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CarMax: Is There a Silver Lining to the Earnings Car Wreck?

CarMax Auto Dealership sign

Key Points

  • CarMax shares suffered a 9.2% drop on its fiscal Q4 2024 earnings report, marking its first EPS miss since fiscal Q2 2023.
  • CarMax is suffering from falling used car prices that aren't up-ticking consumer demand as affordability remains a top challenge driven by high interest rates and low consumer confidence.
  • CarMax unit sales rose on the retail front and the CEO is confident they will accelerate market share growth as used car affordability improves with deflation and as vehicle values stabilize.
  • 5 stocks we like better than CarMax

CarMax Inc. NYSE: KMX is a nationwide used car dealership focused on providing a haggle-free, streamlined and convenient vehicle buying and selling experience for customers. CarMax built its reputation on its no-haggle listed price policy. Customers pay the sticker price listed on the car as the negotiation process is eliminated, providing a time-saving and stress-free process. The auto/tires/trucks sector company provides repairs, maintenance service plans, financing and a money-back guarantee for its vehicles.

CarMax Owns Its Stores and Doesn’t Franchise

CarMax has 248 company-owned locations and over 60,000 vehicles searchable online. The average CarMax location is around 59,000 square feet and has 300 to 400 used and reconditioned cars in inventory. The company competes with AutoNation Inc. NYSE: AN, Carvana Inc. NYSE: CVNA and Vroom Inc. NASDAQ: VRM.

The Pandemic Reopening Hangover

During the pandemic and reopening, car dealerships couldn't keep enough inventory in stock as the supply chain disruption and chip shortage surged the used car business. This sent CarMax shares up to a high of $155.98 in November 2021. However, the hangover effect continues to this day as inventory glut, weak macroeconomic conditions, tightening consumer spending and high-interest rates shudder customer demand. Despite used car prices falling thanks to deflation, it hasn’t up ticked demand for them.

Car Wreck Earnings

CarMax Today

CarMax, Inc. stock logo
KMXKMX 90-day performance
CarMax
$72.57
-0.25 (-0.34%)
(As of 05/20/2024 ET)
52-Week Range
$59.66
$88.22
P/E Ratio
23.95
Price Target
$77.42


Investors panicked out of CarMax shares after the company reported a sales miss and its first earnings shortfall since fiscal Q3 2023. CarMax reported fiscal Q4 2024 EPS of 32 cents, missing consensus estimates by 13 cents. Revenues fell 1.7% YoY to $5.63 billion, missing the $5.76 billion consensus estimates. Retail used unit sales rose 1.3%, and comparable stored, used units rose 0.1% from the year-ago period.

Wholesale units fell 4% YoY. The company earned $2,251 gross profit per retail used unit and $1,120 gross profit per wholesale unit, which are both down from the year-ago period. CarMax bought back 685,600 shares for $49.3 million in the quarter at $71.97 per share.

Vehicle Stats

CarMax sold 287,603 vehicles combined between retail and whole units, which fell 0.9% YoY. Total retail used car sales rose 1.3% YoY to 172,057. Comparable store used unit sales rose 0.1% YoY.

Widespread inflationary pressures aggravated ongoing vehicle affordability challenges, which impacted unit sales performance. High interest rates, low consumer confidence and tighter lending standards were the main levers. The average cost of a car fell $600 per unit, which upticked retail volume but still resulted in a 0.7% drop, eroding margins as gross profit fell 4.1% to $586.2 million.

CarMax purchased 234,000 vehicles from dealers and customers, down 10.8% from the year-ago period. Purchases from dealers rose 44.8% YoY to 21,000, and purchases from customers fell 14.1% YoY to 213,000 vehicles. The silver lining is that the cost to purchase vehicles also fell, causing used vehicle gross profit to inch up by 0.1% to $2,251 on the retail front. A whole gross profit drop of 9.4% meant an average $67 per unit decline to $1,120.

Auto Finance Income

CarMax Auto Finance income rose 18.9% YoY, generating $147.3 million, thanks to lower loan loss provisions, tighter lending standards and an average increase in managed receivables. The net interest margin compressed to 5.9%, consistent with Q3.

Online Sales and Falling EPPs

The company saw a 3.7% drop in other revenues stemming from a $6.2 million fall in extended protection plans (EPP) revenues. Online retail sales made up 14% of retail unit sales, generating $1.7 billion or 30% of net revenues in Q4 2024.

Store Openings

CarMax opened 4 new locations in the fourth quarter, including 2 in New York and 1 in Los Angeles and Chicago each. This brings the total store count to 245 as of Feb. 29, 2024. It opened its first standalone reconditioning center for the Atlantic market in the quarter. For fiscal 2025, CarMax plans to open 5 new locations, a second stand-alone reconditioning center and a single stand-alone auction facility. Capex spending is projected to be between $500 million to $550 million.

Long-Term Targets Pushed Back

Its long-term plan is to sell 2 million combined retail and wholesale units annually between fiscal 2026 and fiscal 2030 and 33 billion in annual revenues. The time was extended due to uncertainty in timing the market recovery. This is what tipped CarMax shares to drop 9%. CarMax hopes to achieve more than a 5% market share of age 0 to 10 year used vehicles sooner than expected. Interest rate cuts can be a key driver for consumer demand.

KMX stock price

Daily Descending Triangle  

The KMX daily candlestick chart illustrates a descending triangle pattern. The upper descending trendline formed at the $88.22 swing high on March 28, 2024, capping each bounce at a lower high. KMX attempted to break out above the descending trendline heading into fiscal Q4 2024 earnings but gapped down on the results to reenter the triangle. The flat-bottom lower trendline is at $68.34, which is being tested by KMX shares. The daily relative strength index (RSI) has been moving sideways, just below the oversold 30-band. The pullback support levels are at $66.86, $62.90, $59.77 and $54.85.

 

CEO Points Out the Silver Lining

CarMax CEO Bill Nash pointed out the company recorded its fifth straight quarter of sequential retail used unit growth and reported growth in total used unit sales and comps. Nash stated, “We delivered strong retail and wholesale GPUs. We increased used saleable inventory units by more than 10% while holding used total inventory units flat year-over-year.”

 

Nash remains confident in their ability to accelerate market share growth as used car affordability improves and vehicle values stabilize. Nash added, “We continue to manage our SG&A actively, and we grew CAF income significantly as we delivered a substantial reduction in the provision for loan losses year-over-year while maintaining stable net interest margins sequentially."

CarMax analyst ratings and price targets are at MarketBeat.

 

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
CarMax (KMX)
3.7648 of 5 stars
$72.57-0.3%N/A23.95Hold$77.42
Carvana (CVNA)
3.2116 of 5 stars
$117.50flatN/A51.54Hold$77.60
AutoNation (AN)
1.8204 of 5 stars
$170.57-0.2%N/A8.09Moderate Buy$178.88
Vroom (VRM)
0 of 5 stars
$11.65+4.3%N/A-0.06N/A
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Jea Yu

About Jea Yu

  • JeaYu21@gmail.com

Contributing Author

Trading Strategies

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Jea Yu has been a contributing writer for MarketBeat since 2018.

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Equities, options, ETFs and futures; fundamental, qualitative, quantitative and technical analysis and pattern identification; active and swing trading; trading systems and methodology development

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Bachelor of Arts, University of Maryland, College Park

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U.S. equity markets trader, writer and analyst for over 25 years. Published four books by publishers McGraw-Hill, John Wiley & Sons, Marketplace Books and Bloomberg Press. Speaker at various expos and seminars and has been quoted and featured in USA Today, The Wall Street Journal, Traders Magazine, The Financial Times and various trade publications, including Stocks & Commodities, Active Trader and Online Investor.


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