CarMax (NYSE: KMX) shares have dropped by 11.7% this week as of Thursday’s close, according to data from S&P Global Market Intelligence. The decline follows the used vehicle retailer’s announcement of disappointing quarterly results and the postponement of a crucial long-term vehicle sales target.
On CarMax’s underwhelming quarter
For CarMax’s fiscal fourth quarter ending Feb. 29, revenue saw a 1.7% decrease year over year to $5.63 billion. The net earnings amounted to $50.3 million, or $0.32 per share, marking a 27.3% decline from $0.44 per share in the same period last year. Analysts, with an average estimate of earnings at $0.46 per share, had projected revenue closer to $5.81 billion.
Retail used unit sales experienced a 1.3% year-over-year growth, while used unit comparable-store sales showed a modest 0.1% increase. Wholesale units, however, decreased by 4%.
During the quarter, CarMax purchased 234,000 vehicles from consumers and dealers, down 10.8% year over year from the historically strong fourth quarter of the previous year. Of these vehicles, 213,000 were acquired from consumers (down 14.1% year over year), while the number purchased from dealers increased by 44.8% compared to the previous fourth quarter, totaling 21,000.
Meanwhile, CarMax Auto Finance (CAF) saw an 18.9% year-over-year increase in income, reaching $147.3 million, primarily due to a lower provision for loan losses as the company tightened its lending standards.
CarMax CEO Bill Nash expressed encouragement regarding the company’s performance to conclude the fiscal year, emphasizing the growth in used unit sales and comparable sales.
What’s next for CarMax investors?
Nash further remarked, “Our focus and progress have solidified our foundation, making it stronger than ever, and we are well positioned for the future.”
During the subsequent conference call, Nash elucidated that despite the decline in vehicle prices, sustained high interest rates have increased pressure on consumers, impacting their spending on essentials like food and housing. This ripple effect has affected CarMax’s business.
Consequently, CarMax has postponed its previous target of selling over 2 million combined retail and wholesale units annually to a timeframe between fiscal 2026 and fiscal 2030. Previously, the company aimed to achieve this goal by 2026.
This doesn’t imply that CarMax is a failing enterprise. However, this quarter marked incremental disappointment compounded by the postponement of a critical long-term objective. It’s unsurprising to witness CarMax stock retracting in response.
