Good morning, everyone. Thank you for holding, and welcome to America's Car-Mart's second quarter fiscal 2022 conference call. The topic of this call will be earnings and operating results for the company's second quarter fiscal year 2022. Before we begin, I would like to remind everyone that this call is being recorded and will be available for replay for the next 30 days. The dial-in number and access information are included in last night's press release, which can be found on America's Car-Mart's website at www.car-mart.com. As you all know, some of management's comments today may include forward-looking statements, which inherently involve risks and uncertainties that could cause actual results to differ materially from management's present view. These statements are made pursuant to the safe harbor provisions of Private Securities Litigation Reform Act of 1995.
The company cannot guarantee the accuracy of any forecast or estimate, nor does it undertake any obligation to update such forward-looking statements. For more information regarding forward-looking information, please see part one of the company's annual report on Form 10-K for the fiscal year ended April 30, 2021, and its current and quarterly reports furnished to or filed with the Securities and Exchange Commission on Forms 8-K and 10-Q. Participating on the call this morning are Jeff Williams, the company's President and Chief Executive Officer, and Vickie Judy, Chief Financial Officer. Now, I'd like to turn the call over to the company's Chief Executive Officer, Jeff Williams.
Okay. Well, thank you for joining us this morning, and thank you for your interest in America's Car-Mart. For the quarter, total revenue was up 29% to over $288 million. Unit sales volume per dealership, what we refer to as productivity, increased to 32.7 retail units sold per dealership per month or close to 6%. This in a period with supply shortages at all-time highs. We believe that productivity would have been better had the supply of used vehicles been at more normal levels. As a reminder, we are a fully integrated auto sales and finance company. We're both a retailer of used cars, and we finance almost 100% of our sales. It's a powerful captive lender relationship.
We buy the cars, arrange for transport and repair, merchandise the cars, sell the cars, we provide financing to the consumer, and we service the retail installment sales contracts, which include servicing our add-on products. As we look at the key variables in our industry specific to our unique place in the market, we look at the price and availability of vehicles, the resulting retail price to the consumer, and the gross margin dollars generated. The term length, which will result in an affordable payment for our consumer and give our customers true equity in the transaction. We look at productivity levels supporting a larger number of customers, allowing us to leverage our cost structure. We look at overall unit loss rates, which is the ultimate customer success factor, driven by our strong consumer advocacy.
All of our ongoing initiatives, which are in process to address these key industry variables, are allowing us to improve and scale our model without losing the benefits of the decentralized character lending nature of our business. The overriding theme and direction of all of our initiatives and investments is to improve operational efficiencies in the field by reducing the amount of non-core work at various friction points, allowing our talented field associates, at the direction of our general managers, to focus on improving the business and serving more customers at a higher level. We have an obligation to serve more customers as customers' lives and our communities are better with Car-Mart.
Once again, our key initiatives and investments are focused on enhancing the customer experience and are in the areas of purchasing, procurement, and inventory management, continuing to centralize certain functions to get scale benefit without losing local sourcing opportunities and to use data to a larger extent with inventory management and inventory planning. Our new service contracts and our debt cancellation products are fantastic add-on products for our consumers and are designed to keep customers on the road with utilizing nationwide service providers and also moving the administrative functions related to these products more to the corporate level. Our technology investments are designed to attract more sales opportunities. Our website and loan origination systems increasing the funnel will result in more unit sales, which will in turn lead to more repeat business over time. Currently, about 50% of our sales are to repeat customers.
We'll use data more in our technology investments as we mine for customers in equity positions and use marketing to a larger extent for our existing customer base. We will centralize certain aspects of our collections efforts. Remote collection specialists for phone, web chats, and texting to supplement the great work that our field associates do in the collections efforts. Recruiting, training, and retention of quality associates. Our field associates, with their face-to-face interactions with our customers, are critical to our success as we run the play and block and tackle out in the field. Our branding, advertising, and marketing. As a collections company, we didn't have to advertise much, but more of a sales company good at collections, we realized that the value of solid branding and marketing efforts is real, and we need to keep that message fresh in the minds of our consumers.
I will now turn it over to Vickie to go over some numbers. Vickie?
Good morning, everyone. As Jeff said, total revenue increased 29.1% up to $288 million. This resulted from a 5.7% increase in retail units sold, a 21.1% increase in the average retail sales price, and interest income increased by 38.8% by $10 million. Our same-store revenues were up 28.2%. Revenues and productivity were up across all age categories of dealerships, and productivity overall improved to an average of 32.7 units sold per store per month compared to 31.2 over the prior-year quarter. At quarter end, 17 or 11% of our dealerships were from 0 to five years old, 35 or 25% were from five to 10 years old, and the remaining 100 were 10 years old or older.
The 10-year-plus lots produced 33.8 units sold per month for the quarter per lot. Lots in the 5-to-10-year category produced 30.9, and the lots less than five years of age had productivity of 29.9. The vintage of dealership and related productivity is often higher at our older dealerships due to the experience level of the manager as well as an established customer base and thus a higher percentage of repeat customers. Total collections of principal interest and late fees increased by $21 million or 19% over the prior year quarter and improved 6.8% per average customer. Principal collections as a percentage of average finance receivables were at 10.5% compared to 12.9% for the prior year quarter.
Principal collections remained strong with the reduction in the amount of principal collected in line with the expected change due to the average term increases. The average originating contract term was 39.7 months compared to 33.8 for the prior year quarter and up from 38.8 months sequentially. The average selling price again was up 21.1% or $2,814 with a 5.9-month increase in the term compared to the prior year second quarter. However, average wholesale prices in the market were up over 30% year-over-year. Our team has done a good job of working hard to find the best quality vehicles at an affordable price for our customers.
Our average term length is still well below most competitors in our industry, and we will continue to review term lengths for the right customer and the right vehicle as we seek to gain market share. Our weighted average contract term for the entire portfolio, including modifications, was 40 months compared to 34.7 for the prior-year quarter. The weighted average age of the portfolio decreased slightly from approximately 8.8 months to 8.4 months. Total gross profit per retail unit sold increased by $644 to $6,349. That's up 11.3% compared to the prior-year second quarter. The gross profit percentage was 37.5%, down from the sequential quarter at 38.1%.
This reduction in gross profit percentage resulted from the lower margin percentage on higher retail sales prices according to our pricing guideline. The gross profit dollars continue to improve, and we are doing a nice job of controlling other cost of sales expenses in an increasing cost and inflationary environment as we gain market share. SG&A for the quarter was up $4.6 million compared to the prior year quarter and down $1.6 million sequentially. We continue to leverage the investments we're making with SG&A at 14.8% as a percentage of sales compared to 16.5% for the prior year quarter and from 15.7% sequentially. We are now serving over 93,000 customers, an increase of more than 5,100 in the last six months, with over 2,000 total associates.
Jeff mentioned each of our initiatives, with the focus being to provide excellent service to a larger number of customers, and we're focused on doing this in an efficient manner. For the current quarter, net charge-offs as a percentage of average finance receivables was 4.8%, relatively flat from 4.7% in the prior year second quarter. It's important to note that charge-offs were 6.1% for the quarter ended 10/31/2019 pre-pandemic. While we did see a slight uptick in our frequency of losses just above the unusually low prior year period levels, our severity of losses on a relative basis were still improved compared to the prior year quarter. Recovery rates of repossessed units also contributed to the decrease in net charge-offs.
Recovery rates for the quarter were approximately 28% compared to 26.7% in the prior year quarter. Our accounts thirty-plus past due were at 4% compared to 2.5% in the prior year second quarter and 3.5% at 10/31/2019 pre-pandemic. The thirty-plus delinquencies were up partially due to the Sunday month-end close date, as Sundays are generally the highest. As with everyone in the market, we do expect credit losses to normalize somewhat over time, but there's no historical reference for what that looks like in these times. As Jeff mentioned, our initiatives are aimed at creating a better customer experience and improving customer success rates compared to historical norms.
The effective income tax rate was 22.4% for the second quarter of fiscal 2022 compared to 23.6% for the prior year quarter. Income tax expense included an income tax benefit of $265,000 and $240,000 related to share-based compensation for the current quarter and the prior year quarter, respectively. We expect our base effective tax rate to be approximately 24% going forward prior to any excess tax benefits from option exercises. At quarter end, our total debt was approximately $324 million. We had $2.1 million in cash and approximately $107 million in additional availability under our revolving credit facility. Our current debt net of cash to finance receivables ratio is 33.3%.
During the first six months of fiscal 2022, we have added $157 million in receivables, increased inventory by $27 million, and we've repurchased $20 million of our common stock while funding $7 million in capital expenditures. We did increase our credit facility during the second quarter and added two new lenders. We're very excited by the participation and the commitment of our lending group. The increase is fundamental in our strategy to transition from a collections company to more of a sales company very good at collections. The increased facility will allow us to continue to grow our customer base for a period and to continue making key investments to better serve our customers, both digitally and in person.
As Jeff mentioned in the press release, we believe our conservative balance sheet will allow us to increase our available financing for future growth by accessing the securitization market as well at some point. Now, I'll turn it back to Jeff.
Okay. Well, thank you, Vickie. Once again, we're pleased with our progress and believe we're in the early innings with our key initiatives. We're now serving over 93,000 customers. That's up about 11% in the last 12 months, and we believe that most of our existing dealerships could be serving over 1,000 active customers, and we're currently at 613. Earning repeat business and increasing the funnel of potential new customers is very exciting to us, and we're optimistic about our unique offering to the market and our place in the world as we move forward. As Vickie mentioned, our sales price is up 21%, but wholesale prices in the market are up over 30% as we work hard to maintain affordability for our customers as we're in the boat with them to help them succeed on their underlying contracts.
We're seeing market share gains and productivity improvements as we attract more customers to the family so that we can keep those customers in the Car-Mart group family through repeat business. As we said in our press release, we believe our highest and best use of capital is to grow market share from our existing dealership base. We will continue to open new dealerships as we move forward. We're very excited to be opening our Norman, Oklahoma dealership, in addition to El Reno this last quarter, as we expand our reach in the Oklahoma market. We will also continue to look for acquisition opportunities and believe there are several excellent operators who would like to join our Car-Mart family. The cost of operating in our industry continues to increase at a very high rate, and we provide an owner with an attractive exit strategy.
The debt markets are very supportive of our solid auto finance companies, and with our focus on cash flows and cash-on-cash returns, we believe solidly that we can continue to grow and pick up market share at the right pace. Last but certainly not least, we would like to recognize and thank our outstanding and dedicated and committed associates who carry out our mission, vision, and value every day in very difficult operating environments. It takes a great team to excel in this high-touch consumer business, and we're very proud of our associates and their work. We'll now open it up for questions. Operator?
At this time, the participants will now answer questions from the callers. I would like to reiterate that my earlier comments regarding forward-looking statements apply both to the participants' prepared remarks and to anything that may come up during the Q&A. If you would like to ask a question, please press star one on your telephone keypad, and to withdraw your question, press the pound key. Your first question comes from Kyle Joseph with Jefferies. Your line's open.
Hey, good morning, Jeff. Vickie, how are you guys?
I wanted to start on credit. I think you had talked about losses normalizing. Obviously, I think your business is a little insulated given the auto exposure in used car prices. Is the outlook for kind of, you know, frequency to continue to normalize, but in terms of severity, it should be kind of below historical averages until, you know, used car prices eventually kinda get some relief, but at that point, you'd have some offset in the gross profit margin? Am I thinking about that correctly?
Well, there will continue to be some pressure on the severity as well if you think about the larger dollar amount financed. When you take one of those vehicles back, your severity will be higher. Our challenge there, and what we're trying to do, is keep our customers in the cars longer, get them closer to an equity position, to keep that severity down.
We're just doing so many things to improve the customer experience and keep customers on the road longer. You can't be in this environment and not expect some kind of normalization over time. It's a little unsure at this point, but we believe that we can manage credit well. We do expect good credit results as we look forward. I think consensus in the industry is there will be some normalization over time, but we don't know what that looks like yet. All these investments we're making, all the efforts that we're putting in place to improve that customer experience and take some non-core work out of the field, all those directives and initiatives are meant to improve customer success rates over time.
Got it. One follow-up from me, kind of a two-part question. If you just talk about competition, both in terms of the supply of credit available to the auto market as well as some of the other mom and pops you compete against on the dealership front. Talk about opportunities for expansion, whether it be de novo or M&A, please.
Sure. Well, on the competitive side, we do believe and are seeing that smaller dealers are having some trouble with the increases in the car cost and the increases in cost to operate the businesses. There are market opportunities for us in picking up market share from smaller operators who might not be able to thrive and survive in this type of environment. That's a positive on our side. We are seeing some early benefits from that. On the credit side, there is, as always, there's plenty of credit out there from bigger players.
The credit that is out there is rational and is something that we can match up with very well against in terms of our pricing and our credit. We feel good about the credit side. On the competitive side, we are picking up market share from smaller competitors. On the expansion side, we do continue to believe we're gonna open up a few dealerships each year. On the acquisition side, we believe there's some very good smaller players out there that would love to be part of the Car-Mart family as we look to expand our footprint. We've got several channels of expansion. The primary focus, of course, is increasing customer count from the dealerships we already have.
We believe there's a large amount of market share to pick up from getting better and more productive, supporting more customers, selling more cars from the network we already have. Then when you put new dealership openings in that mix, and then some acquisition opportunities, we believe that we have a long road for expansion with our base business here.
Very helpful. Thanks a lot for answering my questions.
Thank you, Kyle.
Your next question comes from Vincent Caintic with Stephens. Your line's open.
Hey, good morning. Thanks for taking my questions. I wanted to talk about the add-on products that you've been rolling out, and so I guess the service contracts and additional things. Seems like you've been having success there. If I calculate the non-vehicles kind of revenues you're generating, it seems to be about $11 million this quarter. If you could maybe talk about the uptake you're getting on add-on products, maybe how much of your customers are taking add-ons and maybe what's the potential penetration rate once you're able to expand that product? Anything else that you're planning to do with add-ons. Thank you.
Yeah. Our penetration rate for our add-on products is high. Our customers see real value in these products, and they're priced at a value for them to increase success rates like we've talked about. The new service contracts with the longer terms and the way we have to defer and recognize revenue on those will continue to add to our revenue stream as we go forward, and we bake in, you know, the full two- and three-year higher-priced contracts.
Okay, great. Thank you. When you think about kind of going back to your discussion on gross profit margins, your gross profit dollars continues to grow, and it's been nice to see that you're able to get some incremental value even with higher used car prices. I'm just as you're thinking about that going forward, are there additional levers you can pull or sources of vehicles that you've had? I know in the past you've talked about off-rental vehicles. When you think about gross profit going forward, just kinda wanting to get your perspective on that. Thank you.
Yeah. I think when the add-on products get fully baked in, that should be a benefit. We anticipate that being a benefit to the gross margin dollars and percentages as those products get fully rolled out. Other areas, you know, in this business, consumers aren't that focused on the sales price. It's up to us to put customers in our market in situations where they can succeed and earn equity throughout the contract term. We always have the ability to go in and tweak prices. With the significant increase in costs out in the market, we've certainly seen an uptick in market share as consumers are looking at retail prices and looking at our prices in the market.
We've benefited from having some very attractive retail prices out there that consumers are looking at because of the price increases in the market. As a result, those percentages have come down a little bit. As we go forward and get more clarity on where the market's going, then we do have the ability to tweak our retail pricing. We always have to keep in mind that customer success rate, customer equity, and we are truly in the boat with our customers over that contract term, and we're working with them to complete those contracts and get title to the car. We've gotta look at all aspects of price increases and do what's right for our consumers.
It's fantastic to see these quarter-over-quarter increases in the gross profit dollars that we're making. We focus much more heavily on the gross profit dollars, and we think that's the best focus to have here. It's been very strong. We're gonna continue to look at pricing in dollars and make sure we're putting our customers in situations that they can succeed with.
Kyle, I think everyone knows this, but, you know, the parts, labor for mechanics, all of that stuff, you know, is increasing. Those costs are increasing, and I kinda mentioned that we've done a really good job of controlling that part of our cost of goods sold when you look at repairs and recon to the vehicles that we're having to do. We're trying to minimize all of that in this inflationary environment.
Okay, great. Thanks very much.
Thank you, Vincent.
Your next question comes from John Murphy with Bank of America. Your line's open.
Good morning, everyone. This is Aimee Smith on for John. The first question I have for you, I think you alluded to it in your prepared remarks, but I believe we've got one Child Tax Credit payment left this year, which is pretty important for your customer base. How do you think about the phasing out of that program, or just the end of that program impacting customer demand in the next couple quarters? You know, could that result in some transitory pressure on your business?
Well, you know, there's certainly a percentage of our customers that do benefit from that credit. That would certainly be a cash flow event for a percentage of our customers. Tax time is just around the corner, and all of our customers do benefit from tax time. Again, we're trying to put customers in an affordable payment with an affordable down payment outside of tax credits or other events that happen throughout the year. This is, again, we're in the boat with these customers, and we're not depending on a Child Tax Credit amount for them to be successful on our contracts. We are aware of that. We're looking at that and monitoring that.
At the end of the day, it's not gonna change the way we approach our customers and their success. Tax time refunds are just around the corner, and we expect our consumer base to perform well with or without these additional child credits.
Okay. Got it. As we think about the variety of credit metrics in your business, whether it's consumer credit metrics like payments and days outstanding, or it's, you know, the financing metrics that you guys are reporting, obviously you're working off of some very abnormal levels from last year and earlier this year. How do you think about normalization to pre-COVID levels, and specifically timeline? Are there any initiatives in your business where you think you can operate at more optimal levels in the future than perhaps you have in the past?
Well, you know, we'll start with just the normalization of used car prices. That's a little hard to pinpoint. I think consensus might say that we're gonna be in a period of car shortages and higher prices through the end of 2022. At that point, we don't really see prices dropping off a cliff or decreasing. Maybe they level off some. We've seen in the last 12 months a significant increase in cost, obviously. We do expect within a year or so the prices to level back off and hopefully be more in line with general inflation as we go forward. This has been a very unusual period, as you say, and it's hard to know what normal looks like.
Consumers do need cars. They need our service. What we do is very unique, and how we do it is very unique. We're putting customers in transactions that make a lot of sense for them and for us. As long as wages are going up and continue to go up to offset inflationary pressures, which we're seeing, we're seeing tremendous wage gains in the markets we serve, then we believe we're gonna be able to put an affordable product out there for our customer, and that customer is gonna be able to succeed on those contracts. Again, we expect continuing price pressure and increases for at least another nine months, maybe another year. Then we would love to see prices level off and be more in line with general inflation.
That's the question everybody's trying to ask, is what does that normal look like? When do things return back to a more normal level? We'll adjust and be nimble and always focus on putting a customer in a good, solid transaction, a mechanically sound car with a payment amount that's affordable, and then back up that sale with fantastic service after the sale. We have a number of touch points after the sale to keep customers on the road and give them peace of mind in dealing with America's Car-Mart. We're getting better every day at our customer support with some of these investments we're making to keep our customers on the road.
If credit formalizes or if the business changes, we believe we're gonna be in a great spot to help our customers succeed.
Okay. One more for me, if I may. Apologies if I missed this in the prepared remarks, but what is your current level of days supply that you're sitting with at your dealerships, and how does that compare to pre-COVID levels?
Yeah, we're a little over 60, right at 60 days supply, and that's up about 25% from pre-COVID levels. We've been conservative. In this market, we are carrying more inventory and the cost of that inventory is higher. But if you see our dealerships, they're really all full of good solid cars, a good mix of product. We've been conservative in carrying more inventory just based on the shortage of product and how long it takes to get product to the locations, repaired, part shortages, labor issues. We're carrying a little more inventory on purpose right now than we would in a more normal period, a more normal flow of product.
We think that's the best way for us to be looking at this short term, especially with tax time just around the corner.
Okay, great. That's helpful. Thanks for taking the questions.
Thank you.
Once again, if you would like to ask a question, please press star one on your telephone keypad. Your next question comes from John Rowan with Janney. Your line is open.
Morning, guys.
Morning.
Morning.
If we continue to see, you know, price increases for, I mean, you alluded to up to a year in the used car market, should we continue to expect gross profit margin to continue to come down a little bit? You know, subsequent to that, when car prices do level off, is there still, you know, some potential weakness in the gross profit and margin as you work through the inventory that you acquired, you know, as prices were accelerating?
Well, again, if we're talking about gross profit dollars, we're in.
Percentages.
Percentages. Okay. Well, we're gonna continue. That's a constant analysis on our part. We'll continue to look at that. The service contracts and the other add-on products as they roll in are expected to help us on the percentages, certainly the dollars also. That's a constant analysis on our part to make sure that retail pricing and our profit percentages are appropriate to support our customer base. Also, looking at what's going on in the market as we grow, we've got to look at other retail prices in the market, make sure we're in the neighborhood on that standpoint. A lot of this is a little outside of our control as we try to gain market share.
There is a point that we need to and should and deserve, and with all the work we do and the investments we make, there is a level of gross profit dollars and percentages that would represent levels that we need to stay at. We're very focused on making sure that our pricing is where it needs to be, giving that consumer value. When prices level off, we'll make you know adjustments accordingly there too. We're always looking at gross profit dollars, percentages, pricing in the market, attracting new customers and customer success. It's not a one-dimensional decision. It affects the entirety of our business.
We are looking at where we can tweak, what we can do to offset some inflationary pressures and keep our margins where they need to be.
All right. Thank you.
Thank you.
Once again, if you would like to ask a question, please press star one on your telephone keypad. All right. There are no further questions in queue. I'll turn the call back to Jeff Williams.
Okay. Well, once again, thank you for listening to our call this morning. We've got a great company here at America's Car-Mart. We keep our customers on the road. We give them peace of mind in a very stressful area of life, and that's car ownership. The investments we're making, the initiatives we have in place are all directed at supporting our customers at even a higher level, keeping them in the family for life. Communities are better. Customers' lives are better when they're part of the Car-Mart family. We've got an extremely dedicated team, and we're all fired up about our place in the world, our purpose, and our why. We've got a fantastic outlook for our future. We're gonna keep growing and getting better, and we appreciate your time this morning.
Thanks again to all of our associates that do such great work in the field and at corporate each and every day. Have a great day.
Thank you. That concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.