America's CAR-MART Inc (CRMT) 2011 Q4 法說會逐字稿

Good morning everyone, thank you for holding. Welcome to America's Car-Mart fourth-quarter 2011 conference call. The topic of this call will be the earnings and operating results for the Company's 2011 fiscal fourth quarter.

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 this morning's press release which can be found on America's Car-Mart website at www.car-mart.com.

As you 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 item one of part one of the Company's annual report on Form 10-K for the fiscal year ended April 30, 2010 and and its current and quarterly reports furnished through or filed with the Securities and Exchange Commission on Forms 8-K and 10-Q.

Participating on the call this morning are Hank Henderson, the Company's Chief Executive Officer and President; and Jeff Williams, Chief Financial Officer. And now I would like to turn the call over to the Company's Chief Executive Officer Hank Henderson.

Well good morning, everyone. We appreciate you all for joining us today.

Obviously we're very pleased to report another record-setting year as we finished out with an extraordinary fourth quarter. For the quarter we saw unit sales up over 12% over the same quarter last year and a provision for credit losses down, a significant increase in dollars or receivables collected, just outstanding results in both sales and collections.

Cash flow was particularly impressive this past year and Jeff will be going into some more detail with you on that. Our hats are off to all our folks who put forth the extra effort and hard work to produce these outstanding results.

A particular area I would like to highlight is our growth in active customers. This past year we increased that number by over 3000, putting us now up over 50,000.

As many of you who have followed us for some time know, the growth in this number is a key factor in our ability to continue to successfully increase sales year over year. As majority of our customers choose to make their payments in person, we have that many more people coming through our doors giving us that many more opportunities to serve them well, develop relationships and be rewarded with referrals from their friends and family.

In addition to the increasing traffic in our existing stores with the addition of these new customers, we have added nine new locations throughout the year; three in Alabama, three in Tennessee and then one each in Kentucky, Arkansas and Missouri. All of these new stores are in great locations.

The facilities look outstanding. As a result of some of the things that have gone on in the world in the past couple of years, we were able to get some exceptional deals on several of these properties and we are very pleased with the initial results of this group of new stores. The improvements to our training and development of our new managers are clearly making a difference as is the increased training for new salespeople and account reps.

We are on course to open an additional 10 stores for this new year we have just started beginning with our most recent opening of Bartlesville, Oklahoma just this week. We have a few new store projects already underway and we intend to continue to add new locations in Alabama and Tennessee particularly.

We also plan to add Mississippi as a new state for us this year. With 30 managers in training as well as several assistant managers preparing to someday have their own store, we're very well-positioned to have the talent needed to staff our new stores.

And in addition to our talent pool of future managers, we also have great confidence that we've got the right people and resources in place to provide the needed oversight and support to ensure that each new store we open throughout this upcoming year will be provided with everything needed for the very best possible start.

Switching gears on you for just a minute, I would be remiss if I didn't speak to you about how we've been impacted by the storms of late. We have gotten a lot of questions about that.

I know that every day on the national news you're seeing reports on the staggering number of tornadoes we have had throughout our region and the destruction that has been left behind. As best I can tell, it looks like 13 of the towns we are in have been hit at some level within the past 30 days by a tornado.

And considering the vast number of lives lost, families displaced and businesses destroyed, we have been incredibly fortunate. Not one of our facilities has received any substantial damage.

The most serious was a sign getting blown down on top of a couple of cars in Clarksville, Arkansas. In more than one area, we saw major devastation just a few blocks away why while we remained unharmed. And as a matter of fact, in Sedalia, Missouri just two days ago, a parts store immediately next to us was destroyed while we sustained no damage whatsoever.

While we are very thankful that our facilities are unharmed, more importantly all of our associates are safe with no loss of life and no one receiving any serious injuries. Unfortunately Steve Hughes our general manager in (inaudible) Missouri lost his home and virtually everything in it as it was completely destroyed.

this past Sunday by the tornadoes that ripped through Joplin. And our hearts go out to Steve and his family and we want to do all we can to help them get their lives back in order as quickly as possible.

Also several of our associates have lost close friends and family and our thoughts and prayers go out to them. As you have seen on the news, Joplin was hit worst of all.

We started to see a few claims roll in on our payment protection plan. Both our customers and us are so very thankful that we have this program in place to help our customers at a time like this.

It will likely take a few weeks before we have an accurate number as to just how many of these we will have as a result of this particular event. And additionally in Joplin there's no doubt we will have many customers out of work for a time and we're just going to have to do what we do and roll up our sleeves and do all we can to work with our customers through this difficult ordeal.

In an effort to at least do our small part to help out, we do have our concession trailer that we use for special events. It's set up in Joplin currently feeding emergency workers.

I had an opportunity to be up there with them this week and I would like to express great appreciation to our people who are volunteering their time and energies right now to prepare and deliver meals to workers. So for now, I'm going to turn it back over to Jeff and he's going to go into some specifics on our recent numbers.

Okay, thanks, Hank. Our 16.4% topline revenue increase for the quarter resulted from a 12.4% increase in unit volume, a 3.3% increase in average retail sales price and 18% increase in interest income and a $900,000 increase in wholesale sales.

Same-store revenue increased by 9.5%. We finished the full fiscal year with an 11.9% revenue increase when compared to fiscal year 2010.

Our down payment percentage was 9.7% for the quarter compared to 9.2% for last year's fourth quarter, an increase of about $420,000 in total down payment dollars or about $45 per vehicle sold versus last year's fourth quarter. For the full year our down payment percentage was 7.2% compared to 6.9% or an increase of about $900,000 or $26 per retail unit sold.

Collections as a percentage of average finance receivables was a very strong 19.6% for the quarter compared to 18.4% last year or on a percentage basis about $3.4 million in additional principal collected. Additional principal collected for the full fiscal year on a percentage basis was also approximately $3.4 million highlighting the success of our collections efforts during the critical tax refund time which came two to three weeks later this year than in prior years.

As we move forward, successful collections efforts during tax refund time are expected to be increasingly important to our overall results and we will continue to work to improve our operational effectiveness in this area of the business. For the quarter, our initial loan term was 26.3 months, basically flat with the prior year period.

Our weighted average note term for the entire portfolio including modifications was 27.3 months compared to 27.7 months at this time last year. We continue to see benefits from software and operational changes related to our deal structuring and we are pleased with the trend in overall term length within the portfolio especially in the face of increases in our average retail sales price.

The average retail sales price increased to $9520 from $9220 or 3.3% for the fourth quarter. Sequentially, the average retail sales price increased $57 or 0.6%.

Vehicle supplies remain very tight. However the quantity, quality and mix of units on our lots continues to be outstanding and we have been able to hold our purchase cost increases to a minimum and are not seeing the levels of inflation that some other market segments have seen.

We're working hard to maintain gross margins by leveraging our purchasing strengths, expense controls and pricing efficiencies. We are hopeful that we can keep our gross margins in the 43% range and it will depend heavily on our topline sales volumes, wholesale volumes driven by repossession activity relative to the topline. Minimizing increases in purchase cost will be key to us maintaining gross margin percentages into the future.

The overall average retail units sold per lot per month for the quarter increased to 29.4 from 28.6 for the prior year quarter. The monthly average by age category was for the 23 lots under five years of age we averaged 23. This compares to 21 for the prior year period.

For the 30 lots that were between five years and 10 years of age, we averaged 25 compared to 24 for last year. And for the lots that were over 10 years of age, we averaged 35 compared to 34 for the prior year fourth quarter.

We will continue to push for lot level productivity improvements, higher sales volumes and we continue to believe that most of our dealerships have significant room for topline growth and when combined with our great new locations will help us achieve our revenue objectives.

Although hard to quantify, we do believe that we have a portion of our customer base choosing to go without a car payment for a period of time after the completion of their contract. This is in contrast to the more normal trade-in trade-up behavior that we have historically seen.

Our revenue increases are even more impressive when considering this potential pent-up demand that could be accumulating for these customers when they do decide to re-enter the market. Interest income was up 18% for the quarter due to an increase in average finance receivables outstanding of $20 million and an increase in the weighted average interest rate during the quarter to a little over 14% from slightly over 13% for the fourth quarter of last year.

The weighted average interest rate for all finance receivables at the end of the year was a little over 14% compared to 13.4% at April 30, 2010. We continue to monitor the status of an appeal currently before the Arkansas Supreme Court related to the constitutional amendment for interest rates which was approved by Arkansas voters on November 2, 2010.

For the fourth quarter of this year our gross profit margin percentage was 42.3% of sales down from 43.9% for the fourth quarter of last year but up sequentially from 41.8%. Reduction from the prior year quarter relates primarily to higher wholesale sales, the increased average selling price, higher inventory and repair costs and a lower gross margin for the payment protection plan product mostly related to the increased claims levels associated with severe level weather in a few of our service areas in fiscal year 2011.

We continue to work on holding down our expense costs and overall unit purchase costs as well as maximizing pricing efficiencies. We are currently expecting to see some slight improvements in our gross margin percentage in the near term primarily related to expense controls but were somewhat limited by vehicle supply and our overriding efforts to keep each transaction affordable for our customers.

In the fourth quarter of this year, SG&A as a percentage of sales decreased to 18% from 19.2% in the same period last year. The $1.4 million increase in total SG&A dollars related primarily to higher payroll costs and to other incremental costs related to new lot openings.

We had an average of 105 dealerships operating during the current quarter compared to 96 for the fourth quarter of last year as well as the higher utility and advertising costs. As expected we did see nice leveraging at the SG&A line for the quarter and for the full fiscal year.

The leveraging for our fourth quarter was more pronounced due to the shift in unit sales volumes into the fourth quarter from the third related to the timing of income tax refunds into our markets. We will continue to ensure that we don't underinvest in our infrastructure to support the growing business especially in the collections area.

For the current quarter net charge-offs as a percentage of average finance receivables was 6.4% up from 6% for the prior year period and up from 6.1% sequentially. Principal collections as a percentage of average finance receivables was 19.6%, up from 18.4% for the prior year period.

Considering our higher down payments and higher collections percentages for the fourth quarter, our customers were almost $4 million more invested in their vehicles than at this time last year. Additionally, we did collect $1.4 million more in interest during the current quarter and when you combine interest and principal collected, the current quarter was 23% compared to 21.5% for the prior year period.

Our 30 plus past due accounts were at 2.9% compared to 2.7% at April 30, 2011; both very low by historical measures. Our allowance for loan losses remains unchanged at 22%. The provision for credit losses was 19.1% of sales for the current quarter, down from 19.3% for the prior year quarter and down from 21.9% sequentially.

The 19.1% is the lowest percentage since 2003. The lower losses can be attributed to the very strong collection results and could have been even better had our charge-off percentages been lower.

Even though credit results were very good, we know that we have work to do to help more customers succeed and to bring down our charge-off percentages. As we previously stated, losses in the 20 to 22% range are what we expect into the future. We'll continue to push for improvements and lot level execution within the collections area.

We saw strong overall cash flows again during the current quarter reflected in increased unit sales and resulting average revenue growth of 16.4% with $1.1 million in CapEx, $3.8 million in common share repurchases, $3 million in income tax payments with a $7.4 million decrease in total debt.

Also, we did pay off our interest rate swap agreement in early April. So our borrowing cost will be at prime less a quarter, currently at 3% going forward.

At April 30, 2011 we had $43 million in additional availability under our revolving credit facilities. Our current debt to equity ratio is 25.4% and our debt to finance receivables ratio is 16.8%.

Since February 1 of 2010 we have repurchased over $31 million in common stock or 1.3 million shares or 12% of our Company and grown receivables by over $20 million. We believe in the long-term value of our Company.

Our Board of Directors has once again re-authorized the repurchase of up to 1 million shares of its common stock under the common stock repurchase program which was last amended and approved on August 18, 2010. Now, I'll turn it back over to Hank.

All right, thanks, Jeff. Again thank you all for being with us today. I'd just like to say that again we're very optimistic about the year ahead. We have identified some specific areas of opportunity and we've got solid game plans in place to realize those.

We feel very confident that the current structure we have in place gives us the ability to continue to grow and expand for many years ahead and continue to provide the oversight and resources needed to assure that every location both the existing and the new ones yet to be opened will receive the level of support needed to be very successful.

It's a very exciting time to be part of Car-Mart as we continue to create more and more growth opportunities for our people and continue to see our number of customers grow as well. So with that, that concludes our prepared remarks, so we would like to move on to any questions you might have. Operator?

(Operator Instructions) John Hecht, JMP Securities.

Congratulations on a good quarter and I'm glad to hear you at least weren't impacted directly from all the storms in the area. With respect to the storms, I know it's early and you're just getting some claims on the insurance policies or the warrantees, can you give us a sense -- I know this is going to be a temporary impact -- but can you give us a sense for or maybe more color on is it changing the sales patterns down there just in terms of people not being able to get out to the lots and how quickly do you think you'll understand the level of claims against the policies just to give us a sense for kind of the near-term impact?

Well, certainly over the course of the next month, I think we'll have a clear picture on that. I would tell you I don't think overall we're going to see a real huge impact in that. It really is affecting one location seriously and that is Joplin.

We picked up a few extra claims in Alabama and such. But overall the town that's really been hit severely was Joplin.

And so fortunately that's only about an hour away from our home office here so we can send out additional help. But yes, I would expect that we're going to be affected there and we'll see a significant increase in claims.

I think we will struggle there for a time with collections. We're going to have a lot more people all at once we have to work with and sales could be impacted there too for the next month or two.

That's just one location out of 107. I will say for the fourth quarter it was about the effect or expected claims increase for the storms in Alabama, it was about a 25 basis point effect on the overall gross margin for the fourth quarter.

Okay, Jeff, you don't have handy out of that 50,000 plus customer base what Joplin might account for that?

They have a little over 700 accounts there in Joplin right now and we're just guessing, but I will share with you just us talking the other day, knowing some of the employers that are impacted, I would suspect that as many as a third of our customers there have been affected, their workplace has been affected. As far as the number of claims, there will obviously be a lot less than that. But I would suspect we'll have a large number of folks we need to work with, and we will.

Okay, appreciate that, thanks. The second question is you mentioned there was some pull into this quarter of sales related to the delay in tax refunds. Can you give us any estimate of what part of that sales activity that might have accounted for?

Well, I think at the end of the third quarter, we said it was several hundred units. So, I think that's about as specific as we can be now. We don't know exactly what that effect was but it appears to us it was 300 to 400 unit sales possibly and that is just an estimate.

And then with the interest rate increases and the (inaudible) increases, can you tell us what is the average right now in Arkansas and what percentage of the Arkansas accounts have shifted to the higher rate levels?

Overall in Arkansas it's just slightly under 12. We don't have much more room to grow with that rate and it's currently about 46% of the receivable base in Arkansas.

Then last question, just you're moving into Mississippi. If I recall correctly, the repo laws are slightly different in Mississippi. Can you tell us what is the change in terms of how you conduct a transaction there to work around those changes?

Well, actually you may be thinking of Louisiana. Louisiana is the state that has some differences in the repossession process.

The issue with Mississippi, the reason we have not been there yet actually had to do with the service contract that we sell. But there was some legislation introduced last year. It's been approved, signed by the governor there that shores all that up.

So now that that's squared away, we can now move into Mississippi. But we don't have any significant differences in Mississippi on the collection side of things.

Okay, then the last question related to that would be you assessed a number of markets you can go into over time and do you have -- is Mississippi part of that and can you tell me how many lots you could accomplish there in the next few years?

Interestingly, Mississippi doesn't have -- doesn't present as many towns to us as Alabama does and Tennessee, somewhat like Missouri. Missouri has a lot more people than Arkansas but they're located -- so many of them are located in Kansas City or St. Louis, making a lot of the small towns throughout Missouri even too small for us.

Whereas a state like Arkansas and Alabama, it just so happens there's a lot more towns that fall into that category. So we will definitely end up with several more stores in a state like Alabama than we will Mississippi. But I would tell you realistically there's five or six towns in Mississippi that we're looking at presently.

David Burtzlaff, Stephens & Co.

Good morning, guys, a few questions here. Hank, as we think about store openings this year on a quarterly basis, is it kind of about flat two to three a quarter or is there one or two that may be more heavier loaded?

Going through this present year? Our game plan is to try to spread them out as evenly as we can.

Sometimes we run into some timings when the actual facilities get ready. But right now it looks like they will be spread pretty evenly throughout the year.

And then, Jeff, I guess if we look at the gross margin and the 50 basis point improvement sequentially over the third quarter, are we seeing a benefit from the rising wholesale cost -- prices at auction? And are you actually making money on some of these wholesale sales rather than breakeven?

That did help us a little bit. It wasn't much of an effect but the rising value of wholesale sales did help us a little bit at the gross margin line.

We did see some good expense improvements in the fourth quarter versus the third. And we did have some pricing efficiencies offset by those additional payment protection plan claims.

And then I guess it sounded like it would've been even better, another 20, 30 basis points without the claims in Alabama?

That is our estimate, maybe 25 basis point negative effect from those additional claims which are still coming through. So it's a little bit of a guess on our part at this point. But we feel like that's where it's going to settle down.

Okay and then finally on the tax rate being 38%, seems to be a lot higher than where it has been. What is kind of a go forward rate that we should look at?

We're looking at 37.5 to 38. As we expand into other states we lose some of the benefit that we get from the lower rate in Arkansas and the shift in profits between operating companies become a little less attractive. So we're looking at a 37.5 to maybe even a 38% rate going forward.

Bill Armstrong, CL King and Associates.

Good morning, Hank and Jeff. Regarding the supply situation on the wholesale side, you're not seeing the shortages.

Is that because in general the supply situation is better in the mileage and model years that you're looking at or is it just -- is it more your Company specific buying efforts?

I think it's both. I think probably the car that we buy does fall below some of the requirements of some of the conventional programs out there. And then certainly the fact that we cover so many different markets, so many different areas, we are spread out and any given day, we're having to -- if one market is tightened up a little bit, it invariably seems that we have another one somewhere that has a little bit more available.

And our guys there do a great job with staying on top of that and the logistics. And so we try to buy as much as we can local but we are positioned so that if things are a little tight in Central Arkansas, we can supplement out of a Memphis or an Oklahoma City. We keep a good flow and we're currently very well stocked and very pleased with the overall selection we have got for our customers.

In the mileage and model year [inspection] that you operate in, are you seeing prices increasing by about the same amount as the more broad Manheim Index or maybe a little bit less, a little bit more?

It would be a little bit less. It's not at that high rate. But yes, we have seen increases.

So over the past couple of years, we have had just a little bit of a tickup in our average year, average mileage. As we feel like we can still maintain the level of quality but we certainly have seen a little bit of tickup there in an effort to keep our prices down.

Got it and then, Jeff, I think you mentioned in your prepared comments that you expect some slight improvement in gross margin in the near term. How much might we be talking about and what would be driving that?

Well you know, we're talking about that 43% range and the improvements would be related to just better expense management. As a Company we're really focused on lowering those expenditures that go into the cars we buy and really keeping a close eye on that and feel like with the topline growth and watching expenses, we feel like we can get a little benefit on the gross margin line over where we finished for the fourth quarter.

You talking about things like towing costs -- or I should say not towing -- transportation costs, repair costs, that kind of thing?

Yes, all of those items, yes.

Mark Mandel, ThinkEquity.

Congratulations on a good quarter, great quarter in fact. When you look at the average selling prices which jumped 3.3% in this most recent quarter which was a significant acceleration, what should we look for on a going forward basis and will this moderate gradually, hold at those kinds of increases or fall off significantly?

Well, we would love for that to flatten out. Sequentially we just saw a $57 increase which made us very happy to see that.

A lot of that's going to just depend on supply and demand. And we are doing our best to keep that flat.

But realistically I think we are projecting some increases on an annual basis compared to what we have seen recently. But specifics on that, we don't have a lot.

We would at least expect to see increases next year of what we saw for this full year which was I guess 2.5%. But we're doing all we can to keep that increase percentage down.

Okay and as far as the effective interest rate, maybe I'm calculating this incorrectly, but I came up with a 13.5% number for the quarter, down from 14% sequentially. Am I doing something wrong here or was the direction downward in the quarter?

Well, most of our loans are now at the full 12% in Arkansas. So we're not going to get much of a bump up.

I think we had three or four fewer days in the fourth quarter than we had in the third which could be in excess of $300,000 on a calculated basis. So I think -- plus from a collection standpoint, we don't collect all the interest.

So it's going to settle in maybe a little below 14 but we're not going to get too much more of a benefit going forward on the interest rate increases in Arkansas.

Okay, gotcha. And then finally when we look at the SG&A, is there a same-store sales leverage point where you do get SG&A leverage? Have you ever talked about that?

Yes, for the full year, I think we got a 30 basis point leveraging and that's about what we got last year too. So on an annual basis, the last two years we've gotten around a 30 basis point benefit.

I mean is there a level of same-store sales growth where you see the SG&A leverage; 6%, 7% 5%?

I guess for the full year, same store was up 7% and we received a 30 basis point leveraging on SG&A lines. And that's just this current year. I would expect that trend to be somewhat representative of what would happen in the future.

Scott Lewis, Lewis Capital Management.

I wanted to just ask about the increase in retail prices of gasoline, it didn't seem to hurt you at all this quarter and in the past it has a little bit. Can you talk that?

Well I think it's always a combination of how effectively we are working with our customers. As we have long said, our customers have always struggled, so the increase in gas prices certainly doesn't help them out any.

I would think that the time period you're probably referring to, I think there was if I remember right, we had a sharper increase over a shorter period of time and I think that's probably why we saw a little more impact at the time. I think this came a little bit more gradually.

So you don't see anything meaningful really going forward?

Well, we would -- yes, we'd love to see it go down. But no, I don't see that particular issue affecting us anymore than it already does presently.

Okay, thanks a lot. Great quarter.

(Operator Instructions) I'm showing no questions in the queue.

Okay, well, again thank you all for joining us this morning and I think you can look forward to throughout the year you will continue to see us grow and we look forward to speaking with you again in the future. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program, you may all disconnect. Everyone have a great day.