America's Car-Mart (CRMT)

Transcription

1 COMPANY NOTE Target Estimate Change USA Financials Consumer Finance February 20, 2014 America's Car-Mart (CRMT) CRMT 3Q14: Competitive Intensity Leads to Higher Credit Costs Key Takeaway CRMT missed consensus and JEFe for the third consecutive quarter as the theme of increasing competition and likely a customer migration continue to play out. We are lowering our FY14 and FY15 estimates as a result and reiterate our HOLD rating. 3Q Results - CRMT reported 3Q14 adjusted EPS of 68c below JEFe of 72c and consensus of 70c. This adjusted figure excludes a $4.9M non-cash after-tax charge resulting from an increase to the allowance for credit losses. Including this charge, EPS of 16c was significantly below our estimate. Total revenue of $122M was $7m shy of our estimate and same-store sales declined to -2.8%, a sharp downshift from the +8.8% seen in the same quarter a year ago. Allowance Overhauled - Management noted they continue to see an increase in competition, which they have highlighted for several quarters now. We believe this is largely the effect of a normalizing economy and deepening securitization markets as CRMT is forced to increase the length of the loan and offer loans with lower down payments to remain competitive, especially at the top end of their targeted credit spectrum. The more generous loan terms are negatively impacting both the frequency and severity of losses. On the call CRMT noted that provision as a percentage of sales were likely to remain in the 26% range in the future. Model Update - We are revising our FY14 and FY15 EPS estimates lower on higher provisions as well as slightly higher SG&A as competition is likely to continue to intensify and management extends credit terms and continues to market aggressively. Thoughts on the Shares - As the ABS markets continue to deepen, we expect competition to become increasingly emboldened, especially if the US economy also improves. Our current expectation is that the competitive environment will not materially improve until a credit event draws a distinctive boundary between subprime and buy-here pay-here auto lending. Considering the likely trajectory of the economy, there could be a substantial period of time before this boundary is drawn. As such, we reiterate our Hold rating on shares of CRMT. Valuation/Risks Our $33 PT is ~11x our 2015 earnings estimate of $3.05, in-line with CRMT's LT average. Risks to our investment thesis include a continued deterioration in credit and higher gas prices. Financial Summary HOLD Price target $33.00 (from $38.00) Price $35.72 Net Debt (MM): $101.8 Market Data 52 Week Range: $ $35.50 Total Entprs. Value (MM): $419.7 Market Cap. (MM): $317.9 Insider Ownership: 12.0% Institutional Ownership: 88.0% Shares Out. (MM): 8.9 Float (MM): 8.3 Avg. Daily Vol.: 60,642 Daniel Furtado * Equity Analyst (415) dfurtado@jefferies.com Martin Kemnec, CFA * Equity Associate (415) mkemnec@jefferies.com * Jefferies LLC EQUITY RESEARCH AMERICAS USD Prev. 2012A Prev. 2013A Prev. 2014E Prev. 2015E EPS Jul A Oct A Jan A Apr FY Apr FY P/E 11.0x 10.6x 16.0x 11.7x Price Performance FEB-13 JUN-13 OCT-13 FEB-14 Jefferies does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that Jefferies may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Please see analyst certifications, important disclosure information, and information regarding the status of non-us analysts on pages 4 to 7 of this report. 2

2 CRMT Target Estimate Change America s Car-Mart February 20, 2014 Hold: $33 Price Target Scenarios Target Investment Thesis Used Car values continue to trend higher, constricting expansion in gross margins Gas prices remain elevated, putting pressure on customers Credit losses in-line with historical seasonal trends 2015 EPS: $3.05, Target multiple ~11x Fwd P/E, Target Price: $33 Upside Scenario Used car values slip, allowing for expansion of gross margins Gas prices return to more normal levels, freeing up excess cash for customers Credit losses are less severe than forecast 2015 EPS: $3.05, Target multiple ~12x Fwd P/E, Target Price: $37 Downside Scenario Used car values trend higher than expected, further dampening gross margins Gas prices move higher Weaker than expected credit losses 2015 EPS: $3.05, Target multiple ~10x Fwd P/E, Target Price: $31 THE LONG VIEW Long Term Analysis Historical FY 2 P/E Long Term Financial Model Drivers Other Considerations Source: FactSet, Jefferies estimates Y/Y in Units Sold 8% FY15 EPS Growth 30% Management noted that they continue to see larger competitors, with access to securitization funding, offer more attractive loan terms and down payment options. We believe this competitive effect along with the normal "graduating up" to better credit options that some of CRMT's best customers may see as they improve their credit scores, is driving adverse selection for CRMT's new portfolio originations. Peer Group FWD P/E Multiple CY 13-CY 14 Est. EPS Growth Recommendation / Price Target Ticker Rec. PT CRMT HOLD $33 CPSS NC NC NICK NC NC Source: FactSet, Jefferies estimates Source: FactSet, Jefferies estimates Note: NICK has no published estimates Catalysts Meaningful expansion in gross margins Store openings Gas prices Company Description America's Car-Mart, Inc. is a used automotive retailer that operates stores in small towns and cities in the South-Central United States. CRMT's dealerships are generally located in areas with populations of 50,000 or less. The company sells primarily older-model used vehicles and provides financing for over 90% of its customers. CRMT's customer base is comprised of individuals with little in savings and few options for borrowing to purchase an automobile. The company operates in small communities where competition is often comprised of independently owned dealers and small dealer groups. Car-Mart was founded in 1981 and is headquartered in Bentonville, Arkansas. page 2 of 7 Daniel Furtado, Equity Analyst, (415) , dfurtado@jefferies.com Please see important disclosure information on pages 4-7 of this report. 3

3 CRMT Target Estimate Change February 20, 2014 Chart 1: CRMT Income Statement INCOME STATEMENT FYE April $ in 000s except per share data 1Q14 2Q14 3Q14 4Q14E FY2014E 1Q15E 2Q15E 3Q15E 4Q15E FY2015E Revenue Sales 109, , , , , , , , , ,452 Interest and other income 13,395 13,666 14,188 13,994 55,243 13,580 13,744 13,907 14,079 55,310 Total revenues 122, , , , , , , , , ,762 Expenses Cost of sales 62,789 62,823 62,092 69, ,786 68,286 68,061 68,876 74, ,832 Selling, general and administrative 19,647 19,581 19,650 24,224 83,102 22,572 22,533 22,802 24,533 92,440 Provision for credit losses 26,530 28,296 36,776 30, ,748 29,799 29,701 30,056 32, ,113 Interest expense , ,238 Depreciation and amortization , ,340 Total expenses 110, , , , , , , , , ,963 Income from cont. ops. before tax 11,970 9,214 2,419 9,719 33,322 10,757 10,868 10,992 11,183 43,799 Provision for taxes (4,429) (3,411) (949) (3,596) (12,385) (3,980) (4,021) (4,067) (4,138) (16,206) Income from discont. ops., net (10) 2 (10) - (18) Net income available to common 7,531 5,805 1,460 6,123 20,919 6,777 6,847 6,925 7,045 27,594 Net income per share: Basic EPS $0.83 $0.64 $0.16 $0.70 $2.34 $0.78 $0.79 $0.81 $0.83 $3.21 Diluted EPS $0.79 $0.61 $0.16 $0.66 $2.23 $0.74 $0.75 $0.77 $0.79 $3.05 Weighted Avg. Shares Out.: Basic 9,020 9,017 8,918 8,801 8,939 8,713 8,626 8,540 8,454 8,583 Diluted 9,493 9,485 9,371 9,254 9,401 9,166 9,079 8,993 8,907 9,036 Dilutive shares Source: Jefferies estimates, company data page 3 of 7 Daniel Furtado, Equity Analyst, (415) , dfurtado@jefferies.com Please see important disclosure information on pages 4-7 of this report. 4

4 CRMT Target Estimate Change February 20, 2014 Company Description America's Car-Mart, Inc. is a used automotive retailer that operates 90 stores in small towns and cities in eight states in the South-Central United States. CRMT''s dealerships are generally located in areas with populations of 50,000 or less. The company sells primarily older-model used vehicles and provides financing for over 90% of its customers. CRMT''s customer base is comprised of individuals with little in savings and few options for borrowing to purchase an automobile. The company operates in small communities where competition is often comprised of independently owned dealers and small dealer groups. Car-Mart was founded in 1981 and is headquartered in Bentonville, Arkansas. Analyst Certification I, Daniel Furtado, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. I, Martin Kemnec, CFA, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. As is the case with all Jefferies employees, the analyst(s) responsible for the coverage of the financial instruments discussed in this report receives compensation based in part on the overall performance of the firm, including investment banking income. We seek to update our research as appropriate, but various regulations may prevent us from doing so. Aside from certain industry reports published on a periodic basis, the large majority of reports are published at irregular intervals as appropriate in the analyst's judgement. Company Specific Disclosures Jefferies Group LLC makes a market in the securities or ADRs of America's Car-Mart. Meanings of Jefferies Ratings Buy - Describes stocks that we expect to provide a total return (price appreciation plus yield) of 15% or more within a 12-month period. Hold - Describes stocks that we expect to provide a total return (price appreciation plus yield) of plus 15% or minus 10% within a 12-month period. Underperform - Describes stocks that we expect to provide a total negative return (price appreciation plus yield) of 10% or more within a 12-month period. The expected total return (price appreciation plus yield) for Buy rated stocks with an average stock price consistently below $10 is 20% or more within a 12-month period as these companies are typically more volatile than the overall stock market. For Hold rated stocks with an average stock price consistently below $10, the expected total return (price appreciation plus yield) is plus or minus 20% within a 12-month period. For Underperform rated stocks with an average stock price consistently below $10, the expected total return (price appreciation plus yield) is minus 20% within a 12- month period. NR - The investment rating and price target have been temporarily suspended. Such suspensions are in compliance with applicable regulations and/ or Jefferies policies. CS - Coverage Suspended. Jefferies has suspended coverage of this company. NC - Not covered. Jefferies does not cover this company. 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The price targets are based on several methodologies, which may include, but are not restricted to, analyses of market risk, growth rate, revenue stream, discounted cash flow (DCF), EBITDA, EPS, cash flow (CF), free cash flow (FCF), EV/EBITDA, P/E, PE/growth, P/CF, P/FCF, premium (discount)/average group EV/EBITDA, premium (discount)/average group P/E, sum of the parts, net asset value, dividend returns, and return on equity (ROE) over the next 12 months. Jefferies Franchise Picks Jefferies Franchise Picks include stock selections from among the best stock ideas from our equity analysts over a 12 month period. Stock selection is based on fundamental analysis and may take into account other factors such as analyst conviction, differentiated analysis, a favorable risk/reward ratio and investment themes that Jefferies analysts are recommending. Jefferies Franchise Picks will include only Buy rated stocks and the number can vary depending on analyst recommendations for inclusion. Stocks will be added as new opportunities arise and removed when the reason for inclusion changes, the stock has met its desired return, if it is no longer rated Buy and/or if it underperforms the S&P by 15% or more since inclusion. Franchise Picks are not intended to represent a recommended portfolio of stocks and is not sector based, but we may note where we believe a Pick falls within an investment style such as growth or value. Risk which may impede the achievement of our Price Target page 4 of 7 Daniel Furtado, Equity Analyst, (415) , dfurtado@jefferies.com Please see important disclosure information on pages 4-7 of this report. 5

5 CRMT Target Estimate Change February 20, 2014 This report was prepared for general circulation and does not provide investment recommendations specific to individual investors. As such, the financial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Past performance of the financial instruments recommended in this report should not be taken as an indication or guarantee of future results. The price, value of, and income from, any of the financial instruments mentioned in this report can rise as well as fall and may be affected by changes in economic, financial and political factors. If a financial instrument is denominated in a currency other than the investor's home currency, a change in exchange rates may adversely affect the price of, value of, or income derived from the financial instrument described in this report. In addition, investors in securities such as ADRs, whose values are affected by the currency of the underlying security, effectively assume currency risk. Other Companies Mentioned in This Report America's Car-Mart (CRMT: $35.72, HOLD) Distribution of Ratings IB Serv./Past 12 Mos. Rating Count Percent Count Percent BUY % % HOLD % % UNDERPERFORM % % page 5 of 7 Daniel Furtado, Equity Analyst, (415) , dfurtado@jefferies.com Please see important disclosure information on pages 4-7 of this report. 6

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8 R E S E A R C H B R I E F February 20, 2014 John Hecht, Analyst , john.hecht@stephens.com Kyle Joseph, Associate Changes Previous Current Rating -- Equal-Weight Target Price $40.00 $38.00 Price: $35.72 Fully Diluted Shares Out (mil.): Week High: $ Week Low: $35.50 Market Cap (mil.): $322.1 Fiscal Year End: Apr Average Daily Volume: 60,642 Float (mil.): 8.3 Debt/Cap: 32.9 Cash/Shr: $0.03 Dividend/Yield: NA/NA Book Value/Shr: $23.96 EPS 2013A 2014E 2015E Jul $0.83A $0.79A $0.75 Prev $0.79 Oct $0.76A $0.61A $0.77 Prev $0.78 Jan $0.84A $0.68A $0.80 Prev. -- $0.69 $0.87 Apr $0.92A $0.79 $0.91 Prev. -- $0.86 $0.93 FY $3.36A $2.88 $3.23 Prev. -- $2.95 $3.37 P/E 10.6x 12.4x 11.1x EBITDA 2013A 2014E 2015E FY $56.4M $49.6M $56.1M Prev. -- $51.1M $58.9M EV/EBITDA 7.5x 8.5x 7.5x Rev. $464.7M $496.6M $552.8M Prev. -- $508.2M $573.0M America's Car-Mart operates 131 car lots selling cars on a Buy Here/Pay Here basis. CRMT is the largest public company in this used car segment. CRMT finances 90% of the cars it sells. The Company changed its name from Crown Group in January of It is headquartered in Bentonville, Arkansas. America's Car-Mart, Inc. Equal-Weight Reason for Report: CRMT NASDAQ Target Price Change, Estimate Changes, Analysis of Sales/Earnings F3Q14; Competitive Pressure Showing No Signs of Lightening Up INVESTMENT CONCLUSION: America s Car-Mart, Inc. (CRMT) reported fiscal 3Q14 EPS of $0.68 (excluding an increase to CRMT's allowance), modestly below our $0.69 estimate and the Street s $0.70. We are maintaining our Equal-Weight rating but reducing our price target from $40 to $38, a corresponding decline to our estimate reduction, as we apply the same 12x multiple to our updated FY15 EPS estimate. The GAAP EPS number was $0.16, which included a $4.9 mil. ($0.52 per share) after-tax charge resulting from an increase in the allowance for credit losses (or reserve), as charge-off levels remain elevated. Competitive pressures continued to weigh on CRMT in F3Q14, resulting in higher-than-expected provisions/sales, 26.8% (ex. reserve build) versus our 26.5% estimate, which accounted for most of the EPS shortfall. Total revenues of $122.6 mil. were 5.3% below our forecast as the Company sold 3.5% less cars than we expected, while the average sales price was 1.7% lower than forecast. This was offset by better-than-forecast margins, 42.7% versus our 41.6% forecast, and up 100 bps QoQ. We believe that the reserve increase is a sign that the Company expects the challenging competitive environment to persist in the near to medium term, and as such, we are comfortable with our EW rating. KEY POINTS: Model Update: We are updating our forecast to incorporate the quarterly trends in sales, margins and credit, which reflected ongoing competitive pressures. As a result, our FY14 EPS estimate declines from $2.95 to $2.88 and our FY15 EPS estimate declines from $3.37 to $3.23. We are maintaining our 12x multiple, which on our reduced FY15 estimate equates to a $38 price target. Competition and poor weather conditions lead to weaker-than-expected top-line results. Sales of $108 mil. were below our $115 mil. forecast as CRMT sold less cars than expected (11,124 versus 10,735), while the average sales price was also lower than expected ($9,739 versus $9,904). Interest income of $14.2 mil. was generally in line with our forecast. Total revenues of $122.6 mil. missed our estimate of $129.4 mil. but did reflect 3.1% YoY growth. Same-store sales declined 2.8% versus our expectations for 0.1% growth, primarily driven by sales contraction at CRMT's stores that are >10 years old. On a positive note, the Company reported gross margins of 42.7%, which exceeded our forecast by 110 bps and reflected a 100 bps increase QoQ. While increased competition was certainly a key driver for the weaker-than-forecast sales figures, we believe that See important disclosures and analyst certification on pages 4-5 of this report Stephens Inc. 111 Center Street Little Rock, AR Member NYSE, SIPC 9

9 Research Brief February 20, 2014 poor weather conditions across the South during the quarter also impacted sales. Furthermore, we note the Company did not collect any tax dollars in the third quarter, versus F3Q13 in which it collected a small amount. Although it appears competition will persist in the short to mid-term, we believe that CRMT is capable of returning to double-digit revenue and EPS growth in FY15. CRMT increases allowance 200 bps to 23.5% as strategies undertaken to combat the competitive environment have impacted credit; while there is no sign of competitive pressures easing. As we mentioned earlier, the Company reported a $4.9 mil. after-tax charge resulting from an increase in the allowance for loss from 21.5% to 23.5% due to expectations that tough conditions will continue over the short to mid term. CRMT last adjusted its allowance in 4Q12, when the Company reduced its allowance 50 bps to 21.5%. We calculated CRMT s provision as $29.0 mil., below our $30.5 mil forecast, due to lower-than-forecast sales. This represents 26.8% of sales versus our forecast for 26.5%, up 290 bps YoY. Quarterly net charge-offs as a percent of finance receivables increased by 100 bps YoY to 6.7%, while delinquencies declined 20 bps to 5.8%. We note that delinquencies remain elevated, but within CRMT s target range. We view this as somewhat expected, given the Company s expressed strategy of extending terms for top-tier retention, which we believe will continue, given ongoing competitive pressures. Store growth. CRMT has added two new dealerships subsequent to 10/31/13, which brings their total store count to 131. The Company has said that they intend to open four additional stores in F4Q14, which would be 11 new dealerships in FY14, reflecting 8.7% growth. Importantly, we believe that the sales shortfall was primarily attributable to older dealerships as many are in larger markets and offer more of CMRT s higher-end cars, both of which are more exposed to competition. As the younger units mature, they should naturally increase their monthly sales levels and support consolidated revenue growth. We are maintaining our Equal-Weight rating but reducing our price target from $40 to $38, reflecting 12x our updated FY15 EPS of $3.23. We are applying the same multiple to our reduced estimate for our new price target. We are comfortable remaining on the sideline in CRMT until we see signs of credit improvement and/or competitive pressures easing. Stephens Inc. Page 2 10

10 America's Car-Mart Earnings Model In 000s, except per share data Research Brief February 20, 2014 FYE is April YEAR 1Q 2Q 3Q 4Q YEAR 1Q 2Q 3Q 4Q YEAR 1Q 2Q 3Q 4Q YEAR 2012A 2013A 2013A 2013A 2013A 2013A 2014A 2014A 2014A 2014E 2014E 2015E 2015E 2015E 2015E 2015E Sales $386,857 $98,297 $98,194 $106,215 $113,034 $415,740 $109,149 $107,765 $108,400 $115,771 $441,085 $120,304 $120,242 $122,947 $127,613 $491,105 Interest Income 43,320 11,703 12,025 12,707 12,501 48,936 13,395 13,666 14,188 14,302 55,551 14,569 15,176 15,833 16,107 61,685 Total Revenues 430, , , , , , , , , , , , , , , ,790 Cost of Sales 223,392 56,185 56,204 60,941 65, ,095 62,789 62,823 62,092 67, ,946 69,776 69,740 71,309 74, ,841 Gross Profit 163,465 42,112 41,990 45,274 47, ,645 46,360 44,942 46,308 48, ,139 50,528 50,501 51,638 53, ,264 S.G.& A. 67,663 17,856 17,351 18,775 19,087 73,069 19,647 19,581 19,650 19,549 78,427 21,174 21,367 21,795 21,038 85,374 Depreciation 2, , , ,665 Other Losses (2) Prov.-Credit Losses 81,638 21,663 23,647 25,189 25,536 96,035 26,530 28,296 28,998 29, ,635 30,978 30,962 31,659 32, ,460 Operating Inc. 55,064 13,634 12,321 13,305 14,333 53,593 12,760 9,938 10,976 12,585 46,259 12,051 12,451 13,096 14,852 52,450 Interest Expense 2, , , ,004 1,023 3,765 Pretax Income 52,779 12,971 11,603 12,500 13,542 50,616 11,960 9,206 10,187 11,779 43,132 11,224 11,540 12,092 13,829 48,685 Taxes 19,792 4,863 4,335 4,530 4,763 18,491 4,429 3,411 3,769 4,362 15,971 4,156 4,273 4,478 5,121 18,029 Net Income $32,987 $8,108 $7,268 $7,970 $8,779 $32,125 $7,531 $5,795 $6,418 $7,417 $27,161 $7,068 $7,266 $7,614 $8,708 $30,656 EPS -F.D. $3.25 $0.83 $0.76 $0.84 $0.92 $3.36 $0.79 $0.61 $0.68 $0.79 $2.88 $0.75 $0.77 $0.80 $0.91 $3.23 EPS % Chg. 27.7% 6.2% -1.4% 15.4% -4.5% 3.3% -4.6% -19.5% -18.8% -14.7% -14.3% -5.5% 25.7% 17.1% 15.9% 12.4% EPS - Operating $ % Avg. Shares-FD 10,155 9,752 9,579 9,451 9,494 9,569 9,493 9,485 9,371 9,401 9,437 9,431 9,461 9,491 9,521 9,476 Same-Store Sales 7.7% 5.5% -4.8% 8.8% 5.3% 3.7% 5.6% 3.8% -2.8% -1.3% 1.3% 3.0% 5.4% 5.1% 2.1% 3.9% Cars Sold 37,722 9,753 9,814 10,403 10,767 40,737 10,643 10,608 10,735 11,248 43,234 11,531 11,415 11,666 12,103 46,716 Avg sales price $9,676 $9,584 $9,515 $9,797 $9,963 $9,715 $9,836 $9,710 $9,739 $9,934 $9,805 $10,033 $10,133 $10,139 $10,144 $10,112 Number of Lots Gross Margin 42.3% 42.8% 42.8% 42.6% 41.8% 42.5% 42.5% 41.7% 42.7% 41.9% 42.2% 42.0% 42.0% 42.0% 42.0% 42.0% S G&A / Sales 17.5% 18.2% 17.7% 17.7% 16.9% 17.6% 18.0% 18.2% 18.1% 16.9% 17.8% 17.6% 17.8% 17.7% 16.5% 17.4% Prov Losses / Sales 21.1% 22.0% 24.1% 23.7% 22.6% 23.1% 24.3% 26.3% 26.8% 25.8% 25.8% 25.8% 25.8% 25.8% 25.8% 25.8% Oper. Inc. / Sales 14.2% 13.9% 12.5% 12.5% 12.7% 12.9% 11.7% 9.2% 10.1% 10.9% 10.5% 10.0% 10.4% 10.7% 11.6% 10.7% Pretax / Sales 13.6% 13.2% 11.8% 11.8% 12.0% 12.2% 11.0% 8.5% 9.4% 10.2% 9.8% 9.3% 9.6% 9.8% 10.8% 9.9% Tax Rate 37.5% 37.5% 37.4% 36.2% 35.2% 36.5% 37.0% 37.1% 37.0% 37.0% 37.0% 37.0% 37.0% 37.0% 37.0% 37.0% Net Profit Margin 7.7% 7.4% 6.6% 6.7% 7.0% 6.9% 6.1% 4.8% 5.2% 5.7% 5.5% 5.2% 5.4% 5.5% 6.1% 5.5% % Changes Sales 13.2% 8.8% -1.9% 13.0% 10.3% 7.5% 11.0% 9.7% 2.1% 2.4% 6.1% 10.2% 11.6% 13.4% 10.2% 11.3% Interest Income 15.9% 14.7% 12.6% 11.4% 13.3% 13.0% 14.5% 13.6% 11.7% 14.4% 13.5% 8.8% 11.1% 11.6% 12.6% 11.0% Total Revenues 13.4% 9.4% -0.5% 12.9% 10.6% 8.0% 11.4% 10.2% 3.1% 3.6% 6.9% 10.1% 11.5% 13.2% 10.5% 11.3% Cost of Sales 14.0% 9.0% -2.8% 12.2% 10.1% 7.0% 11.8% 11.8% 1.9% 2.2% 6.6% 11.1% 11.0% 14.8% 10.1% 11.7% Gross Profit 12.1% 8.6% -0.8% 14.2% 10.6% 8.1% 10.1% 7.0% 2.3% 2.7% 5.4% 9.0% 12.4% 11.5% 10.4% 10.8% S.G.& A. 8.8% 10.2% 3.8% 9.3% 8.6% 8.0% 10.0% 12.9% 4.7% 2.4% 7.3% 7.8% 9.1% 10.9% 7.6% 8.9% Prov.-Credit Losses 15.0% 16.9% 4.5% 20.5% 30.4% 17.6% 22.5% 19.7% 15.1% 16.7% 18.3% 16.8% 9.4% 9.2% 10.2% 11.3% Operating Inc. 14.1% -0.4% -5.9% 7.3% -9.8% -2.7% -6.4% -19.3% -17.5% -12.2% -13.7% -5.6% 25.3% 19.3% 18.0% 13.4% Net Income 16.9% -2.1% -6.3% 9.1% -8.9% -2.6% -7.1% -20.3% -19.5% -15.5% -15.5% -6.2% 25.4% 18.6% 17.4% 12.9% Cars sold 9.6% 7.8% -1.1% 16.0% 10.0% 8.0% 9.1% 8.1% 3.2% 4.5% 6.1% 8.3% 7.6% 8.7% 7.6% 8.1% Source: Company documents and Stephens Inc. estimates John Hecht Stephens Inc. Page 3 11

11 Research Brief February 20, 2014 APPENDIX A ANALYST CERTIFICATION The analyst primarily responsible for the preparation of the content of this report certifies that (i) all views expressed in this report accurately reflect the analyst's personal views about the subject company and securities, and (ii) no part of the analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the analyst in this report. REQUIRED DISCLOSURES The research analyst principally responsible for preparation of this report has received compensation that is based on the firm's overall revenue which includes investment banking revenue. Stephens Inc. maintains a market in the common stock of America's Car-Mart, Inc. as of the date of this report and may act as principal in these transactions. Stephens Inc. has received compensation for products or services other than investment banking services from America's Car-Mart, Inc. in the past 12 months. America's Car-Mart, Inc. is or has been a client of Stephens Inc. for non-investment banking securities related services within the past 12 months. Stephens Inc. expects to receive or intends to seek compensation for investment banking services from America's Car-Mart, Inc. in the next three months. Rating and Price Target History for: America's Car-Mart, Inc. (CRMT) as of /01/12 OW:$54 08/20/12 OW:$52 11/21/12 OW:$45 02/20/13 OW:$50 08/20/13 OW:$47 11/21/13 EW:$ Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q Created by BlueMatrix Valuation Methodology for America's Car-Mart, Inc. Our target price is based on a target multiple times our fiscal 2014 EPS estimate. We use a discounted P/E multiple to Car-Mart's long-term earnings growth rate because of the stock's small market capitalization and low trading volume, as well as the perceived risks by investors due to the Company's credit losses. Risks to Achievement of Target Price for America's Car-Mart, Inc. Any material decline in collection rates on finance receivables would have a negative impact on earnings. A material increase in unemployment rates in the Company's areas of operation could have a detrimental impact. Changes in the availability of credit could restrict America's Car-Mart's ability to grow. Given management's expertise and many years of experience, the departure of certain operational members of the management team could negatively impact America's Car-Mart's operations, and thus its earnings. Changes in lending laws or regulations could have a negative impact on financing receivables. Ratings Definitions OVERWEIGHT (O) - The stock's total return is expected to be greater than the total return of the company's industry sector, on a risk-adjusted basis, over the next 12 months. EQUAL-WEIGHT (E) - The stock's total return is expected to be equivalent to the total return of the company's industry sector, on a risk-adjusted basis, over the next 12 months. UNDERWEIGHT (U) - The stock's total return is expected to be less than the total return of the company's industry sector, on a risk-adjusted basis, over the next 12 Stephens Inc. Page 4 12

12 Research Brief February 20, 2014 months. VOLATILE (V) - The stock's price volatility is potentially higher than that of the company's industry sector. The company stock ratings may reflect the analyst's subjective assessment of risk factors that could impact the company's business. Distribution of Stephens Inc. Ratings IB Serv./Past 12 Mos. Rating Count Percent Count Percent BUY [OW] HOLD [EW] SELL [UW] OTHER DISCLOSURES This report has been prepared solely for informative purposes as of its stated date and is not a solicitation, or an offer, to buy or sell any security. It does not purport to be a complete description of the securities, markets or developments referred to in the material. Information included in the report was obtained from internal and external sources which we consider reliable, but we have not independently verified such information and do not guarantee that it is accurate or complete. Such information is believed to be accurate on the date of issuance of the report, and all expressions of opinion apply on the date of issuance of the report. No subsequent publication or distribution of this report shall mean or imply that any such information or opinion remains current at any time after the stated date of the report. We do not undertake to advise you of any changes in any such information or opinion. Prices, yields, and availability are subject to change with the market. Nothing in this report is intended, or should be construed, as legal, accounting, regulatory or tax advice. Any discussion of tax attributes is provided for informational purposes only, and each investor should consult his/her/its own tax advisors regarding any and all tax implications or tax consequences of any investment in securities discussed in this report. If applicable, when reading research on Business Development Companies, you should consider carefully the investment objectives, charges, risks, fees and expenses of the investment company before investing. The prospectus, and, if available, the summary prospectus, contain this and other information about the investment company. You can obtain a current prospectus, and, if available, a summary prospectus, by calling your financial consultant. Please read the prospectus, and, if available, the summary prospectus, carefully before investing as it contains information about the previous referenced factors and other important information. Also, please note other reports filed with the Securities and Exchange Commission by the relevant investment company at Additional information available upon request. Stephens Inc. Page 5 13

13 February 19, 2014 Consumer Finance - Estimate Changes America's Car-Mart, Inc. (CRMT) Recurring Theme of Deteriorating Credit Amid Intense Competition Drives Weaker than Expected Results MARKET DATA MARKET PERFORM Price: $37.55 Target Price: N/A Price $ Week Range: $ $50.59 Shares Out. (M): 9.4 Market Cap ($M): $353.0 Average Daily Vol. (000): 15.0 Book Value/Share: $22.41 Float (M): 8.2 LT Debt (M): $114 LT Debt/Total Cap.: 35.3% ROAE: 13.5% Secular Growth Rate: 10.0% Source: Thomson Reuters and JMP Securities LLC FY APR 2013A 2014E 2015E Revenue ($M) 1Q $110.0 $122.5A -- David M. Scharf dscharf@jmpsecurities.com (415) Q $110.2 $121.4A -- 3Q $118.9 $122.6A -- 4Q $125.5 $ FY $464.7 $501.6 $544.5 EPS 1Q $0.83 $0.79A -- 2Q $0.76 $0.61A -- 3Q $0.84 $0.68A -- 4Q $0.92 $ FY $3.36 $3.10 $3.50 P/E 11.2x 12.1x 10.7x CY $3.01 $ P/E 12.5x 10.7x -- Source: Company reports and JMP Securities LLC STOCK PRICE PERFORMANCE Volume (mil.) Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Price (USD) $55.00 Jan-14 Feb-14 $50.00 $45.00 $40.00 $35.00 $30.00 Jeremy Frazer jfrazer@jmpsecurities.com (312) INVESTMENT HIGHLIGHTS We maintain our Market Perform rating on America's Car-Mart. The company reported fiscal third quarter (January) results that again fell below our and Street expectations. CRMT reported $0.16 in GAAP EPS, negatively impacted by a $4.9 million after-tax charge from significantly increased its allowance for credit losses. Even adjusting for this provision, pro forma results were $0.68 versus consensus of $0.70 and our $0.73 estimate. We maintain our cautious outlook and rating in advance of the company's conference call scheduled for 11:00 a.m. ET, as commentary from CPSS ($7.51, Market Outperform, $11 PT) and CACC ($134.56, MP) following 4Q results suggested there is no near-term relief in sight from the current competitive environment. Strong capital flows continue in the subprime auto market and pose particular challenges for the buy here/pay here market. Initial takeaways from the quarter include: 1. Deteriorating credit performance results in significant charge to allowance for credit losses. Provision for credit losses included a $4.9 million after-tax charge. Adjusting CRMT s reported $36.8 million in provision for credit losses for a roughly $8 million pre-tax charge results in $28.8 million for this line item versus our $28.1 million estimate. The company noted that it is the first time it has adjusted its ending allowance percentage upward since October First time in 10 quarters where A/R growth was below double digits. Net Finance Receivables increased 7.3% in the January quarter, exhibiting the first quarter with subdouble-digit growth since July While this is principally due to the large provision taken in the quarter, it nevertheless speaks to continued intense competition that the BHPH sector is feeling from traditional indirect lenders. 3. Seasonal step down in down payments points toward aggressive credit terms. The down payment percentage is seasonally weaker in the fiscal 3Q, with the company posting 4.0%, down from 6.2% in October and relatively flat from the 3.9% posted in January of last year. We will look for commentary on the call to determine whether we should expect the typical bounce back in the April quarter from year-end promotional activity, or if the company feels compelled to structurally keep down payments lower to remain competitive. 4. Average car sales price declined year-over-year and may point toward the first signs of emerging pressure on collateral/recovery rates for the industry. Average retail sales prices declined 0.6% versus our 1.0% growth estimate. Although this is just another metric highlighting the company s aggressive competition for customers, we believe it needs to be monitored as a possible guidepost for broader industry trends. Any significant decline in used car prices may have a greater impact on collateral and recovery rates. FOR DISCLOSURE AND FOOTNOTE INFORMATION, REFER TO JMP FACTS AND DISCLOSURES SECTION. 14

14 America's Car-Mart, Inc. (CRMT) We will adjust our earnings estimates following the conference call, scheduled for 11:00 a.m. EST today at FIGURE 1. America's Car-Mart Summary of 3Q14 Financial Performance Revenues 3Q14A 3Q13A Change 3Q14E Difference Sales % (1.1%) Interest and Other Income % % Total Net Revenues % (0.9% ) Cost of Sales % (1.9%) Gross Margin (% of Sales) 42.7% 42.6% 42.3% Pretax Income (80.7%) (78.0%) Pretax Margin 2.0% 10.5% 8.9% Net Income (81.7%) (78.9%) EPS - GAAP $0.16 $0.84 (81.5% ) $0.73 (78.7% ) EPS - Adjusted $0.68 $0.84 (19.5% ) $0.73 (7.0% ) Car Sales Metrics Retail Units Sold 10,735 10, % 10, % Avg. Monthly Retail Units Sold per Store (5.8%) % Average Retail Sales Price $9,739 $9,797 (0.6%) $9,895 (1.6%) Loan Metrics Interest and Other Income $ $ % $ (0.4%) Principal Balance, net def'd revenue $ $ % $ (0.2%) Average Yield 14.7% 15.0% -0.2 PP 14.8% -0.0 PP Loan Loss Metrics Provision for Credit Losses, % of Sales 33.9% 23.7% PP 25.6% +8.3 PP Charge-Offs, % of Sales 24.5% 18.9% +5.6 PP 23.2% +1.3 PP Source: JMP Securities LLC estimates and Company reports February 19,