CarMax Q2 Review

• RBC Capital upgraded CarMax, Inc. (NYSE:KMX) to "Outperform" with a price target increase from $99 to $103.
• The stock has shown a 10% increase over the past year, with significant volatility in its price range.
• Despite stable gross margins, CarMax faces risks from potential credit losses and high valuation.

CarMax, Inc. (NYSE:KMX) is a leading retailer of used vehicles in the United States. The company operates through two segments: CarMax Sales Operations and CarMax Auto Finance. CarMax Sales Operations is responsible for the sale of used vehicles, while CarMax Auto Finance provides financing solutions to customers. The company competes with other used car retailers like AutoNation and Carvana.

On December 20, 2024, RBC Capital upgraded CarMax's stock to "Outperform," with a price target increase from $99 to $103. At the time, the stock was priced at $84.23. This upgrade suggests confidence in CarMax's future performance, despite the stock being considered overvalued, trading at 23 times earnings, as highlighted by RBC Capital.

CarMax shares have risen by 10% over the past year, with the current price reflecting a 3.45% increase, or $2.81, from the previous day. The stock has fluctuated between $82.99 and $91.25 today, with $91.25 being the highest price in the past year. The lowest price in the past year was $65.83, indicating significant volatility.

Despite stable gross margins and disciplined spending, CarMax faces risks from potential credit losses and high valuation. The company's financing division has tightened credit standards, but concerns remain about existing loan delinquencies and low reserve rates. These factors contribute to the "sell" rating, despite the recent upgrade by RBC Capital.

CarMax's market capitalization stands at approximately $13.05 billion, with a trading volume of 5,311,802 shares today. The company's financial health and market position are crucial for investors to consider, especially given the current valuation and potential risks associated with its financing operations.

CarMax (NYSE:KMX) shares dropped over 6% in pre-market today despite the used vehicle retailer reporting stronger-than-expected revenue for fiscal Q2 2025.

The company posted quarterly earnings per share (EPS) of $0.85, aligning with analyst expectations. Net sales and operating revenue reached $7.01 billion, surpassing the Street estimate of $6.82 billion.

Used vehicle sales totaled $5.68 billion, marking a 1.5% year-over-year increase and beating the projected $5.44 billion. However, wholesale vehicle sales fell 13% year-over-year to $1.15 billion, slightly below the expected $1.2 billion.

CarMax President and CEO Bill Nash highlighted the company's ability to grow retail used unit sales, maintain strong margins, manage SG&A expenses, and achieve double-digit earnings growth, despite challenges from industry-wide auto loan loss pressures.

CarMax (NYSE:KMX) reported a significant drop in first-quarter profit, with a 33% decline due to continued pressure on vehicle margins in the used-vehicle market. The company posted a net income of $152.4 million, or 97 cents per share, for Q1, down from $228.3 million, or $1.44 per share, in the same period last year.

Revenue also fell short of expectations, coming in at $7.11 billion compared to the consensus estimate of $7.2 billion.

CarMax's first-quarter performance was further marked by a 3.1% decline in retail used unit sales and a 3.8% drop in comparable store used unit sales from the previous year. Wholesale units saw an 8.3% decrease compared to the first quarter of the prior year. Despite these declines, gross profit per retail used unit remained steady at $2,347, matching last year's figures, while gross profit per wholesale unit hit a record high of $1,064.

CarMax Inc. (NYSE:KMX) is set to release its earnings report for the first quarter of fiscal 2025 on June 21, before the market opens. As a leading used car dealership chain in the United States, CarMax operates in a competitive market, facing challenges from both traditional dealerships and emerging online platforms that offer vehicle sales and purchases. The company's performance is closely watched by investors as an indicator of consumer spending trends in the automotive sector.

Analysts have adjusted their expectations for CarMax, setting the Zacks Consensus Estimate for the quarter's earnings at $1.02 per share and revenues at $7.23 billion. These figures represent a downward revision of 6 cents for earnings over the last 60 days and indicate a year-over-year decrease of 12% in earnings and a 6% decline in revenues. This adjustment reflects a nuanced perspective on CarMax's financial health and performance prospects, considering the broader economic factors that impact the automotive industry.

For the full fiscal year, the revenue forecast for CarMax is set at $25.8 billion, marking a 3% decrease from the previous year. However, the consensus estimate for fiscal 2025 earnings per share (EPS) is $3.10, suggesting a potential growth of 3% year-over-year. This outlook is significant as it highlights analysts' expectations for CarMax's ability to navigate the current market challenges and potentially improve its financial performance in the longer term.

CarMax has a mixed track record in its recent earnings performance, having missed EPS estimates once and exceeded them three times over the last four quarters, achieving an average earnings surprise of 12.9%. This history of earnings surprises is an important factor for investors, as it can influence expectations and market reactions to the upcoming earnings report. The company's ability to exceed or meet expectations could have a notable impact on its stock price in the short term.

The upcoming earnings report is crucial for CarMax, as it will provide insights into the company's operational efficiency, cost management, and revenue generation amid a challenging economic environment. Investors and analysts will be keenly watching the reported figures and management's commentary during the earnings call for indications of CarMax's future direction and its strategies for sustaining growth and profitability in the competitive used car market.

Mizuho analysts lowered their price target for CarMax (NYSE:KMX) to $72 from $75, while maintaining their Neutral rating on the stock, ahead of the company’s upcoming Q1/25 earnings report, scheduled to be announced on June 21. The analysts cited data that indicates another weak performance in used vehicle unit comps. Although used vehicle prices have eased, they remain nearly 30% above 2019 levels.

The analysts also noted that Carvana's value-focused approach and efforts to source more vehicles priced at or below $20,000 are likely driving incremental market share gains at the expense of CarMax in the near term.

On Thursday, April 11, 2024, CarMax Inc. (KMX:NYSE) reported its fourth-quarter earnings, revealing figures that did not meet the market's expectations. The company announced an earnings per share (EPS) of $0.32, which was significantly lower than the anticipated $0.45. Additionally, CarMax's revenue for the quarter was approximately $5.63 billion, missing the expected mark of $5.79 billion. This report set the stage for a challenging period for the company, as it navigated through a tough used car market environment, compounded by high interest rates and a shift in consumer behavior.

Following the earnings announcement, CarMax's stock experienced a notable decline, dropping 11.7% over the week, as highlighted by The Motley Fool. This downturn was largely attributed to the company's failure to meet revenue and earnings expectations, which was further exacerbated by the current economic conditions, including high interest rates that have discouraged consumers from making vehicle purchases. The impact of these factors was evident in the company's performance, with a decrease in revenue by 1.7% to $5.63 billion and a decline in wholesale unit sales by 4%.

The used car market has faced significant challenges, with affordability becoming a major concern for consumers. This has been driven by high interest rates, which have increased monthly payments for buyers, and a general decrease in vehicle prices from the highs experienced during the pandemic. CarMax, in particular, has felt the effects of these market dynamics, leading to a delay in its goal to sell 2 million cars annually. Despite these hurdles, the company managed to maintain a relatively stable gross profit per retail used unit at $2,251, only a slight decrease from the previous year. However, this stability in gross profit was overshadowed by modest increases in sales, general, and administrative expenses, further impacting the company's bottom line.

CarMax's financial health and market valuation can be further understood through various financial metrics. The company's price-to-earnings (P/E) ratio stands at approximately 23.52, indicating the premium that investors are willing to pay for its earnings. The price-to-sales (P/S) ratio of about 0.42 suggests a relatively low valuation of the company's sales, while the enterprise value to sales (EV/Sales) ratio of 1.11 shows the company's valuation in relation to its sales after adjusting for debt. Additionally, the enterprise value to operating cash flow (EV/OCF) ratio of 64.34 highlights the company's valuation compared to its operating cash flow. Despite these financial indicators, CarMax's debt-to-equity (D/E) ratio of 3.10 points to a significant reliance on debt financing, which could pose risks in a challenging economic environment. However, the current ratio of 2.26 indicates a healthy capability to cover short-term liabilities with short-term assets, providing some financial stability amidst the uncertainties.

CarMax (NYSE:KMX) shares plunged more than 10% intra-day today following the company’s reported mixed Q2 earnings.

The used vehicle retailer fell short of the average analyst EPS estimate, reporting $0.75 per share, which was $0.03 less than the Street expectation of $0.78. However, the company's revenue for the quarter came in at $7.1 billion, reflecting a 13.1% year-over-year decline but slightly surpassing the Street estimate of $7.01 billion.

During the quarter, it appears that there was a weakening in demand for used vehicles, with retail used unit sales decreasing by 7.4% and comparable store used unit sales dropping by 9% compared to the second quarter of the prior year. Wholesale units also saw a decline of 11.2% year-over-year. The combined total of retail and wholesale used vehicle unit sales amounted to 342,662, marking a 9% decrease.