America's Car-Mart increases its gross margin

Gate (NASDAQ:GT) reported fiscal first quarter results for 2026 for the period ending July 31, 2025, with a gross margin that expanded 160 basis points year-over-year to 36.6%, interest income that increased 7.5% year-over-year, and unit volumes that declined 5.7% year-over-year amid cost inflation and capital constraints. The quarter was characterized by improvements in securitization financing, the deployment of a new loan origination system (LOS V2) that now covers nearly 72% of accounts receivable, and strong early adoption of digital collection tools. The following points highlight strategic improvements, risks stemming from limits on inventory financing, and changes in the credit mix of the portfolio that shape the long-term thesis.

The gross margin rises as disciplined pricing supports Gate

Total (GAAP) revenue decreased 1.9% year-over-year to $341.3 million, primarily due to lower unit sales, while the average selling price excluding ancillary products declined $144 year-over-year despite a $500 per unit increase in acquisition costs. Improvements in ancillary product prices and tighter subscription controls contributed to the 160 basis point increase in gross margin, supported further by a lower frequency of losses on higher-quality loans.

“Combined with strong linkage rates and disciplined vehicle pricing, these actions contributed to the gross margin improving to 36.6, an increase of 160 basis points compared to the same quarter last year. The gross margin also benefited from better wholesale retention, as well as favorable trends in post-sale vehicle repairs, both in frequency and severity.”

– Jamie Z. Fischer, COO

This margin expansion demonstrates the company’s ability to maintain profitability despite inflationary pressures and declining unit volumes, underscoring operational flexibility in a challenging environment.

Capital facility limits restrict Gate’s inventory growth

Post-pandemic wholesale vehicle price inflation and a fixed limit of $30 million with a 30% advance rate on the revolving credit line have created a binding constraint on working capital and inventory expansion. Despite strong customer demand, these restrictions reduce the ability to increase sales during periods of elevated acquisition costs and surpass traditional inventory loan structures in the sector.

“Currently, we face a 30% advance rate and a $30 million cap on our inventory advances under our revolving credit line. While these limits have existed in the past, the significant increase in vehicle prices since COVID has amplified their impact, exerting ongoing pressure on our ability to expand retail sales and manage working capital efficiently. We are actively exploring alternative financing solutions to address these constraints and unlock additional capacity to meet qualified customer demand.”

– Jonathan Collins, CFO

Unless alternative inventory financing is secured, these capital restrictions risk limiting short-term sales growth and could weaken the competitive position while vehicle prices remain high.

Gate shifts originations toward higher credit quality

The origination mix tilted toward higher credit levels, with 15% more volume from the five-to-seven customer tiers, and reserves in lower tiers decreased by nearly 50%. Credit applications increased 10% year-over-year, and the average FICO score at origination rose 20 points year-over-year from fiscal first quarter 2025 to fiscal first quarter 2026, reinforcing the weighted average portfolio quality to 72% under the new underwriting standards.

“With LOS V2 now live across our footprint, risk-based pricing incorporated is now better aligning expected yields with customer profiles. The new scoring system is delivering exactly what we designed it to do, shifting the mix toward our higher-tier customers and moving away from lower levels. During the quarter, 15% more of our volume came from the five-to-seven tiers, while reserves in some of our lower tiers decreased by nearly 50%.”

– Douglas Campbell, President and CEO

This deliberate portfolio update improves long-term credit performance and future cash flow visibility while reducing risk exposure during economic recessions.

Looking ahead

Management expects roughly half of the elevated SG&A increase to reverse in the second half of fiscal 2026, targeting mid-teens SG&A as a percentage of retail sales driven by technology-enabled efficiencies, including Pay Your Way. The company is actively seeking alternative inventory financing solutions but did not provide specific quantitative sales guidance for upcoming quarters. Leadership remains focused on growing with quality credit, modernizing collections, and ensuring that future sales are driven by demand, not financing limitations.