CarMax's profit beat offsets revenue miss, as stock rises

By Steve Gelsi

Sales fall in latest quarter, but company is encouraged by more affordable prices

CarMax Inc.'s stock was up 3% on Friday despite weakness in the broad equities market after the used-car seller's first-quarter profit was stronger than expected, although its sales fell and missed estimates.

The company purchased fewer cars from consumers and instead leaned into the dealer network, while total unit sales fell. The average selling price for its used vehicles fell by 2.7% to $26,526.

CarMax's (KMX) net income for the three months ending May 31 dropped by about one-third to $152.4 million, or 97 cents a share, from $228.3 million, or $1.44 a share, in the year-ago period, which included a legal-settlement payment of 28 cents a share.

The FactSet consensus estimate for CarMax was for a profit of 95 cents a share.

Revenue dropped by 7.5% to $7.11 billion, from $ 7.69 billion in the year-ago quarter, and missed the analyst estimate of $7.16 billion.

CarMax reported a 3.1% drop in retail used-unit sales, while comparable store unit sales declined by 3.8%.

CarMax's purchases of cars from consumers dropped by 13.7% to 279,000 vehicles, while purchases from dealers rose by 70.8% to 35,000.

Total wholesale revenues dropped by 17% as the average wholesale selling price fell by $900 per unit, or 10.3%. The number of wholesale units also fell.

Looking ahead, CarMax said it is encouraged by first-quarter trends such as "continued year-over-year price declines, improvements in vehicle value stability, and ongoing growth in upper funnel demand."

The company said it expects "incremental growth" in its financing income after it launched its first nonprime asset-backed-securitization deal as part of an expansion in its securitization program, Chief Executive Bill Nash said.

CarMax also bought back $100 million in stock during the quarter.

CFRA analyst Garrett Nelson reiterated a hold rating on CarMax and said he's recommending investors remain on the sidelines given current market conditions.

"The stock's risk/reward remains fairly balanced at current levels and investors should remain patient, waiting for clearer signs of improvement in used car market fundamentals," Nelson said.

Prior to Friday's moves, CarMax's stock had fallen 7% in 2024, compared with a 14.8% gain by the S&P 500 SPX.

-Steve Gelsi

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06-21-24 0953ET

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