Stephens & Co. Downgrades America's Car-Mart to Overweight, PT to $45.

Stephens & Co. Downgrades America's Car-Mart to Overweight, PT to $45.

Stephens & Co. has downgraded America's Car-Mart (CRMT) to an "Overweight" rating and lowered its price target to $45. This decision comes on the heels of the company's fiscal first quarter earnings report, which revealed mixed performance metrics and ongoing challenges in the automotive retail sector [1].

America's Car-Mart reported a 1.9% decline in total revenue to $341.3 million, primarily due to a 5.7% decrease in retail unit sales. However, the company achieved a gross margin of 36.6%, up 160 basis points from the prior year, driven by improved product mix, higher ancillary product prices, and stronger wholesale retention. Interest income also increased by 7.5% due to a larger receivables portfolio and higher payment collections [1].

The company's chief financial officer, Jonathan Collins, highlighted the challenges posed by a low advance rate of 30% and a cap of $30 million on inventory advances under their revolving credit facility, which puts ongoing pressure on their ability to expand retail sales and manage working capital efficiently. Despite these constraints, the company has been actively evaluating actions to expand inventory capacity and mitigate the impact of tariffs and wholesale pricing pressures [1].

America's Car-Mart has been investing in digital platforms to improve collections efficiency and customer convenience. The LOS V2 and Pay Your Way platforms were accelerated, driving digital adoption and expected to deliver annual SG&A savings of approximately 5% over time. The company also closed a $172 million 2025-3 securitization at a weighted average interest rate of 5.46%, an improvement of 81 basis points versus the May 2024 transaction [1].

Stephens & Co.'s downgrade reflects the company's ongoing challenges in managing inventory financing and the potential impact of these constraints on future retail sales growth. The investment research firm noted that while America's Car-Mart has made progress in improving its financial performance and operational efficiency, the company's ability to expand sales and manage working capital remains a key concern [1].

References:
[1] The Motley Fool. (2024, September 4). America's Car-Mart (CRMT) Q1 2025 Earnings Call Transcript. Retrieved from https://www.theglobeandmail.com/investing/markets/markets-news/Motley%20Fool/34603228/america-s-car-mart-crmt-q1-2025-earnings-call-transcript/