America's Car-Mart, Inc. Q1 FY2026 earnings call

Key Points

• Gross margin expanded to 36.6%, interest income increased 7.5% and total collections rose by 6.2% while being disciplined on volume.
• Demand remains solid with credit applications up ~10% y-o-y, website traffic flat but higher conversion rate.
• Tariffs and wholesale pricing created temporary constraints on volume, driving $500 per unit increase in procurement cost during the quarter, but increases have smoothed out.
• LOS V2 and new scorecard shifting mix towards highest ranked customers, with 15% more volume from ranks 5 - 7 and bookings in lowest ranks reduced by nearly 50%.
• Upgraded Pay Your Way platform saw shift from in-store to online payments, recurring payment enrollments nearly doubled, enabling SG&A savings.
• Strengthened securitization platform with $172 million issuance in 2025 - 3 securitization, 4th consecutive improvement in overall weighted average coupon.
• SG&A expenses totaled $51.4 million, 10.1% increase, ~2/3 related to payroll growth and 1/3 to technology investments, expect half of growth to unwind in back half.
• Collections performance robust with total collections up 6.2%, average collection per active customer $585 this quarter vs $562 last year.
• Net charge-offs as percentage of average finance receivables rose slightly to 6.6%, allowance for credit losses improved to 23.35%, portfolio quality strengthened with nearly 72% of portfolio dollars under enhanced underwriting standards.

Total revenue for the quarter was $341.3 million, a decrease of 1.9% from the prior year, primarily resulting from fewer retail units sold. Interest income increased 7.5%. Gross margin expanded to 36.6%, a 160 basis point increase over the prior year quarter. Credit applications were up about 10% year-over-year. Website traffic was flat year-over-year but conversion rate from consumers completing applications was higher, indicating higher intent.

Forward-looking Statements

• Expect half of SG&A growth from first quarter to unwind in the back half as technologies implemented are finished.
• Pay Your Way platform expected to generate ~5% annual cost savings over time and modernize collections infrastructure.
• Priorities include quality, growth with affordability, serving more customers, protecting returns, continuing digital adoption, and evaluating actions to expand inventory capacity.

Risks

• Procurement cost fluctuations impacting inventory capacity under current capital facility.
• Macro environment changes affecting consumer credit access and demand for retail units.
• Volatility in securitization markets impacting financing costs and capital structure.
• Material weakness related to contract modification disclosures requiring remediation efforts.

Q: Just on the unit volume decline. I know you guys talked about applications being really strong, particularly in July. But Doug, I think you highlighted some increased procurement costs in the quarter. Just wondering what you've seen kind of subsequent to the quarter end in terms of procurement cost A: Yes, thanks for the question. So I think subsequent to the quarter, we've seen the pricing smooth out. It's been sort of in that same exact range. In fact, it's come down a couple of bucks, but that's nominal. And on a positive note, we've seen the same sort of demand we saw in July sort of flow through August. And as Jamie mentioned, our September is off to a great start. I think this sort of goes towards -- we speak about our business where when things tighten, another people tighten consumers come to us from the top. And we've certainly seen that based on the overall volume of applications and the quality of applications coming to us Q: Shifting to credit. I appreciate that the new -- loans under the new LOS are over 70% of the portfolio. But as that back book wanes, you kind of expect some credit tailwinds, but we've seen increases in [ DQs ] and [ NCOs ]. So I appreciate the color you gave on charge-offs in terms of frequency and severity and portfolio size. But just given [ DQs ] are up, give us your sense for how quickly you would expect that to stabilize with the new LOS systems A: Yes. The portfolio is weighted with mostly this new underwriting in place. And so I would expect, like now we sort of have like our normal cadence and normal seasonality as it relates to [ NCOs ]. And so we would typically see a couple of basis points change as we sort of go in and through the year. So to me, this is just sort of more normal. Over the last several quarters, we've obviously experienced the benefit of LOS sort of building the portfolio up. Now it represents the majority of the portfolio. And I think we should expect sort of the normal seasonal fluctuations within [ NCOs ]. And certainly, where we're at today is well within our operating range Q: Last question, probably, Jonathan. But just on the G&A, was up in the quarter. It sounds like there is a pull forward of investments, but just kind of expectations for the cadence of G&A, it sounds like should the second quarter be kind of in line with the first quarter and then we really start to see some of the benefits of the investments you've been making. Is that kind of the right cadence of expenses A: Yes, that's right. I think in the second half, we'll see roughly half of the increase from this quarter unwind as we start to kind of finish the implementation of some of the technologies that we've pulled forward. I think there's also a broader story around some of the technologies that we're rolling out will modernize, for example, Pay Your Way that will modernize our collections infrastructure that will generate an additional tailwind and we put that about 5% of SG&A costs. And as we continue to roll out the system and test the system we should start seeing that benefit in the next fiscal year. And then finally, all of those pieces combined will help us get towards our ultimate goal, which is about mid-16% SG&A as a percentage of sales Q: Some of it's related to what Kyle was just asking, But the -- you have the temporary impact from tariffs. We look at this as just sort of a onetime step function change in inventory pricing? Or will this be a spike up and then the cost will go down? I guess the just question is what are you guys anticipating in terms of used car pricing? And like to call it, the duration of how long that will affect the system A: Sure. I would say that the wholesale pricing, obviously, post-tax season, we should have had some sort of normal seasonality fall in pricing. We didn't experience that. I think the industry is contending with what is today represents a 5% or 6% increase relative to the prior year. I would expect that through the balance of the year now that the effects of tariffs are sort of known that we get some seasonality and pricing decline in the back half, all other things being equal, if you procure the same asset, et cetera. So this is really just a period of sort of managing through what that is today, but it does sort of lend itself to this other question around our capital structure with which we highlighted there. And really, I'll let Jonathan sort of unpack a little bit about how we think about that and how we can leverage and create opportunity there Q: And then a follow-up question, that's very helpful by the way. Follow-up question is the -- sorry, my phone was cutting out. You guys -- there's still very high demand from the consumer, but I guess it's tough to complete the transactions given supply constraints and macro factors and so forth. I guess, you guys are positioning yourself to be very like resourced and strong during a recovery period. So what factors should we look for in terms of seeing green shoots maybe for the dissipation of some of these headwinds A: Sure. I think with the release of LOS V2, which went live on May 8 that's like our second iteration for the LOS. If you go back in time, you remember, when we first launched LOS, it was around deal structures on our customer ranks 1 through 4 and tightening the credit box. The second iteration is more about identifying and properly identifying risk and more accurately identifying risk and with more granularity than we've had in the past. LOS V2 has a new scorecard embedded. And so I would expect us to continue to sort of continue to get favorability. My hope would be that similar to what we had in terms of a step change in the credit quality that we've had over the last 1.5 years that it's another step in that right direction. As an example, if you look year-over-year from Q1 '25 to Q1 '26, the average FICO score change was about 20 points in origination quarter-over-quarter. And you can see that distribution, there was a new chart we included in the presentation in our supplemental slide pack that shows us more heavily weighting these 5 to 7 ranked customers. And typically, we talked about the volume of applications that Jamie mentioned earlier, we're really pleased with what we're seeing there. It's really important given that we're seeing more growth at the top of the funnel and equal growth at the bottom, but more growth with these better qualified customers that we maintain the asset quality. We're not going to be able to capitalize on that opportunity unless we have the right asset to match what the consumers' needs are