America's Car-Mart's Q1 2026: Contradictions Emerge on Tariff Impacts, Consumer Demand, Credit Quality, and Underwriting Standards

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 4, 2025

Financials Results

• Revenue: $341.3 million, down 1.9% YOY
• Gross Margin: 36.6%, up 160 bps YOY

Guidance:

• Expect half of Q1 SG&A increase to unwind in H2 FY26; targeting mid-16% SG&A of retail sales over time.
• Average selling prices (ex-ancillary) expected to lift revenue; maintain disciplined gross margin rate.
• Used-car wholesale pricing expected to seasonally decline in back half as tariff effects normalize.
• Demand strong into Aug/Sep; LOS V2 shifting mix to higher-quality customers.
• Pay Your Way to drive ~5% SG&A cost savings over time and support better ABS terms.
• Exploring financing solutions to expand inventory capacity and preserve ABL cushion; continued improvements in securitization coupons/spreads anticipated.

Business Commentary:

* Revenue and Volume Performance: - America's Car-Mart reported revenue of $341.3 million for Q1 2026, a decrease of 1.9% from the prior year, primarily due to a 5.7% decrease in retail units sold to 13,568 units, compared to 14,391 units a year ago. - The decrease in volume was attributed to tariffs and wholesale pricing constraints, which led to a $500 per unit increase in procurement costs during the quarter.

• Improved Gross Margin and Collection Efficiency:
• The company's gross margin expanded to 36.6%, an improvement of 160 basis points over the prior year quarter.

• This improvement was driven by disciplined originations, a stronger vehicle mix, and the effective rollout of the upgraded Pay Your Way platform, which enhanced payment convenience and collections efficiency.

• Elevated Credit Applications and Underwriting Enhancements:

• Credit applications increased by 10% year-over-year, with a sharp 26.5% increase in applications in July.

• This surge in applications was attributed to enhanced underwriting standards, specifically the implementation of LOS V2 and risk-based pricing, which shifted the customer mix towards higher-ranked profiles.

• Capital Efficiency and Securitization Platform Strengthening:

• On August 29, the company closed a $172 million securitization issuance, marking an 81 basis point improvement in the overall weighted average coupon compared to the May 2025 deal.

• The fourth consecutive improvement in the weighted average coupon reflects the company's ongoing capital market receptivity and the impact of its upgraded collections platform on future cost of capital.

• Digital Adoption and Payment Modernization:

• The implementation of the upgraded Pay Your Way platform led to a significant increase in customers enrolled in recurring payments, nearly doubling from the prior year.
• This digital adoption enhanced payment consistency and operational efficiency, which is expected to support a stronger outlook from rating agencies and unlock more favorable terms for future securitizations.

Sentiment Analysis:

• Revenue fell 1.9% YOY and retail units declined 5.7%, while procurement costs rose ~$500/unit and inventory capacity was constrained. Offsetting this, gross margin expanded to 36.6% (+160 bps YOY), interest income increased 7.5%, collections rose 6.2%, and securitization pricing improved (5.46% WAC, 81 bps better; fourth consecutive improvement). Delinquencies >30 days were 3.8% (+30 bps) and NCOs were 6.6% vs 6.4%.

Q&A:

• Question from Kyle Joseph (Stephens Inc.): What are you seeing in procurement costs post-quarter, given strong July applications and working-capital constraints?
  Response: Procurement costs have stabilized near Q1 levels with only nominal easing, while demand strength from July continued into August and early September.

• Question from Kyle Joseph (Stephens Inc.): With DQs and NCOs up, how quickly should credit stabilize under the new LOS systems?
  Response: Portfolio is now mostly under new underwriting, so expect normal seasonal NCO patterns from here; current levels are within the operating range.

• Question from Kyle Joseph (Stephens Inc.): How should we think about the cadence of SG&A from here?
  Response: About half of the Q1 SG&A increase should unwind in H2; Pay Your Way drives ~5% SG&A savings over time, supporting a mid-16% long-term SG&A/sales target.

• Question from John Hecht (Jefferies): Are tariff-driven inventory price increases a step-up or temporary spike, and how long will it affect you?
  Response: Used-car pricing is ~5–6% above last year; expect seasonal declines in the back half as tariff effects normalize, while pursuing financing solutions to ease inventory constraints.

• Question from John Hecht (Jefferies): What indicators should we watch for green shoots as headwinds dissipate?
  Response: Watch LOS V2-driven mix shift toward higher-ranked customers and higher FICO originations; asset availability remains key to capturing demand.