress involved with the car ownership in the areas we serve and we can give customers true peace of mind, we can put their minds at ease as relating to that car and those car payments and the car maintenance and other issues that pop up that cause so much stress and if we can do that at a price point an all-in price point that makes sense, then we believe focusing on repeat business, focusing on customer experience, focusing on improving the quality of the car, we believe that over time, our repeat business and our -- the number of customers we can serve per dealership combined with the fact that we have a balance sheet and we have the capital to be investing in these markets, that's one thing that's extremely important. We know these markets, we know our staff, we know the existing customer base and for us to push more investment into the markets we already know is certainly very attractive to us from a profit standpoint, the volume standpoint and a risk standpoint. And so this is something that our balance sheet -- and how strong our balance sheet is certainly going to support our efforts to increase the number of customers served per dealership. We do believe those markets are out there and it's up to us to go out there by market and figure out how to increase the number of customers served over time, we don't have a specific timeline on that, but we do feel like consumers and the communities are better when Car-Mart is there and when Car-Mart is expanding business and serving more customers. So we're very excited about the opportunities we have to leverage the structure we already have.
John Murphy: And then, just lastly, I mean you mentioned improving inventory management, but it sounds like that also means, in some cases, increasing the inventory, so you can increase sales. So what exactly is going on, on inventory management, it's obviously very difficult right now because there's not a lot of flow in the market inventory, if you will, it's tight. What does that mean and where are you going on improving inventory management, what are the key targets we should be thinking of?
Jeff Williams: Well, it's -- like I mentioned a couple of areas, our preferred vendor efforts. We are partnering with some very talented long-term wholesalers in our markets geographically. These are folks that are very good at buying cars, repairing cars and getting them ready to sell and very talented entrepreneurial folks in the markets we serve. These are folks we've known for years, but they have an interest in growing with our company and giving us a steady supply of high quality ready to sell units and they're in good spots geographically to work with us, they are very interested in partnering with us to grow their businesses so that effort is continuing and will expand as we go forward, but another area is going to be recon. Historically, we've not done reconditioning, wholesale off cars into the wholesale market, but as supply becomes tight and we realize to have a steady flow of units at the lower price points. We really have to take a second and third look at the metal that's already in our network and have the ability to do some recon work within our system to turn a piece of metal into a good solid mechanically sound retail transaction for somebody who is maybe at a little lower price point. So a lot of good works going on with the recon side of things. We're also looking at recon outside of the cars we already have in terms of auction purchases and reconditioning at the end of auction processes. We're looking at buying cars on a more dispersed basis nationwide to take advantage of a different areas that maybe we have at in the past. We also have a lot of power in our model from 151 general managers that have the ability to keep a close eye on local supply or local opportunities. So, when you combine the corporate efforts we have in place with the fact that we do have a lot of talented GM's out there that do have the ability to cherry pick and take advantage of local opportunities. We've got a pretty unique model here and I think that's why you're seeing us come through the fourth quarter with additional sales and ending the quarter with a lot of products still available for sale going into the summer months where other folks might be struggling with some inventory availability and having cars on the dealership. So we're just pretty nimble in all these areas and we're corporatizing some key aspects to our procurement and logistics efforts. We're also buying a fair amount of cars from the rental car chain that there may be a little higher price point that will support our higher end consumers that historically may have left us for another offering because we didn't offer a newer option with lower miles. So that's also part of our mix and something that we're forming some partnerships with as we go forward and very optimistic about the procurement, logistics, the inventory management side and we're in the very early innings of some of these efforts, but what we're seeing so far, gives us a lot of optimism for the direction we're going.
John Murphy: Jeff, I'm sorry, but can you just -- so it kind of seems like you're spreading to a lower end vehicle or older vehicle and younger vehicles, is that a fair statement that you are kind of spreading the dispersion of what you're offering to the customer going down market a little bit and up market a little bit. Is that a fair characterization?
Jeff Williams: I don't think that's at the expense of the middle section either. We want to draw a company that can provide all the price points. So we're not deemphasizing the middle, we're just spending with the supply situation the way it is the shortage of cars, we're having a little bit more creative on the low end and we don't want to lose the middle section and we have been talking about making sure we have offerings for that upside for a number of years now. So this is just us and our efforts to make sure that a consumer in our towns can come to Car-Mart for all -- any price point, any and all price points and we've got a good offering in all areas.
John Murphy: Great. Thank you very much.
Jeff Williams: Thank you.
Operator: Your next question comes from the line of Kyle Joseph with Jefferies.
Kyle Joseph: Hey. Good morning Jeff, Vickie, congratulations on a really, really good quarter and year for that matter.
Jeff Williams: Thank you, Kyle.
Vickie Judy: Thank you.
Kyle Joseph: Obviously, there is a lot going on in the quarter with tax refunds and stimulus, just wanted to get a sense for how sales trended by month, if you'd just give us a sense, high level doesn't even need to be numbers but how sales are trended in February versus March and into April?
Jeff Williams: We had three really solid months. There's I guess it was maybe a little bit more February but not March this year. Sorry, the tax refunds were a little bit late, some of the stimulus was in March, maybe a little bit more in March but February was strong, we had a nice finish in April. So all in all, it was a good quarter and each month within the quarter was good.
Kyle Joseph: Yes. And then, on -- everyone knows used car prices are elevated and recognized you're offsetting a portion of that with the term extension, but can you give us a sense for how the average monthly payment has been trending kind of over the last year?
Jeff Williams: Yes. Our -- certainly with the increased sales prices and the amount financed, we have seen an increase in the average payment. We're probably up, I don't know, $30, $35 for the year on the average payment overall. And, but we keep a close eye on the quality of the applicant, the affordability of the transaction and with our increase in the quality of the car we're offering. We are seeing higher quality customer. So affordability is still strong, but certainly with these price increases, we are seeing some increases in the monthly payments.
Kyle Joseph: Got it, that makes sense. And then last question from me, good inventory growth year-over-year. I know you talked about that comparing to pandemic levels, can you give us a sense for how much of that is actual units versus price appreciation?
Jeff Williams: Yes. Just looking at the retail side, the units on hand are up about -- close to 50% from this time last year. We're carrying about 50% more units at the end of April this year than we were last year. Some of that was our reaction to the pandemic and really squeezing inventory at the end of April of '20, but from that point to this point, our units are up about 50% from where they started the year.
Kyle Joseph: Got it. Thanks for answering all of my questions. Appreciate it.
Jeff Williams: Thank you, Kyle.
Operator: Your next question comes from the line of Vincent Caintic with Stephens.
Vincent Caintic: Hey, thanks. Good morning. Thanks for taking my questions. I guess first one -- a quick one, so you had really, really strong productivity per store at 36.5 cars sold a month. And I know that fiscal fourth quarter be the strongest, but is the 36.5, is that a good number to run rate going forward or maybe should we temper that down as we think about when we're modeling fiscal 2022?
Jeff Williams: Well, our objective is to improve and increase productivity. We don't have a specific number, but we're making a lot of investment and focusing a lot of efforts on moving from a 40-year-old collection company to a sales company that can collect. And so we do expect to continue to bump up productivity and all the efforts and all the investments we're making certainly are in line with that effort. We do expect to leverage these costs, as Vickie mentioned, as we go forward. But we are very focused on improving productivity and growing sales and growing customer accounts over time as we go forward. Don't have a specific number for you.
Vickie Judy: There definitely would have been some stimulus impact in that. How much of it was stimulus, how much of it was regular tax time, how much of it was due to the improvements that we're making in our business is obviously fuzzy, but definitely a lot of good things just going on in our business for sure.
Vincent Caintic: Right, understood. Yes, I guess, trying to parse out how much of that is your investments, which really sound like they're taking hold and getting traction, so that's great. Thank you.
Jeff Williams: Vincent, when you think about 36 sales per month per dealership, I think that over time, again we don't have a timeline, but a company that is established as we are and doing the great things that we're doing, we do expect productivity to improve significantly over time. 36 sales per dealership per month is not anything that anyone would consider to be an acceptable long-term sales rate. So there is a lot of productivity out there and the investments we're making should allow us to certainly be more productive as we go forward. 36 sales per month is not very high.
Vincent Caintic: Great, that's very helpful color. Thank you. And that points towards your 1,000 customers per dealerships, really appreciate that. Second question, your performance has been really impressive even as used car prices have been increasing and I usually think about used car prices being higher as sort of a negative for Car-Mart all else being equal, but it's been very positive or you've had really positive results. I'm sort of wondering if we're still in the same environment with higher used car prices and it seems like it's going to be that way through the rest of calendar year 2021, is that something that should we expect kind of the same strong results here, does it seem like that might be a drag at some point or is this actually an opportunity or an very opportune environment for you? Thank you.
Jeff Williams: Well, it's hard to know where prices are going to go. We don't expect prices to go up again in the next 12 months like they have the previous 12, but there is a certain commodity aspect to the business we're in. And we have to participate or set out changes in commodity prices, if you will and we're not going to set it out. We think that we can be nimble enough to make some really smart decisions and adjust to conditions as we need to adjust, but we believe that car prices are certainly not going to be going down, it's the question of how much they're going to be going up for the next, say, year and a half. So, we're building our efforts to survive and thrive and grow and prosper and get better in an environment where the cost of inventory is increasing at least over the short-term. It does benefit us in a couple of ways; one would be the fact that to operate in this business, the cost of capital, the cost of entry like the cost to fund this business with car prices up is much, much more expensive than it was in our balance sheet and our low leverage and our financial situation allows us to participate in a big way and pick up some market share from folks that might not have the ability to take advantage of situations as they come up. So, we're going to remain nimble and adjust to the market. We're going to control the things that we can control, but there is a commodity aspect to this business and we need to be fully participating because we can keep customers on the road, we can keep them on in their cars and successful. We believe in our markets better than anyone. And so we need to be out there and fully participate -- fully participating and we'd certainly like to see a leveling off of used car prices, but that doesn't look like it's going to be the case anytime soon.
Vincent Caintic: Okay, great. Yes it's been very impressive that you've been able to pass along the car prices. I appreciate it. Thanks very much.
Jeff Williams: Thank you.
Operator: Your next question comes from the line of John Rowan with Janney.
John Rowan: Good morning, guys.
Jeff Williams: Good morning.
Vickie Judy: Good morning.
John Rowan: Quick question. Obviously, the gross profit came down a little bit, can you remind me if that -- obviously you mentioned the higher sales price, is there any function in there related to the service contracts and whether or not the expense related to the service contracts maybe actually in the different expense line? That'll be it for me. Thank you
Vickie Judy: No, it would be in that same category. We have not seen really any additional cost per se, if you will, related to the new service contracts yet. We just started rolling those out across most of our states in February and we've been piloting them in a few locations for about a year now. So the cost aspect of the new service contracts is very minimal right now.
John Rowan: But going forward, could it impact gross profit margin next year.
Vickie Judy: Our expectation is that once the revenue is fully baked in and the costs are fully baked in, then our gross profit on the service contracts will remain the same as it has been historically.
John Rowan: Okay, thank you. That's it from me.
Jeff Williams: Thank you.
Operator: You have no further questions at this time. So I will turn the call back over for any closing remarks.
Jeff Williams: Okay. Well, once again, thank you for your interest in Americas Car-Mart. Thank you for listening into our call this morning. We appreciate our associates and their dedication to making our company better. We really have been through a pretty tough year from an associate standpoint with the pandemic and social unrest and our group and our team has really stuck together, and we're very proud of what we've done, but we're even more proud of where we're going to go with the company, and very excited about our future and we sure appreciate all of our great associates that are out there taking care of our customers and taking care of each other and making our communities better. So, thank you and have a great day.
Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect.
