Shares of America’s Car-Mart took a plunge of more than a quarter as the company reported an unexpected loss in the fiscal-second quarter. The decline was primarily driven by a higher allowance for credit losses.
Stock Slumps
The stock tumbled 29% to $57 in premarket trading. Despite a 12% year-to-date gain, the shares experienced a significant setback when the market closed on Monday.
Losses and Allowance Increase
America’s Car-Mart, which operates automotive dealerships, posted a loss of $27.5 million for the quarter ending October 31. This was in stark contrast to the $3.14 million profit recorded during the same period last year. Per share, the loss amounted to $4.30.
The company revealed that its allowance for credit losses rose sequentially to 26.04% from 23.91%. Consequently, a $28 million charge was incurred, reducing the bottom line by $3.40 per share.
Impact of Economic Pressure on Subprime Consumers
America’s Car-Mart attributed the adjustment to an increase in net charge-offs due to economic pressure on subprime consumers. Chief Executive Doug Campbell expressed how the persistent inflationary environment had affected existing customers, leading to evident credit losses.
Analyst Projections and Revenue
According to FactSet, analysts were anticipating a profit of 79 cents per share for this fiscal-second quarter. However, this would have been an improvement from the 48 cents per share reported in the same period last year.
Revenue saw a modest increase of 2.8% to $361.6 million, falling just below analyst projections of $364 million. The rise in revenue was largely fueled by interest income, while retail unit sales experienced a 4.6% decline.
