AMERICAS CARMART INC (CRMT) FY 2026 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto appearing in Item 8 of this Annual Report on Form 10-K.
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Overview
America’s Car-Mart, Inc., a Texas corporation (the “Company”), is one of the largest publicly held automotive retailers in the United States focused exclusively on the “Integrated Auto Sales and Finance” segment of the used car market. References to the Company include the Company’s consolidated subsidiaries. The Company’s operations are principally conducted through its two operating subsidiaries, America’s Car Mart, Inc., an Arkansas corporation (“Car-Mart of Arkansas”), and Colonial Auto Finance, Inc., an Arkansas corporation (“Colonial”). Collectively, Car-Mart of Arkansas and Colonial are referred to herein as “Car-Mart.” The Company primarily sells older model used vehicles and provides financing for substantially all of its customers. Many of the Company’s customers have limited financial resources and would not qualify for conventional financing as a result of limited credit histories or past credit problems. As of April 30, 2026, the Company operated 94 dealerships located primarily in small cities throughout the South-Central United States.
Fiscal 2026 was a transitional year defined principally by the Company’s efforts to address its liquidity position and capital structure. Constraints on available origination capital led the Company to reduce finance receivable originations, lower inventory levels, and tighten underwriting standards. Beginning in the third quarter of fiscal 2026, the Company also undertook a footprint optimization initiative through which it consolidated 60 dealership locations into nearby, higher-performing dealerships, reducing its active dealership count from 154 at April 30, 2025 to 94 at April 30, 2026. On October 30, 2025, the Company closed a five-year, $300.0 million senior secured term loan facility with funds managed by Silver Point Capital, L.P., and used a portion of the proceeds to repay and retire its revolving line of credit, with the remainder used for general operating and corporate purposes. As further described under “Liquidity and Capital Resources” and in Note B to the Consolidated Financial Statements, the conditions affecting the Company’s liquidity and capital structure raise substantial doubt about its ability to continue as a going concern.
Total revenue for fiscal 2026 decreased 7.9% to $1,281.5 million, compared to a decline of 0.2% in fiscal 2025. The decrease was primarily attributable to a decline in retail units sold—reflecting the reduction in active dealership locations and the pause in inventory purchases resulting from the Company’s liquidity constraints—partially offset by a 3.4% increase in the average retail sales price and a 3.7% increase in interest and other income. The Company reported a net loss attributable to common stockholders of $139.2 million, or $16.79 per diluted share, for fiscal 2026, compared to net income of $17.9 million, or $2.33 per diluted share, for fiscal 2025. Notwithstanding the decline in revenue in each of the past two years, over the last ten fiscal years, the Company’s annual revenue growth has averaged 9.1%.
From fiscal 2024 to fiscal 2026, sales performance was shaped primarily by the Company's liquidity position and the resulting moderation of finance receivable originations. With limited origination capital available — and no revolving warehouse facility in place to bridge the period between origination and securitization following the Company's repayment and termination of its prior asset-backed revolving line of credit on October 30, 2025 — the Company deliberately reduced originations and lowered inventory levels, which in turn constrained retail unit volume. Finance receivable originations decreased to $952.5 million in fiscal 2026 from $1,075.1 million in fiscal 2025, and inventory declined to $54.1 million at April 30, 2026 from $112.2 million a year earlier. As a result, used vehicle sales revenue declined, driven principally by lower retail unit sales rather than by a change in underlying customer demand. Wholesale revenue also decreased, reflecting a lower volume of repossessed vehicles available for resale.
The Company generates revenue primarily through the sale of used vehicles—typically accompanied by a related service contract and accident protection plan—together with interest income and late fees from financing. Its cost structure is relatively fixed and is therefore sensitive to changes in sales volume. Revenue is influenced by competition, the availability of funding in the subprime automobile industry and for the Company specifically, broader macroeconomic conditions, and fluctuations in the cost of acquiring vehicles for resale. Because the Company's selling price is largely a function of its vehicle acquisition cost, increases in purchase costs generally result in higher selling prices, which can pressure gross margin percentages and contract terms as the Company seeks to preserve affordable payment options for a customer base with limited financial flexibility. Declines in new vehicle sales, particularly of domestic brands, reduce the future supply of used vehicles and tend to raise wholesale prices, and changes in consumer credit availability, broader economic conditions, and the imposition of (or threats to impose) tariffs or other trade restrictions could similarly affect both the demand for and the acquisition cost of vehicles.
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The Company has been focused on strengthening its underwriting and improving vehicle quality by procuring lower-mileage vehicles, while balancing affordability for customers. The Company believes this will aid in driving down our customers’ vehicle repair costs, reduce our service contract repair expenses, and lead to better recovery values in the event of repossession. When combined with inventory procurement efficiencies, these changes are expected to drive improved customer experience and contribute to better gross margins.
The Company places significant emphasis on building strong, long-term customer relationships, which it believes generate the repeat business that is integral to its success. It pairs a "local," face-to-face approach to customer service with continued investment in digital and online capabilities intended to deliver a more integrated, seamless sales and service experience, and, subject to recent inventory funding constraints, it offers a diverse mix of vehicles at a variety of price points to address affordability across a broad range of customer needs.
The Company closely monitors key underwriting variables—including down payments, contract terms, and customer credit scores—to support customers' ability to meet their payment obligations. After the sale, collections, delinquencies, and charge-offs are central to assessing the Company's financial condition and results of operations, and management monitors these measures on an ongoing basis to enable timely intervention and adjustments to strategy.
The Company maintains a consistent focus on collections. For most of fiscal 2026, collections were conducted at the dealership level under the oversight of the corporate office, and in the fourth quarter of fiscal 2026 the Company began rolling out a centralized collections model intended to improve the consistency and efficiency of its collection activities across its footprint. Total collections of principal, interest, and late fees increased by $15.9 million, or 2.2%, to $730.0 million in fiscal 2026, compared to $714.1 million in fiscal 2025. The average total collected per active customer per month increased to $590.56, compared to $575.48 for fiscal 2025. These results underscore the positive impact of our enhanced payments platform, which has streamlined processes and improved overall collection efficiency.
The credit performance of the Company's portfolio is reflected in the provision for credit losses, which increased to 40.8% of sales in fiscal 2026, from 32.7% in fiscal 2025 and 36.5% in fiscal 2024—the high end of a five-year range that has run from approximately 22.9% in fiscal 2022 to 40.8% in fiscal 2026. The increase as a percentage of sales reflected the reduction in finance receivable originations during the year—which lowered the sales base, along with changes in macroeconomic conditions affecting the Company's customer base. The provision also increased in absolute terms, to $419.2 million in fiscal 2026 from $374.6 million in fiscal 2025.
As of April 30, 2026, the Company's allowance for credit losses increased to 25.15% of finance receivables, net of deferred revenue and pending accident protection plan claims, from 23.25% at April 30, 2025. The increase was driven primarily by changes in macroeconomic conditions affecting the Company's customer base—including persistent inflation in essential goods and services and, in the fourth quarter, elevated fuel prices—which reduced customers' disposable income and contributed to an increase in the frequency of losses. The reduction in finance receivable originations undertaken to preserve liquidity also contributed to the higher allowance percentage by reducing the receivables base against which the allowance is measured. These factors were partially offset by shifts in portfolio mix, including the growing share of receivables originated through the Company's loan origination system ("LOS") and receivables from recently acquired locations. The LOS centralizes customer information—including internal credit scores, down-payment percentages, and credit reports—in a single location, which supports more informed credit decisions and stronger credit management.
The Company continuously seeks ways to improve operational efficiency, including refining its underwriting and collections processes. The Company’s proprietary credit scoring system allows for constant monitoring of contract quality. Corporate personnel regularly review credit scores and work with dealerships when scores fall outside acceptable thresholds. Additionally, the Company uses credit reporting and GPS technology to support its collections efforts, while its training department ensures ongoing improvement in collections practices. Effective execution of these business practices is considered the primary driver of the Company’s long-term credit loss performance.
Over the past five fiscal years, the Company’s gross margin as a percentage of sales has fluctuated, reaching a high of approximately 36.7% in fiscal 2025 and a low of 33.5% in fiscal 2023, with an average of 35.4%. Gross margin was 35.4% of sales in fiscal 2026, compared to 36.7% in fiscal 2025. The prior year included a 0.7% benefit resulting from a change in accounting estimate related to revenue recognition for service contracts implemented in the second quarter of fiscal 2025. The remaining year-over-year change reflects a higher average retail sales price, which increased $666 to $20,064 (and increased $303 to $17,618 excluding ancillary products), partially offset by the Company's initiatives around pricing discipline, lower frequency and severity of vehicle repair costs, and improved retention of wholesale buyers for
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vehicles repossessed by the Company. Because higher-priced vehicles typically carry higher gross margin dollars but lower gross margin percentages, the increase in average selling price contributed to higher gross profit dollars per unit even as the gross margin percentage declined; total gross profit per retail unit sold increased $74 over the prior fiscal year to $7,442. Gross margin is also affected by the percentage of wholesale sales to retail sales, which relates, for the most part, to repossessed vehicles sold at or near cost. The Company plans to continue to focus on managing gross margin dollars in the near term, as well as on improving wholesale results, cost controls, and operational improvement around the acquisition and disposal of vehicles.
Hiring, training, and retaining qualified associates is critical to the Company’s success. The Company's ability to implement and maintain operating initiatives and, as applicable, add new dealerships depends on the number of trained managers and support personnel the Company has at its disposal. Excessive turnover, particularly at the dealership manager level, could impact the Company’s ability to meet operational initiatives and, subject to available capital and appropriate market conditions, add new dealerships. The landscape for hiring remains very competitive. The Company has continued to add resources to recruit, train, and develop personnel, especially personnel targeted to fill dealership manager positions. The Company expects to continue to invest in the development of its workforce.
The Company continues to prioritize investments that improve its products and services and increase operating efficiency over time. One of its most significant investments has been enhancing its technology and processes for credit applications and decision-making through its loan origination system ("LOS"). The LOS enables customers to apply for credit in advance of a vehicle purchase, authorize a soft credit inquiry during the application process, receive application status updates by text message, and access centralized appointment setting, while centralizing approval decisions for applications submitted through the online platform. Through the LOS, the Company has tightened its credit approval standards, primarily by requiring higher down payments and shorter terms from certain customers.
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Consolidated Operations
(Operating Statement Dollars in Thousands)
| % Change | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2026 | 2025 | ||||||||||||||||||
| Years Ended April 30, | vs. | vs. | As a % of Sales | ||||||||||||||||
| 2026 | 2025 | 2024 | 2025 | 2024 | 2026 | 2025 | 2024 | ||||||||||||
| Operating Statement: | |||||||||||||||||||
| Revenues: | |||||||||||||||||||
| Sales | $ | 1,027,813 | $ | 1,146,208 | $ | 1,160,798 | (10.3)% | (1.3)% | 100.0% | 100.0% | 100.0% | ||||||||
| Interest and other income | 253,689 | 244,724 | 233,096 | 3.7 | 5.0 | 24.7 | 21.4 | 20.1 | |||||||||||
| Total revenues | $ | 1,281,502 | $ | 1,390,932 | $ | 1,393,894 | (7.9%) | (0.2%) | 124.7% | 121.4% | 120.1% | ||||||||
| Costs and expenses: | |||||||||||||||||||
| Cost of sales | $ | 663,981 | $ | 726,055 | $ | 758,546 | (8.5)% | (4.3)% | 64.6% | 63.3% | 65.3% | ||||||||
| Selling, general and administrative | 208,084 | 188,921 | 179,421 | 10.1 | 5.3 | 20.2 | 16.5 | 15.5 | |||||||||||
| Provision for credit losses | 419,230 | 374,559 | 423,406 | 11.9 | (11.5) | 40.8 | 32.7 | 36.5 | |||||||||||
| Interest expense | 74,494 | 70,650 | 65,348 | 5.4 | 8.1 | 7.2 | 6.2 | 5.6 | |||||||||||
| Impairment expense | 11,016 | — | — | 100.0 | — | 1.1 | — | — | |||||||||||
| Depreciation and amortization | 8,207 | 7,647 | 6,871 | 7.3 | 11.3 | 0.8 | 0.7 | 0.6 | |||||||||||
| Loss on extinguishment of debt | 4,476 | — | — | 100.0 | — | 0.4 | — | — | |||||||||||
| (Gain) Loss on disposal of property and equipment | (5) | 299 | 437 | (101.7) | (31.6) | — | — | — | |||||||||||
| Total cost and expenses | $ | 1,389,483 | $ | 1,368,131 | $ | 1,434,029 | 1.6% | (4.6%) | 135.1% | 119.4% | 123.5% | ||||||||
| (Loss) income before taxes | $ | (107,981) | $ | 22,801 | $ | (40,135) | (10.5)% | 2.0% | (3.5)% | ||||||||||
| Operating Data: | |||||||||||||||||||
| Retail units sold | 48,891 | 57,022 | 57,989 | (14.3)% | (1.7)% | ||||||||||||||
| Average dealerships in operation | 146 | 154 | 154 | (5.2) | — | ||||||||||||||
| Average units sold per dealership per month | 27.9 | 30.9 | 31.4 | (9.7) | (1.6) | ||||||||||||||
| Average retail sales price | $ | 20,064 | $ | 19,398 | $ | 19,113 | 3.4 | 1.5 | |||||||||||
| Gross profit per retail unit sold | $ | 7,442 | $ | 7,368 | $ | 6,937 | 1.0 | 6.2 | |||||||||||
| Same store revenue growth | (2.2) | % | (5.0) | % | (1.0) | % | |||||||||||||
| Receivables average yield | 17.3 | % | 16.6 | % | 16.2 | % |
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Fiscal 2026 Compared to Fiscal 2025
Total revenues decreased $109.4 million, or 7.9%, in fiscal 2026 compared to fiscal 2025, primarily as a result of declines in revenues from (i) dealerships that operated a full twelve months in fiscal 2026 ($22.4 million) and (ii) dealerships that were closed during fiscal 2026 ($87.0 million). The Company did not open or acquire any dealerships during fiscal 2026. The overall decline in revenue for fiscal 2026 was primarily due to a 14.3% decline in retail units sold, reflecting the consolidation of 60 dealership locations during fiscal 2026 under the Company's footprint optimization initiative and the Company's constrained access to origination capital, which led it to reduce finance receivable originations and lower inventory levels. The Company does not attribute the decline in units sold to any reduction in underlying customer demand. The impact of lower unit volume was partially offset by a 3.4% increase in the average retail sales price and a 3.7% increase in interest and other income. Interest and other income increased approximately $9.0 million compared to fiscal 2025, reflecting a higher average yield on the finance receivables portfolio—including the effect of risk-based pricing and higher contractual interest rates on more recently originated contracts—notwithstanding a decline in average finance receivables.
The cost of sales as a percentage of total sales increased to 64.6% in fiscal 2026, compared to 63.3% in fiscal 2025, resulting in a gross margin of 35.4% in fiscal 2026. On a reported basis this represents a decrease from 36.7% in fiscal 2025. On a dollar basis, the gross margin per retail unit sold increased by $74 in fiscal 2026 relative to fiscal 2025.
The average retail sales price in fiscal 2026, including ancillary products was $20,064, reflecting an increase of $666 over the prior fiscal year. The average retail sales price of the vehicles themselves, excluding ancillary products, was $17,618, an increase of $303 from the previous fiscal year.
Selling, general and administrative (SG&A) expenses as a percentage of sales increased to 20.2% in fiscal 2026, compared to 16.5% for fiscal 2025. In absolute terms, SG&A expenses rose by $19.2 million from fiscal 2025. This increase was primarily attributable to restructuring charges associated with the Company's footprint optimization initiative in connection with the 60 dealership locations consolidated during the year, as well as professional and advisory fees incurred in connection with the Company's evaluation of strategic alternatives.
The Company recognized impairment expense of $11.0 million in fiscal 2026, compared to none in fiscal 2025. The charge was recorded in connection with the footprint optimization strategy initiated during fiscal 2026, under which the Company consolidated 60 of its dealership locations with nearby higher-performing dealerships. This increase was primarily attributable to impairment associated with the Company's footprint optimization initiative, including $11.0 million of long-lived asset impairment ($7.6 million related to property and equipment and $3.4 million related to right-of-use assets) recognized in connection with the 60 dealership locations consolidated during the year.
Provision for credit losses as a percentage of sales increased to 40.8% for fiscal 2026 compared to 32.7% for fiscal 2025. Net charge-offs as a percentage of average finance receivables increased to 27.6% for fiscal 2026 compared to 25.9% for the prior year. The allowance for credit losses as a percentage of finance receivables, net of deferred revenue and pending accident protection plan claims was 25.15% at April 30, 2026, compared to 23.25% at April 30, 2025. The increases were driven primarily by changes in macroeconomic conditions affecting the Company's customer base, including persistent inflation in essential goods and services.
Interest expense as a percentage of sales increased to 7.2% in fiscal 2026 from 6.2% in fiscal 2025, primarily due to higher average outstanding debt balances during the year, reflecting the Company's revised capital structure and the addition of a new term loan facility during fiscal 2026. The increase in interest expense as a percentage of sales was further impacted by lower overall sales volumes.
Fiscal 2025 Compared to Fiscal 2024
Total revenues decreased $3.0 million, or 0.2%, in fiscal year 2025 compared to fiscal year 2024, primarily as a result of declines in revenue from (i) dealerships that operated a full twelve months in both fiscal years ($68.2 million), and (ii) dealerships that were closed during or after the year ended April 30, 2024 ($18.3 million), which were mostly offset by revenue generated from (iii) dealerships opened or acquired after April 30, 2024 ($83.5 million). The overall decline in revenue for fiscal 2025 was primarily due to a 1.7% decrease in retail units sold, partially offset by a 5.0% increase in interest and other income and a 1.5% increase in the average retail sales price. Interest income increased approximately $11.6 million compared to fiscal 2024, due to the $36.9 million increase in average finance receivables.
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The cost of sales as a percentage of total sales decreased to 63.3% in fiscal 2025, compared to 65.3% in fiscal 2024, resulting in a gross margin of 36.7% in fiscal 2025, which includes a 0.7% benefit from the change in accounting estimate for revenue recognition related to service contracts. This represents an improvement in gross margin from 34.7% in fiscal 2024. On a dollar basis, the gross margin per retail unit sold increased by $431 in fiscal 2025, relative to fiscal 2024. The primary driver of this decrease in the cost of sales was the Company’s sustained efforts in vehicle pricing discipline, reductions in transportation and repair costs, and improvements in vehicle disposal strategies.
The average retail sales price in fiscal 2025, including ancillary products, was $19,398, reflecting an increase of $285 over the prior fiscal year. This increase was largely attributable to a $13.2 million benefit recognized in the second quarter of fiscal 2025 due to the aforementioned change in accounting estimate for service contract revenue recognition. The average retail sales price of the vehicles themselves, excluding ancillary products, rose modestly to $17,315, an increase of $20 from the previous fiscal year, primarily driven by the Company’s focus on maintaining consumer affordability and strategically procuring vehicles through preferred partners.
Selling, general and administrative (SG&A) expenses as a percentage of sales increased to 16.5% in fiscal 2025, compared to 15.5% for fiscal 2024. SG&A expenses are, by nature, relatively fixed. In absolute terms, SG&A expenses rose by $9.5 million from fiscal 2024. This increase is primarily attributable to the Company’s continued investments across several key areas, including senior management, technology, inventory procurement and management, customer experience, and digital initiatives. Additionally, the growth of the Company’s dealership network through acquisitions in the past year contributed to the rise in SG&A expenses.
Provision for credit losses as a percentage of sales decreased to 32.7% for fiscal 2025 compared to 36.5% for fiscal 2024. Net charge-offs as a percentage of average finance receivables decreased to 25.9% for fiscal 2025 compared to 27.2% for the prior year. The Company experienced an improvement in both the frequency and severity of losses. The allowance for credit losses as a percentage of finance receivables, net of deferred revenue and pending accident protection plan claims, was 23.25% at April 30, 2025, compared to 25.32% at April 30, 2024. The primary drivers of this change were continued favorable performance in contracts originated under the Company’s enhanced underwriting standards as well as an increase in the outstanding portfolio balance (excluding acquisitions) originated under the Company’s LOS to approximately 65.7% at April 30, 2025.
Interest expense for fiscal 2025 as a percentage of sales increased to 6.2% in fiscal 2025 from 5.6% in fiscal 2024. The increase in interest expense is primarily due to higher average borrowings in fiscal 2025 ($769.7 million in fiscal 2025 compared to $730.3 million for fiscal 2024) as well as the higher interest rates in 2025. Approximately two-thirds of the increase in interest expense is attributable to the increase in borrowings, and one-third is attributable to the higher interest rates in 2025.
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Financial Condition
The following table sets forth the major balance sheet accounts of the Company at April 30, 2026, 2025 and 2024 (in thousands):
| As of April 30, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2026 | 2025 | 2024 | ||||||||
| Assets: | ||||||||||
| Finance receivables, net of allowance for credit losses | $ | 1,079,167 | $ | 1,180,673 | $ | 1,098,591 | ||||
| Inventory | 54,074 | 112,229 | 107,470 | |||||||
| Income tax receivable, net | 3,524 | — | 2,958 | |||||||
| Property and equipment, net | 42,855 | 56,894 | 60,361 | |||||||
| Liabilities: | ||||||||||
| Accounts payable and accrued liabilities | 67,964 | 70,929 | 49,207 | |||||||
| Deferred revenue | 96,414 | 113,245 | 120,781 | |||||||
| Income tax payable, net | — | 1,451 | — | |||||||
| Deferred income tax liabilities, net | 34,207 | 7,146 | 17,808 | |||||||
| Senior secured notes payable, net | 263,681 | — | — | |||||||
| Non-recourse notes payable, net | 458,685 | 572,010 | 553,629 | |||||||
| Revolving line of credit, net | — | 204,769 | 200,819 |
The following table compares the percentage change in finance receivables to the percentage change in revenue over each of the past three fiscal years. In fiscal year 2026, finance receivables, net of deferred revenue, decreased 5.7%, while revenue decreased 7.9%. These decreases were primarily attributable to constraints on available capital resulting in lower inventory levels, compounded by the closure of 60 dealership locations during the year, which together reduced the volume of vehicles sold and financed.
The weighted average contract term for the portfolio of installment sales contracts at April 30, 2026 was 49.0 months, compared to 48.3 months at April 30, 2025.
| As of April 30, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2026 | 2025 | 2024 | ||||||
| Growth in finance receivables, net of deferred revenue | (5.7) | % | 6.2 | % | 4.9 | % | ||
| Revenue growth | (7.9) | % | (0.2) | % | (0.5) | % |
At fiscal year-end 2026, inventory decreased 51.8%, or $58.2 million, compared to fiscal year-end 2025. The decrease was primarily driven by the Company's liquidity position, which constrained vehicle purchasing and reduced inventory on hand. Additionally, wholesale costs increased, resulting in higher cost per vehicle purchased. The higher per-unit cost, combined with the Company's constrained access to capital and related efforts to manage working capital and liquidity, led to fewer vehicles being carried in inventory relative to the prior year. Annualized inventory turns for fiscal year-end 2026 were 8.0, an increase from 6.6 for the prior year. The Company generally seeks to improve inventory quality while maintaining a sufficient volume and mix of vehicles to meet customer demand. During fiscal 2026, however, constraints on origination capital and liquidity caused the Company to operate with lower inventory levels than demand would otherwise have supported, contributing to the higher turn rate.
Property and equipment, net, decreased by approximately $14.0 million as of April 30, 2026, as compared to fiscal 2025. The Company incurred approximately $1.8 million in expenditures during fiscal year 2026, primarily related to remodeling of existing locations. These expenditures were offset by $8.2 million in depreciation expense and $7.6 million in impairment expense due to the dealership closures during fiscal 2026.
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Accounts payable and accrued liabilities decreased by approximately $3.0 million at April 30, 2026 as compared to April 30, 2025, primarily reflecting lower vendor payables resulting from reduced inventory purchasing following the closure of 60 dealerships in the fiscal year, lower accrued interest payable following the October 2025 repayment of the revolving line of credit, and lower deferred sales tax attributable to reduced retail sales volume, partially offset by higher accrued employee compensation and unearned revenue.
Deferred revenue decreased by $16.8 million as of April 30, 2026, compared to April 30, 2025, as lower retail unit sales and the reduced dealership count led to fewer service contracts and accident protection plans being written while previously deferred amounts continued to be earned.
Deferred tax liabilities, net, increased approximately $27.1 million on April 30, 2026, compared to April 30, 2025, primarily driven by the establishment of a $53.0 million non-cash valuation allowance against Colonial's net deferred tax assets. The valuation allowance eliminated the offsetting benefit of Colonial's deferred tax assets against the Company's consolidated deferred tax liabilities, shifting the consolidated balance sheet position from a net deferred tax asset to a net deferred tax liability. This charge is non-cash in nature and has no impact on the Company's current cash tax obligations or its ability to utilize Colonial's net operating loss carryforwards in future periods should sufficient taxable income be generated.
The Company had non-recourse notes payable, net, in the amount of $458.7 million and $572.0 million as of April 30, 2026 and 2025, respectively. These non-recourse notes issued by the Company accrue interest at fixed rates with a weighted average rate of 6.6% as of April 30, 2026. During fiscal 2026, the Company completed the issuance of asset-backed term funding in May 2025 for $216.0 million, August 2025 for $172.0 million and December 2025 for $161.3 million, the net proceeds of which were used to fund finance receivable originations. See Note G to the Consolidated Financial Statements for further details on the Company's debt facilities.
On October 30, 2025, the Company borrowed $261.9 million, net, under a new five-year senior secured term loan facility with funds managed by Silver Point Capital, L.P., with an outstanding principal balance of $300.0 million as of April 30, 2026. Approximately $162.9 million of the proceeds was used to repay and retire the outstanding balance under the Company's revolving credit facility, with the remainder used for general operating and corporate purposes. The facility is subject to financial and other covenants, as further described in Note B (Liquidity and Going Concern) and Note G to the Consolidated Financial Statements.
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Liquidity and Capital Resources
The following table sets forth certain historical information with respect to the Company’s Statements of Cash Flows (in thousands):
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| Years Ended April 30, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2026 | 2025 | 2024 | ||||||||
| Operating activities: | ||||||||||
| Net (loss) income | $ | (139,111) | $ | 17,932 | $ | (31,393) | ||||
| Provision for credit losses | 419,230 | 374,559 | 423,406 | |||||||
| Losses on claims for accident protection plan | 36,276 | 34,525 | 34,504 | |||||||
| Depreciation and amortization | 8,207 | 7,647 | 6,871 | |||||||
| Amortization of debt issuance costs | 9,424 | 6,200 | 5,139 | |||||||
| Impairment of assets | 11,016 | — | — | |||||||
| Stock based compensation | 3,722 | 4,708 | 4,174 | |||||||
| Deferred income taxes | 27,061 | (10,662) | (21,507) | |||||||
| Finance receivable originations | (952,451) | (1,075,080) | (1,079,946) | |||||||
| Finance receivable collections | 477,730 | 469,379 | 455,828 | |||||||
| Accrued interest on finance receivables | (597) | (525) | (792) | |||||||
| Inventory | 180,287 | 114,573 | 139,186 | |||||||
| Accounts payable and accrued liabilities | (2,828) | 17,616 | (9,338) | |||||||
| Deferred accident protection plan revenue | (6,518) | (378) | (1,229) | |||||||
| Deferred service contract revenue | (10,313) | (7,158) | 1,540 | |||||||
| Income taxes, net | (4,975) | 4,409 | 6,301 | |||||||
| Other | 8,799 | (6,509) | (6,642) | |||||||
| Net cash provided by (used in) operating activities | $ | 64,959 | $ | (48,764) | $ | (73,898) | ||||
| Investing activities: | ||||||||||
| Acquisition | $ | — | $ | (7,527) | $ | (4,815) | ||||
| Purchases of property and equipment | (1,810) | (3,890) | (6,146) | |||||||
| Proceeds from sale of property and equipment | 289 | 42 | 316 | |||||||
| Net cash provided by (used in) investing activities | $ | (1,521) | $ | (11,375) | $ | (10,645) | ||||
| Financing activities: | ||||||||||
| Exercise of stock options | $ | — | $ | — | $ | (455) | ||||
| Issuance of common stock | 218 | 74,106 | 282 | |||||||
| Purchase of common stock | (297) | (434) | (365) | |||||||
| Dividend payments | (40) | (40) | (40) | |||||||
| Change in cash overdrafts | (1,289) | 466 | 823 | |||||||
| Debt issuance costs | (20,252) | (9,006) | (5,897) | |||||||
| Non-recourse notes payable, net | (113,821) | 18,558 | 83,381 | |||||||
| Revolving line of credit, net | (207,098) | 6,579 | 33,227 | |||||||
| Loss on extinguishment of debt | (1,750) | — | — | |||||||
| Proceeds from senior secured notes payable | 288,000 | — | — | |||||||
| Net cash provided by (used in) financing activities | $ | (56,329) | $ | 90,229 | $ | 110,956 | ||||
| Increase in cash, cash equivalents, and restricted cash | $ | 7,109 | $ | 30,090 | $ | 26,413 |
The primary drivers of the Company's operating results and cash flows are (i) sales volume, (ii) interest income on finance receivables, (iii) gross margin on vehicle sales, and (iv) credit losses, a significant portion of which relates to the collection of principal on finance receivables. Historically, most or all of the cash generated from operations has been used to fund growth in finance receivables, capital expenditures, and, when applicable, common stock repurchases, with any
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excess of these uses over cash from operations funded through borrowings and the issuance of asset-backed non-recourse notes. In recent quarters, the Company's available liquidity has been constrained principally due to the amortization structure of its outstanding asset-backed securitization trusts, together with the restrictive covenants under the Company's senior secured term loan and the Company’s inability, to date, to secure a revolving warehouse credit facility or other financing. The Company collects a significant amount of payments each month from customers, consisting of principal, interest, and fee payments on its finance receivables portfolio, but under the accelerated amortization structure that applies to most of its outstanding securitizations, a significant amount of those collections is paid directly to the trusts to retire outstanding non-recourse notes, leaving a reduced amount available to the Company to fund vehicle inventory purchases, finance receivable originations, and other operating needs. A revolving credit or warehouse facility would allow the Company to draw against the facility to fund operations and bridge the difference between the collections retained by the trusts and the Company's near-term funding needs. Without a revolving facility, the Company has had to rely on the reduced pool of collections it retains after trust paydowns, together with cash on hand.
Net cash provided by operating activities in fiscal 2026 compared to net cash used in fiscal 2025 reflected the Company's efforts to preserve capital and liquidity, including (i) a reduction in finance receivable originations, which deployed less cash into new loans, (ii) a drawdown of inventory, which preserved cash as inventory was not replenished, (iii) higher finance receivable collections, and (iv) an increase in deferred income taxes, partially offset by (v) the net loss for the year. Net finance receivables decreased by $101.5 million from April 30, 2025 to April 30, 2026.
The purchase price the Company pays for a vehicle has a significant effect on its liquidity and capital resources, as selling prices are largely tied to acquisition costs. Higher purchase costs generally require higher selling prices, which can make it more difficult to maintain gross margin percentages and contract terms consistent with historical results, given customers' limited incomes and the need to keep payments affordable. During fiscal 2026, the effect of vehicle acquisition costs on liquidity was magnified by the Company's constrained access to origination capital. Because each vehicle purchased consumed a greater share of the Company's available capital, higher per-unit costs further limited the volume of vehicles the Company could purchase, finance, and carry in inventory, contributing to the reduction in finance receivable originations and retail units sold during the year. Several external factors influence acquisition costs, including reduced volumes of new car sales—particularly of domestic brands—which constrain used-vehicle supply, and broader economic conditions, which affect auction and wholesale activity. Tariffs imposed on the automotive industry have also increased procurement costs, and future tariffs, trade restrictions, or declines in new car sales could further increase vehicle costs or make sourcing more difficult. Sustained macroeconomic pressure on the Company's customers has kept demand elevated for the types of vehicles the Company sells, and this demand, combined with modest new-vehicle sales in recent years, has contributed to a generally tight supply of used vehicles in both quality and quantity. The Company expects tight used-vehicle supply, elevated demand, and ongoing tariff uncertainty to keep purchase costs, and resulting sales prices, elevated in the near term.
The Company has worked to enhance its purchasing processes to secure an adequate supply of vehicles at competitive prices, including through a strategic partnership with an industry participant, the expansion of purchasing territories into larger cities near its dealerships, and relationships with reconditioning partners intended to reduce procurement costs. The Company has also strengthened accountability for its purchasing agents through updated sourcing and pricing guidelines and continues to develop relationships with national vendors capable of supplying high-quality vehicles in volume. During fiscal 2026, these efforts took on added importance as the Company sought to maximize the quality and value of each vehicle acquired within the limits of its available origination capital, prioritizing vehicle quality and procurement efficiency to make the most effective use of the capital deployed.
The Company's liquidity and operating capital are also influenced by its credit losses. Macroeconomic factors, such as unemployment and general inflation affecting both essential and discretionary goods, can significantly affect collection results and, consequently, credit losses. As customers continue to face rising costs for non-discretionary items such as childcare, insurance, groceries, and fuel, their ability to meet vehicle payment obligations may be strained, and these pressures contributed to the elevated credit losses the Company experienced in fiscal 2026. To mitigate these risks, the Company has continued to make refinements to its underwriting standards to improve the credit quality of new originations. The Company has also enhanced its collections infrastructure, including an upgraded payments platform that offers customers multiple payment options and has facilitated a shift toward online payments, which is intended to support more consistent payment behavior. During fiscal 2026, the Company also began transitioning to a centralized collections model designed to improve consistency and efficiency while preserving the individualized, dealership-level customer engagement that management views as central to effective collections.
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The Company's cash from operations and liquidity are further impacted by the Company's operating lease commitments. The Company’s business model relies on leasing the majority of the properties where its dealerships are located. As of April 30, 2026, the Company leased approximately 83% of its dealership properties. The $62.1 million of operating lease commitments includes $21.3 million of non-cancelable lease commitments under the lease terms and $40.8 million of lease commitments for renewal periods at the Company’s option that are reasonably assured. In connection with the consolidation of 60 dealership locations under the Company's footprint optimization initiative during fiscal 2026, the Company recognized $3.4 million of impairment related to the operating lease right-of-use assets associated with the closed properties. The Company expects to continue to lease the majority of the properties where its dealerships are located.
The Company's principal sources of liquidity currently include cash on hand, cash flows from operations (including collections on finance receivables), and proceeds from non-recourse notes payable issued under its asset-backed securitization transactions. At April 30, 2026, the Company had approximately $47.0 million of cash and cash equivalents. On October 30, 2025, the Company entered into a $300.0 million senior secured term loan and used a portion of the proceeds to repay and retire its revolving line of credit, which is no longer available as a source of liquidity.
The senior secured term loan requires the Company to comply with financial and other covenants. The Company was in compliance with these covenants at April 30, 2026. Subsequent to year-end, the Company failed to comply with the minimum liquidity and minimum collateral coverage ratio covenants, with anticipated continued noncompliance with those covenants at future measurement dates (absent additional relief), and anticipated that it would fail to comply with the requirement to deliver audited financial statements for fiscal 2026 without a going concern qualification. The Company obtained a series of short-term waivers of these defaults and anticipated defaults from its lenders. On June 19, 2026, the Company entered into an amendment providing covenant relief for a limited period through September 7, 2026, subject to the Company's satisfaction of specified milestones and conditions and the possibility to extend the relief period. The milestones include (i) establishing and maintaining a special committee of independent directors of the Board of Directors, (ii) delivering a collateral and performance forecast to the lenders on a weekly basis, (iii) commencing and progressing a marketing process to explore potential financing, recapitalization, restructuring, or other strategic transactions, and (iv) entering into a support agreement with the administrative agent and the requisite lenders. The amendment provides covenant relief through September 7, 2026, subject to automatic extension through September 21, 2026 and November 6, 2026 only if specified conditions are satisfied, and requires the Company to comply with revised financial covenants during the relief period, including minimum liquidity of $7.0 million as of each Friday and $5.0 million at all other times and a minimum collateral coverage ratio of 1.25 to 1.00 as of June 30, 2026 and 1.20 to 1.00 as of each month-end thereafter, as well as enhanced weekly and monthly reporting obligations (including a 13-week cash flow budget) and restrictions on taking certain material actions without specified approvals. The Company also agreed to pay fees to the lenders of up to $18.0 million in connection with the amendment and related waivers.
If the Company fails to satisfy the covenants, milestones and conditions under the senior secured term loan and the June 19, 2026 amendment, or is unable to obtain further covenant relief, waivers, or financing before the relief period expires, the lenders would be entitled to accelerate the outstanding indebtedness, which could trigger cross-default or cross-acceleration provisions under the Company's other financing arrangements. The Company would not have sufficient liquidity to repay such indebtedness if it were accelerated. See Note B (Liquidity and Going Concern) to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
During fiscal 2025, the Company amended its revolving credit agreement on several occasions to, among other things, permit a $150.0 million amortizing warehouse loan facility, adjust permitted borrowings and the fixed charge coverage ratio covenant, and reduce its permitted capital expenditures. Pursuant to these amendments, the Company borrowed $150.0 million from a separate lender in July 2024 under an amortizing warehouse loan agreement backed by a portion of the Company’s finance receivables, which the Company used primarily to pay down its then outstanding balance under the revolving line of credit. The Company fully repaid the warehouse loan facility in October 2024. In connection with the amendments to the revolving credit agreement, the Company also applied the $73.8 million of net proceeds from its second-quarter fiscal 2025 common stock offering to reduce the outstanding balance under the revolving line of credit, and it agreed to restrictions on the payment of dividends and the repurchase of its common stock. On October 30, 2025, the Company repaid and retired the revolving line of credit using a portion of the proceeds from its senior secured term loan. As a result, the revolving line of credit and the warehouse loan facility are no longer available to the Company, and no amounts were outstanding under either facility at April 30, 2026. However, the Company remains restricted from paying dividends or repurchasing its common stock under its current financing arrangements.
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The Company's plans are focused on (i) maintaining efficient operations, (ii) managing the size and composition of its finance receivables portfolio in light of available liquidity, and (iii) reducing outstanding debt. The Company is pursuing additional liquidity through potential financing sources, including additional securitized borrowings, warehouse facilities, other debt or equity arrangements, and potential strategic transactions. However, there can be no assurance that any such financing will be available on acceptable terms, or at all, and these plans have not alleviated the substantial doubt about the Company's ability to continue as a going concern within one year after the date these financial statements are issued. See Note B (Liquidity and Going Concern) to the Consolidated Financial Statements.
Off-Balance Sheet Arrangements
The Company has standby letters of credit relating to insurance policies totaling $4.5 million at April 30, 2026.
Other than its letters of credit, the Company is not a party to any off-balance sheet arrangement that management believes is reasonably likely to have a current or future effect on the Company’s financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Related Finance Company Contingency
Car-Mart of Arkansas and Colonial do not meet the affiliation standard for filing consolidated income tax returns, and as such they file separate federal and state income tax returns. Car-Mart of Arkansas routinely sells its finance receivables to Colonial at what the Company believes to be fair market value and is able to take a tax deduction at the time of sale for the difference between the tax basis of the receivables sold and the sales price. These types of transactions, based upon facts and circumstances, have been permissible under the provisions of the Internal Revenue Code as described in the Treasury Regulations. For financial accounting purposes, these transactions are eliminated in consolidation, and a deferred income tax liability has been recorded for this timing difference. The sale of finance receivables from Car-Mart of Arkansas to Colonial provides certain legal protection for the Company’s finance receivables and, principally because of certain state apportionment characteristics of Colonial, also has the effect of reducing the Company’s overall effective state income tax rate. The actual interpretation of the Regulations is in part a facts and circumstances matter. The Company believes it satisfies the material provisions of the Regulations. Failure to satisfy those provisions could result in the loss of a tax deduction at the time the receivables are sold and have the effect of increasing the Company’s overall effective income tax rate as well as the timing of required tax payments.
The Company’s policy is to recognize accrued interest related to unrecognized tax benefits in interest expense and penalties in operating expenses. The Company had no accrued penalties or interest as of April 30, 2026.
Critical Accounting Estimates
The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States of America requires the Company to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the Company’s estimates. The Company believes the most significant estimate made in the preparation of the Consolidated Financial Statements in Item 8 relates to the determination of its allowance for credit losses, which is discussed below. The Company’s accounting policies are discussed in Note C to the Consolidated Financial Statements in Item 8.
The Company maintains an allowance for credit losses on an aggregate basis at a level it considers sufficient to cover estimated losses expected to be incurred on the portfolio at the measurement date in the collection of its finance receivables currently outstanding. At April 30, 2026, the weighted average contract term was 49.0 months with 35.4 months remaining. At April 30, 2025, the weighted average total contract term was 48.3 months with 35.9 months remaining. The allowance for credit losses at April 30, 2026, $329.9 million, was 25.15% of the principal balance in finance receivables of $1.4 billion, less unearned accident protection plan revenue of $44.9 million, unearned service contract revenue of $51.5 million, and pending APP claims of $4.7 million. The allowance for credit losses at April 30, 2025, $323.1 million, was 23.25% of the principal balance in finance receivables of $1.5 billion, less deferred APP revenue of $51.5 million, deferred service contract revenue of $61.8 million, and pending APP claims of $6.2 million. The Company increased the allowance for credit losses as a percentage of finance receivables from 23.25% at April 30, 2025 to 25.15% at April 30, 2026.
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The allowance for credit losses represents the Company’s expectation of future net charge-offs at the measurement date. The allowance takes into account quantitative and qualitative factors such as historical credit loss experience, with consideration given to changes in contract characteristics (i.e., customer interest rates, credit deterioration and delinquency rates), current and forecasted inflationary economic conditions, amongst others. The allowance for credit losses is reviewed at least quarterly by management with any changes reflected in current operations.
The allowance for credit losses is a critical accounting estimate for the following reasons:
•estimates relating to the allowance for credit losses require management to project future loan performance, including cash flows, prepayments, and charge-offs;
•the allowance for credit losses is influenced by factors outside of management’s control such as industry and business trends, geopolitical events and the effects of laws and regulations as well as economic conditions including, but not limited to, inflation; and
•judgment is required to evaluate whether the model used to generate the allowance for credit losses, which is then adjusted for changes in customer interest rates, credit deterioration and delinquency rates, as well as the expected effects from current and forecasted inflation, produces an allowance that appropriately reflects a current estimate of lifetime expected credit losses.
Because management’s estimate of the allowance for credit losses involves a high degree of qualitative judgment, such as the subjectivity of the assumptions used, there is uncertainty inherent in such estimates. Changes in these estimates could significantly impact the allowance and provision for credit losses.
Recent Accounting Pronouncements
Occasionally, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies which the Company will adopt as of the specified effective date. Unless otherwise discussed, the Company believes the implementation of recently issued standards which are not yet effective will not have a material impact on its Consolidated Financial Statements upon adoption.
In October 2023, the FASB issued an accounting pronouncement (ASU 2023-06) related to disclosure or presentation requirements for various subtopics in the FASB’s Accounting Standards Codification (“Codification”). The amendments in the update are intended to align the requirements in the Codification with the U.S. Securities and Exchange Commission’s (“SEC”) regulations and facilitate the application of GAAP for all entities. The effective date for each amendment is the date on which the SEC removal of the related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, or if the SEC has not removed the requirements by June 30, 2027, this amendment will be removed from the Codification and will not become effective for any entity. Early adoption is prohibited. We do not expect this update to have a material impact on our Consolidated Financial Statements.
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income (Subtopic 220-40): Disaggregation of Income Statement Expenses. This standard requires public business entities to provide enhanced disclosures of certain natural expense categories within relevant income statement captions. The guidance is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. The Company is currently evaluating the impact of this standard on its financial statement disclosures. This ASU will likely result in additional disclosures being included in the Company's Consolidated Financial Statements once adopted.
In September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. The standard updates the capitalization criteria for internal-use software and requires related disclosures to be provided under ASC 360. The guidance is effective for annual periods beginning after December 15, 2027. The Company is currently evaluating the impact of this standard on its financial statement disclosures.
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