CarMax Beat On Earnings, But It Didn't Do It By Selling Cars

Despite challenging economic conditions marked by inflationary pressures, higher interest rates and weak consumer confidence, CarMax, Inc KMX, the nation's largest used car retailer, reported a surprising first-quarter fiscal 2024 earnings beat, sparking an over 8% run on shares to the upside.

By The Numbers: The Richmond, Virginia-based used car retailer issued earnings of $1.16 per share, which beat a Street estimate of 79 cents, on revenues of $7.69 billion, ahead of the $7.53 billion consensus estimate.

Despite the beat, the used car market remains far from stable.

CarMax CEO William Nash said in a call with analysts, “The overall used market obviously is still depressed.” The company saw an 11.3% year-over-year slip in the number of used cars sold through combined retail and wholesale channels, selling a total of 378,972 units.

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As such, it saw its retail used car revenues fall 14.4% compared to the same quarter last year, with retail used gross profit declining 8.7%, reflecting the 11.3% decline in retail unit sales.

The problem goes beyond CarMax.

Data issued by Cox Automotive for May shows a 3.4% dip in total used-vehicle sales to 3.1 million units compared to the same month last year. Used vehicle sales for 2023 are forecasted to be nearly flat compared to 2022, at 36.2 million.

"The retail used-vehicle story is still being influenced by inventory, which is near the lowest point in our data set, which goes back to 2019,” said Chris Frey, senior manager of Economic and Industry Insights at Cox Automotive.

High-interest rates and elevated retail prices are hurting demand. “Wholesale prices have been coming down in recent months, which likely means lower retail prices are on the horizon,” Frey added.

CarMax's adjusted earnings per share beat was bolstered by cost-cutting measures, not sales performance. CarMax had $935.55 million in cash and equivalents as of May 31, and an available $2.45 billion for repurchases under the outstanding authorization.

The company is bracing for a “used-vehicle recession," according to Reuters, and has had to rethink its strategy, as Nash said, “We believe these steps will enable us to come out of this cycle leaner and more effective, while also positioning us for future growth.”

Looking ahead, CarMax plans to open five new locations in the full year 2024.

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