Good morning, everyone. Thank you for holding and welcome to America's Car-Mart third quarter 2018 conference call. The topic of this call will be the earnings and operating results for the company's fiscal fourth quarter 2018. 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 the 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 30th, 2017, 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 Chief Executive Officer and President, and Vickie Judy, Chief Financial Officer. Now I'd like to turn the call over to the company's Chief Executive Officer, Jeff Williams.
Well, good morning, and thank you for joining us. As you saw in our press release, we had a good quarter, and we're very proud of the progress we're making. There is a real need for what we do in the communities we serve and real purpose in our work, and we're working very hard with a sense of urgency to continue to improve our offering, starting with buying better cars at better prices and efficiently moving vehicles through our system. Better inventory practices has contributed to the improvements in our sales volume productivity, but we still have a lot of room to improve in this area, and we will push to get better. We do have a number of very positive highlights for the quarter, and Vickie will go into a little more detail in a minute.
Revenues were up almost 11%, increased sales volume productivity of two units per lot per month, with down payments being up at the same time. Collections were up for the second quarter in a row after several years of going the other way. Net charge-offs were down 120 basis points, and we ended the quarter with a lower 30-plus past due percentage. We repurchased almost five percent of our company during the quarter and have a very conservative balance sheet with debt to receivables of about 30%. We're also seeing some solid progress with our other continuing lot level blocking and tackling efforts in addition to inventory, and we have good momentum and enthusiasm from our associates on the training and support investments we have made and are making. We're also seeing some strong positive increases in local community engagement with our social and digital efforts.
as a bricks-and-mortar company, it's very important to us that we measure the customer experience and the engagement and customer service levels within our communities. We have to ensure that our customer relationships are strong and getting better, and our social and digital efforts will help us in this area. I'll now turn it over to Vickie for some numbers. Vickie?
Thank you, Jeff. Good morning, everyone. For the quarter, same-store revenues was up 10.5%. Overall revenues were $169 million, a 10.8% increase over the prior year quarter. This resulted from a 10.8% increase in sales and an 11.3% increase in interest income. Revenues from stores in the over 10 years of age category was up 10%, stores in the 5 to 10 year category was up 14% to about $34 million, and revenues for stores in the less than 5 years of age category was up about 30% to $26 million. Continuing our focus on inventory practices and training has been a major driver in these revenue increases. At quarter end, 25 or 18% of our dealerships were from zero to five years old, 31 or 22% were from five to 10 years old, with the remaining 83 being 10 years old or older.
Our 10-year-plus lots produced 33.4 units sold per month per lot for the quarter, compared to 31.4 for the prior year quarter. Our lots in the 5 to 10-year category produced 28.2, compared to 26.1 for the prior year quarter, and the lots less than five years of age had productivity of 27.9, compared to 22.4 for the fourth quarter of last year. Our average selling price increased to $10,922, a 2.5% increase or $268 compared to the prior year quarter, and it also increased $260 or about 2.4% sequentially. We typically see an increase in the fourth quarter. However, a portion of this increase results from selling a larger volume of high-dollar vehicles, including SUVs and pickups, to meet consumer demand.
We currently anticipate flat to some slight increases in sales prices for the near term, and we're hopeful that overall market prices will continue to soften compared to prior years, and that we'll be able to put our customers in better cars for the same or less money. Our down payment percentage was 8%, compared to 7.9% for the prior year quarter. Collections as a percentage of average finance receivables was 15.8%, compared to 15.6% last year. Our average originating contract term was relatively flat at 30 months, compared to 30.1 for the prior year quarter, and up slightly from 29.5 for the third quarter. Our weighted average contract term for the entire portfolio, including modifications, was flat at 32.5 months. The weighted average age of the portfolio was 8.9 months, up from 8.8 for the prior year.
We were certainly pleased to see no increase in the term lengths, especially considering the higher average selling price. We must always focus on affordability with the goal of customer success at the end of their contract. Interest income was up $1.9 million compared to the prior year due to $29.9 million increase in average finance receivable, a little over 70% of the increase, and also due to our increase in the interest rate on our contracts to 16.5% from 15%, which began in May of 2016. The weighted average interest rate for all finance receivables at the end of the quarter was approximately 16.3%, up from 15.9% last year end. For the fourth quarter, our gross profit margin percentage was 40.6% of sales, down from 41.5% for the prior year and the third quarter.
This decrease was primarily a result of the higher average selling price, as gross margin percentages are lower at a higher selling price. Our gross profit dollars per sale did increase slightly for the quarter. We continue to stay focused on better repair expense and inventory management. For the quarter, SG&A as a percentage of sales was 16.9%, compared to 17.2% for the prior year quarter. Overall, SG&A dollars were up by $2 million from the prior year quarter. SG&A as a percentage of customer count was basically flat. We've added 4,300 customers since the beginning of the year, and the number of full-time associates per customer has decreased. We continue to be heavily focused on the general manager recruitment, training, and advancement, and our collection support, along with improvements in our sales and marketing, especially the digital efforts. Our increased SG&A relates primarily to these areas.
This increase also includes additional bonus and commissions related to the higher net income levels as several of our associates, especially the general managers, are compensated on net income. We believe these investments are necessary and will bring tremendous value to our associates and an increased level of service for our customers. For the current quarter, net charge-offs as a percentage of average finance receivables was 7.5%, down from 8.7% for the prior year quarter. The decrease resulted from a lower frequency of losses, and severity was down about $200 per loss due to improvements in collections. Our wholesale value recovery rates continue to come under pressure and remained at approximately 22%-23%. Principal collections as a percentage of average finance receivables for the quarter was 15.8%, compared to 15.6% for the prior year.
The increase in collections resulted primarily due to the lower delinquencies, the higher average age of receivables, and a lower level of modifications, offset by the increase in our contract interest rate. At quarter end, our total debt was $152 million, with approximately $46 million in additional availability under our revolving credit facilities. Our current debt-to-equity ratio is 66.1%, and our debt to finance receivables is 30.4%. Our interest expense did increase $592,000 this quarter compared to last year's quarter due to the increase in debt, about half of the increase, and also due to the increased interest rates. During the quarter, we repurchased 327,550 shares, or 4.6% of our company, for $16 million at an average of $48.86 per share. Since 2010, we have repurchased almost 50% of our company for $198 million at an average price of approximately $34. We continue to have strong cash flows.
For the fiscal year, we added $34.6 million in receivables, repurchased $42 million of our common stock, funded $2 million in net capital expenditures, and increased inventory by $3.5 million. A total of $82 million with only a $34 million increase in debt. We're looking forward to being able to grow the business as we develop talented and experienced managers. We will continue to repurchase shares opportunistically. Thank you, and now I'll turn it back to Jeff.
Okay. Thank you, Vickie. We continue to make good strides with our general manager recruitment, training, and advancement focus. We know that we're getting some really quality people to join our company. Our bench is getting stronger. It's a tough business, but we provide unique opportunities with unlimited possibilities for the right people. There are a lot of places to get a paycheck, but we offer talented people a career with real purpose. We're optimistic that our team will get stronger as we move forward. We love what we do. We need to continue to improve in all areas and serve our customers at the very highest levels. As mentioned in the press release, we currently have four new lot openings in process. All under experienced top performing general managers. Bixby, Oklahoma, Pryor, Oklahoma, Montgomery, Alabama, and Fayetteville, Arkansas.
We expect these dealerships to open in the first and second quarters this year. We anticipate starting another couple of new dealership openings later in the fiscal year. We did begin to close one dealership during the quarter to allocate our capital to more productive uses. In our final note, we do believe that we can continue to pick up some market share in our current markets with the improvements we're making to the business. Our strong balance sheet will provide liquidity to allow us to continue to grow in a healthy way. Now, we'll take any questions you might have. Operator?
Thank you. 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. At this time, if you would like to ask a question, please press star one. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Again, to ask a question, that's star one. Our first question is from John Murphy of Bank of America Merrill Lynch. Your line is open.
Good morning, guys.
Good morning.
Just a first question on the statement of good cars for good prices. If we think about that in the short term, there's been some volatility in used vehicle pricing, down in the first half of last year, and it seems like it's been spiking back up. Just curious if you can comment on the pricing and sort of relationship of supply of vehicles for your lots and for your customers. Also, we think sort of longer term with the quality improvement in vehicles, is there an increasing population of good cars at good prices just because of the quality improvement in vehicles sort of longer term, if we think about supply?
Yeah. There's still plenty of demand for the car we're looking for. We just feel like our team is doing a better job of looking at more cars, negotiating better on prices. The supply itself is still pretty tight. We do think we've got room to improve on just checking out more cars, negotiating those prices. There does seem to be maybe a little bit more product flowing down in our market today than there was six months or a year ago, which is certainly helpful. That has been a positive. Longer term, to your point on the quality, yes, I think every year that goes by, the quality of a 10-year-old car gets just a little bit better, which over time should allow us to continue to put our customers in better mechanically sound cars over time.
We are, John, also working on increasing the number of suppliers that we're going to and looking some online. We're kind of expanding some of that as well.
Okay. That's helpful. A second question around human capital and how deep you think the bench is. Obviously, you're working on training general managers. It sounds like the four new lots that you're opening are with experienced management. How deep is the bench, and is this human capital kind of the biggest constraint to opening new stores, or is there other things that we should be thinking about as sort of restraints or hurdles to opening new stores?
That really is the constraint for us, is human capital at the GM position. While our bench is getting stronger, and we expect it to get stronger over time, it just takes time. It takes a certain skill set and a certain person to fit with our company and to fit with the job. It's a very difficult job. We do feel like over time, we can build that bench strength up. As we've mentioned, the big focus right now is we do have a pretty good group of very talented, experienced long-term managers.
What we're trying to do over the short term is to leverage those talents and really increase the number of customers the most talented general managers manage, and increase their customer count, and at the same time, work on the other side of the company in improving results with our lower performers and building that bench up. Over time, we do feel good about our opportunities to attract and retain and train good, skilled general managers. Right now, our bench is not where we need it to be. We're working hard in that direction.
Okay. Lastly, Vickie, as you look at leverage, you talked about almost a five-point increase in debt to finance receivables, where do you think you can push that or where are you most comfortable? What's the sort of point or range that you think you could go to, just so we can understand how much capital is available?
Yeah. I think we still have some room there. We always want to stay conservative that we do have the opportunity to add dealerships when we're ready to do that, when we have the people there. We always want to be sure that we leave plenty of funding there for that. We do still have room at this point.
John, we can grow from our existing dealership base. We have a lot of opportunities to pick up market share and grow existing dealerships, we never want to be in a position to ever have a thought of having capital issues with growing the base business. We've always been conservative with that balance sheet. This year, we got more aggressive with the share repurchases because we're more happy with the business, with the industry, where we're at, and where we're going. It felt like we could carry a little more leverage, we bought back a little more stock this year than we had in the past.
Great, that debt to finance receivables, is there a target range? At 30%, you think you just have a lot of room to work with in case you need it?
We have room to work, and we've just always kind of stopped at saying we're out there buying shares opportunistically. We don't really have a target percentage that we're sharing at this point. We could have more leverage on the balance sheet, but we'd really like to be in a spot to use that leverage to grow the base business. We need that bench of talented GMs to really push in that direction.
Okay, great. Thank you very much.
Thank you.
Thank you. Our next question is from John Rowan of Janney. Your line is open.
Morning.
Morning.
Morning.
Jeff, you mentioned it twice. You talked about gaining market share. I just want to kind of have you juxtapose that. When you're talking about either productivity on the branch level, where that comes from, just given the fact that we're seeing your cash collection cycle improve, down payments improve, your term, after many years of extending, is now stabilized. What's happening in the competitive environment? Is gaining market share simply a function of the competitive environment easing, and all these items that are improving year-over-year are symptomatic of that?
I would say that most of the volume productivities that we're seeing, most of the positive results we're seeing, we feel like are more internal improvements we've made. We are starting to see some competitive easing. I would think if you ask anybody within the company, does our improvements relate to something going on outside of us or something going on inside? I think the majority of the positive results, a large majority, relate to improvements we're making internally. We're certainly aware of the fact that the market, on the competitive side, does seem to be getting a little better for us. More than anything else, we're really focused on getting a good car for a good price and getting that car out front on display, and that's increasing foot traffic, and we're doing a better job of closing good customers and getting deals done.
It all starts with having good cars at good prices, properly displayed on those dealerships. I think that, more than anything, has helped us so far.
Okay. That'll actually dovetail into my next question. I wanted to go into the decline in the gross margin, about 90 basis points both year-over-year and sequentially. You talked about better cars. What's better? Is it a SUV versus a car? Is it lower mileage or newer? What's driving the sales price higher that's a better car? Then also, Vickie, you made a comment that the gross margin was down because of the more expensive cars. I need a little bit of explanation on that. I'm not sure why a more expensive car on the retail side would drive that gross margin down, or is it just more expensive on your purchasing side? I know it's a loaded two-part question.
Okay. We just price our vehicles based off of the purchase price, and the higher the purchase price, the margin markup is less.
As a percentage.
As a percentage.
Okay.
When we sell a lot more of the higher dollar cars, the gross margin is intrinsically going to be less. We still continue to do a really good job of trying to track our repairs and our other items that are there in that cost of sales. The biggest piece of it this quarter was just selling the different mix of the vehicles, the higher priced vehicles.
Your guidance that the price will stay flat or move slightly higher, does that mean that this gross profit margin is flat or slightly lower in coming quarters just based on the sales price?
The fourth quarter price is always a little bit higher. If you look at our year price, we're still in somewhere around $10,600. It'll probably stay somewhere in there, and the gross margin should not change very much.
We're still.
We still, yeah.
around 41% is kind of what we're thinking, John. The main focus is getting good cars for good prices and getting good customers in those cars and picking up some market share.
Okay, just onto that last part of the question, obviously, the more expensive cars. Is it bigger cars, newer cars, or cars with less mileage?
A little of both. The cars are a little newer. The mileage is a little bit better. Our guys are doing a better job of increasing the sources they're buying from and really kicking more tires, and our general managers are doing a better job of being in inventory and really holding purchasing agents accountable. We're looking at more cars, passing on more cars, negotiating prices better. It's all of the above.
Okay, just the last question. What's your expected tax rate for next year?
24% will be our base rate.
All right. Thank you very much.
Thank you.
Thank you. As a reminder, if you wish to ask a question at this time, please press star one. Our next question is from John Hecht of Jefferies. Your line is open.
Morning. I think all your analysts thus far are named John. The first one, just, I guess a quick fronting on modeling is, you mentioned the interest rate change. Has that rolled through completely, or should there be more of a tailwind in that in the next couple quarters?
It's pretty close. It's about there. Yeah, if you saw our average on the portfolio, 16.3. We're getting pretty close to that being fully rolled out.
Okay. Then, Vickie, I was writing down a lot of numbers when you were talking, it seemed like there was a decent jump in the older vintage stores or the older cohorts relative to some of the other ones. What do you guys attribute that to? Is that just some of the internal execution measures you guys have rolled through the system, or is there something in those particular geographies or anything that came at you during the quarter?
No, it was just the execution and like Jeff mentioned, that focus on that car. It's really important that these general managers are bought into that product that they're selling. It was really just the execution.
The older dealerships are the dealerships that felt the brunt of the competition. Now maybe that competition, maybe it is easing just a little bit. At the same time, we're getting better. It doesn't surprise us that we're picking up some decent volumes on those older dealerships.
Okay. Helpful. With respect to credit, for a long time, I think you guys were in the range of, not asking for guidance, more of just kind of a flavor of what you're seeing in the market. If I recall, provisions to sales were in the mid-20s range, and it inched up to the upper 20s range for a period of time, I think really due to the shifting competitive market. Are we now back to where it might move back to the traditional zone in the mid-20s? How do you guys think about that just in terms of, I guess, overall market trends?
Well, we would love for that to happen. That could happen, but there have been some structural changes in the industry with zero interest rates for a decade, and the term of the contracts is certainly a lot longer than it used to be. The interest rates we have on contracts are higher now than they were six or seven years ago. The recovery rates on the fair market value when you have to repossess a car is much, much lower than it used to be. We could actually be performing better on our underwriting and collections efforts, but mechanically, we'd maybe just not be able to get back down as low as we were in the best of days. That is our goal.
We'd love to keep driving it down, we may be limited in how far we can drive it down just based on the new realities of the industry.
Okay. That's very helpful context. I guess, just final question, you mentioned the duration and the term. I think the last couple of quarters have been generally flat after a series of time where they were pressed out. You think we're kind of at the tail end of that competitive cycle where you're not going to need to inch term much one way or the other for the time being?
I think that's a fair statement. We really focus on keeping that term short, making sure the customer has an asset on day one, and the asset lasts beyond the contract term. We're really looking out for the consumers and want to keep that term as short as possible. At the same time, we don't want to miss a good customer, don't want to miss an opportunity to pick up some market share with good, hardworking folks out there. If that requires a little more term, then that's what we'll have to do.
All right. Thanks very much, guys.
Thank you, John.
Thank you.
Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Mr. Jeff Williams for any further remarks.
Okay. Well, thank you for joining us today. Just would like to say thanks for your interest in Car-Mart, and we'd like to, as always, say thanks to our great associates out there at our dealerships and for all of our hardworking employees. Car-Mart is a great place to work, and we're fired up about our future. Thank you, and have a good day.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone have a great day.