Car-Mart sales plunge as September 11 covenant-relief expiration nears

America’s Car-Mart’s efforts to conserve cash are shrinking the business that replenishes it. Limited funding for vehicles and customer loans drove quarterly retail unit sales down 81.9%, while much of the money collected from existing borrowers went toward debt repayment. As of September 9, temporary relief from lending covenants extends only through September 11, with a financing and strategic review still unresolved.

For the fiscal first quarter of 2027, ended July 31, revenue fell 57.3% to $145.8 million from $341.3 million a year earlier. Net loss widened to $68.980 million from $5.736 million. The loss attributable to common shareholders was $68.990 million, or $8.28 per basic and diluted share, compared with $5.746 million, or 69 cents per share.

Car-Mart sells used vehicles and finances substantially all its customers, many of whom cannot qualify for conventional financing. Capital therefore supports both inventory purchases and customer loans. Curtailing those commitments preserves cash but reduces sales and the loans that generate future interest income.

“This is a capital structure story, not a demand story,” President and Chief Executive Doug Campbell said in the earnings release. He said available vehicles limited application volume. The quarterly report adds that Car-Mart obtained no new financing and completed no asset-backed term funding transactions during the quarter.

Inventory cuts reach beyond the smaller dealership network

Retail units sold fell to 2,450 from 13,568. Inventory ended July at $35.2 million, down from $112.5 million a year earlier and $54.1 million at April 30. Car-Mart said inventory was drawn down throughout the quarter, explaining why the decline in unit sales exceeded the decline in ending inventory.

The consolidation of 60 dealerships during fiscal 2026 reduced the network to 94 from 154. Sales also slowed within that smaller footprint: average retail units sold per dealership per month dropped to 8.7 from 29.4, while same-dealership revenue fell 47.5%.

Average retail selling prices, excluding ancillary products, rose 7.0% to $18,530 from $17,319 as Car-Mart prioritized selected inventory for customers with higher credit quality. That did little to offset the volume contraction. Sales revenue, which excludes interest income, fell 67.5% to $89.9 million.

Third-party wholesale sales increased to $21.0 million from $10.8 million. Since late May, Car-Mart had been wholesaling substantially all repossessed vehicles to accelerate cash conversion, instead of retaining some for another retail sale. It attributed the increase primarily to the disposal strategy rather than a change in repossession activity.

Wholesale sales accounted for 23.4% of sales, up from 3.9%, and generated an aggregate loss of $4.7 million. Alongside fixed and semi-fixed costs spread over fewer retail sales, that shift pushed gross profit margin down to 21.8% from 36.6%. Gross profit fell $81.5 million, or 80.6%.

Total gross profit per retail unit nevertheless rose 7.5% to $8,015. Car-Mart calculates that measure by dividing total gross profit, including wholesale losses, by the retail unit count. With that denominator down sharply, the increase does not establish that the margin on an individual retail vehicle improved.

Lower credit-loss expense cannot offset lost revenue

The provision for credit losses—the expense recorded to maintain the reserve for expected loan losses—fell 30.5% to $71.559 million from $103.036 million. It remained the largest current-quarter expense line. Management attributed the decline to the smaller receivables portfolio; the provision still consumed 79.6% of sales, compared with 37.3% a year earlier.

That expense differs from charge-offs, which recognize loans written off, and from the allowance, the remaining reserve against expected losses. Net charge-offs increased to $124.508 million from $100.066 million. The allowance consequently fell from $329.901 million at April 30 to $276.952 million at July 31: the quarter’s provision replenished less than charge-offs removed.

Selling, general and administrative expenses were nearly unchanged at $51.6 million, compared with $51.4 million. Approximately $13.7 million in charges the company described as non-recurring—$9.6 million of professional fees, primarily for its capital structure review, and $4.1 million of retention awards—offset savings elsewhere.

Excluding those charges, company-adjusted SG&A was $37.9 million. Its adjusted loss was $6.65 per share, removing the retention and professional-fee charges with their tax effect. Both are non-GAAP measures; the exclusions still left a substantial loss.

Interest expense rose 12.8% to $19.2 million despite lower total debt, reflecting the cost of the senior secured term loan and amortization of its financing costs and discounts. Interest income fell 14.2% to $55.8 million as the loan portfolio contracted. Overall costs and expenses fell 38.5%, substantially less than revenue. Car-Mart also received no income-tax benefit on its pretax loss because it maintained a valuation allowance against its finance subsidiary’s net deferred tax assets.

Collections remain a test of the smaller business

Net charge-offs rose to 9.5% of average finance receivables from 6.6%. Car-Mart said the higher ratio mostly reflected the shrinking receivables base, although charge-offs also increased in dollars. Accounts more than 30 days past due reached 4.6%, compared with 4.1% both a year earlier and at April 30.

Management cited fuel and living-cost pressures and disruption as accounts moved to nearby dealerships or centralized collections. The centralized rollout began in the fourth quarter of fiscal 2026 and was completed in the latest quarter, involving account transfers, staff hiring and training, and standardized procedures.

“The transition work is now behind us,” Campbell said. The 10-Q adds a qualification: the model’s effectiveness over a full collections cycle has not yet been demonstrated. Subsequent collections and charge-offs will help show whether completing the transition improves performance.

Total collections declined 10.5% to $164.4 million, although average collections per active customer per month improved to $594 from $585. The allowance ratio was 24.74% of receivables after deferred revenue and pending accident protection plan claims, versus 23.35% a year earlier and 25.15% at April 30. The allowance ratio declined from April even as delinquency rose over that period; the charge-off rate comparison is with the prior-year quarter.

Cash from borrowers largely flows toward debt

Operating activities generated $80.1 million of cash, compared with $5.9 million used a year earlier. That improvement accompanied sharply lower lending: finance receivable originations fell to $41.0 million from $262.7 million. Inventory drawdown supplied $41.5 million of operating cash as vehicles sold were not replenished.

Most of Car-Mart’s outstanding securitizations direct a significant portion of customer collections toward accelerated repayment of the notes backed by those loans. Those payments reduce debt but leave less money for new inventory and lending. Car-Mart has no revolving credit or warehouse facility to bridge that funding gap.

Financing activities used $102.5 million, principally $101.9 million of non-recourse note repayments. Cash, cash equivalents and restricted cash fell $21.7 million during the quarter. Net finance receivables declined to $909.8 million from $1.08 billion at April 30 and $1.18 billion a year earlier.

Unrestricted cash was $27.5 million, down from $47.0 million at April 30. The separate $82.4 million of restricted cash was unavailable for operations: it principally comprised collections and reserves for securitization noteholders, plus collateral for letters of credit.

Reported total debt fell to $623.9 million from $775.1 million a year earlier, but debt relative to the principal balance of finance receivables rose to 52.4% from 51.1%. That ratio uses principal balances of $1.19 billion and $1.52 billion, rather than net receivables after reserves and other adjustments. The term loan’s $266.2 million carrying value was below its $304.1 million principal balance because of unamortized issuance costs and discounts. Principal increased from $300.0 million during the quarter as a $3.0 million amendment closing fee and $1.1 million of interest were added to the loan instead of paid in cash.

Further lender relief carries conditions

Note B of the 10-Q explains that Car-Mart breached its minimum liquidity and collateral coverage covenants during the quarter under the terms then in effect. Short-term forbearance agreements preceded the June 19 amendment. Car-Mart reported compliance with the revised covenants at July 31 and September 9.

On September 4, lenders extended the relief period through September 11. Potential extensions through September 21 and November 6 depend on specified conditions and milestones. These include maintaining an independent Special Committee, delivering forecasts and a 13-week cash budget, advancing a financing or strategic transaction process, and entering a support agreement with the administrative agent and requisite lenders.

Revised covenants require minimum liquidity of $7.0 million each Friday and $5.0 million at other times, plus month-end collateral coverage of 1.20 to 1.00 after June. The amendment also raised borrowing margins by 300 basis points. Once relief ends, all accrued and unpaid interest becomes payable in cash. The term loan’s contractual maturity remains October 30, 2030.

Failure to satisfy the conditions or obtain further relief or financing before expiration would entitle lenders to demand early repayment, potentially triggering defaults or acceleration under other financing arrangements. Car-Mart said it would lack sufficient liquidity to repay accelerated debt. Note B identifies possible restructuring, materially dilutive equity issuance, asset or company sales, or bankruptcy protection, with significant or complete loss of value possible for common shareholders.

Management concluded that its plans did not alleviate substantial doubt about Car-Mart’s ability to continue as a going concern within one year after the financial statements were issued. The Special Committee review had produced no transaction as of September 9. The next immediate milestone is the September 11 relief expiration and any disclosure of an extension or financing outcome. Car-Mart will not hold an earnings conference call, leaving subsequent public disclosures to explain the next steps.

Correction: An earlier version suggested that additional earnings-call commentary remained available. Car-Mart’s earnings release said the company would not hold an earnings conference call.