America's Car-Mart, Inc. Q2 FY2026 earnings call

• Consumer demand remains strong with credit applications growing substantially. - Launch of LOS V2 has led to a shift towards higher-quality customers. - Pay Your Way platform is driving improved collections efficiency, with Auto Pay recurring payments exceeding 5% of the portfolio. - Completed consolidation of 5 underperforming stores and eliminated ~10% of headcount in Phase 1, with Phase 2 to be completed in Q3, aiming for over $20 million in annualized SG&A savings. - Enhanced collection CRM powered by Salesforce is in testing, with plans for additional features to improve collection performance.

For the second quarter of fiscal 2026, credit application volume was up 14.6% year-over-year. Revenue increased 0.8% year-over-year, primarily driven by higher interest income and a nominal increase in average retail sales price. Gross profit margin was 37.5% compared to 39.4% in the prior year. SG&A totaled $57.2 million, including $3.5 million in onetime expenses. Average collections per active customer increased to $582 this quarter. Net charge-offs were 7.0%, with delinquencies over 30 days improving 62 basis points to 3.14%.

• Complete capital structure transformation with another ABS transaction and revolving warehouse facility in the second half of the year. - Normalize inventory levels to meet strong demand and set up for tax season. - Execute Phase 2 of cost reduction initiatives in Q3. - Expect to return to positive GAAP earnings as higher-quality LOS originations mature.

• Macroeconomic uncertainty affecting consumer affordability. - Turbulence in the bond market related to subprime auto finance companies. - Uncertainty in the evolution of the macroeconomic environment impacting credit performance and reserves.

Q: Can you quantify how newer vintages of loans are performing relative to legacy ones?

A: Newer vintages show a significant improvement, with a 18%-20% differential compared to legacy loans originated under ALIS. The best comparison is against FY '24 vintages before converting to LOS.

Q: How is the competitive environment affecting strategy?

A: The sector is under pressure with operators facing challenges in procuring capital and finding inventory. Car-Mart's acquisitions team gets feedback from operators, and the company is differentiating by focusing on higher-quality customers, diversified vehicle procurement, and transformation in collections.

Q: What's the timing for meeting strong demand given new debt and inventory position?

A: Q3 is for rebuilding inventory, with the goal to capitalize on tax season. Expect Q3 to have noise in sales results but aim to be set up for strong performance in Q4, especially with elevated tax refunds.

Q: Thoughts on revenues and sales expectations going forward?

A: Store closures will impact sales slightly, but consolidation of underperforming stores near better-performing ones is expected to retain a significant portion of sales. Inventory rebuilding in Q3 and capitalizing on tax season will drive revenues, though exact quantification is uncertain.

Q: On credit allowance percentage?

A: The allowance percentage sits within a historical range, considering both portfolio performance and macroeconomic factors. It's expected to remain within this range with uncertainty around future macroeconomic conditions.