CarMax, Inc. (NYSE: NYSE:KMX), the nation's largest retailer of used cars, reported its third-quarter fiscal year 2024 earnings, demonstrating a mix of headwinds and strategic resilience. Despite a 5% year-over-year decline in total sales to $6.1 billion, the company's digital investments are paying off, with 70% of customers using online tools for transactions. Retail unit sales dipped 2.9%, while used unit comps fell 4.1%. However, CarMax Auto Finance originated about $2 billion in loans, boasting a penetration rate of 44%. Notably, net earnings per diluted share doubled to $0.52 from $0.24 in the same quarter last year. The company also resumed its share repurchase program and expanded its physical presence by opening four new stores in the fourth quarter.
Key Takeaways
- CarMax's net earnings per diluted share increased to $0.52, up from $0.24 year-over-year.
- Total sales decreased by 5% year-over-year, totaling $6.1 billion.
- Approximately 70% of customers engaged with CarMax's digital platforms for transactions.
- The company saw a decrease in total interest margin and an increase in interest expenses.
- CarMax Auto Finance's loan originations stood at $2 billion, with a 44% penetration rate.
- Four new stores were opened as part of the company's expansion strategy.
Company Outlook
- CarMax anticipates market share growth and sequential improvements despite near-term impacts from market dynamics and vehicle depreciation.
- The company is focused on cost control and efficiency to solidify its market position.
- Encouraged by digital growth, CarMax expects its omnichannel model to yield a more efficient cost structure.
Bearish Highlights
- The company faced a year-over-year drop in total sales, primarily due to lower retail and wholesale prices and volume.
- Total interest margin decreased to 5.9% from 6.1% due to increased funding costs and credit tightening.
- CarMax observed elevated delinquency levels, although it believes its reserve adjustment is sufficient.
Bullish Highlights
- Digital investments are showing significant returns with a high customer engagement rate.
- The wholesale business experienced growth through product innovations like Max offer and instant offer.
- The company's strategy is expected to recapture Tier 1 and Tier 3 volume as economic conditions improve.
Misses
- Retail unit sales and used unit comps saw a decline of 2.9% and 4.1%, respectively.
Q&A Highlights
- Executives discussed the importance of AI technology in maintaining a competitive edge.
- The company plans to provide guidance on unit expansion in the upcoming quarter.
- CarMax is adapting to market conditions and managing staffing levels to improve efficiency.
CarMax's third-quarter earnings call painted a picture of a company navigating a challenging economic landscape while leveraging its digital investments to maintain a competitive edge. The used car retailer's commitment to omnichannel strategies and cost control measures are central to its approach, as it adapts to fluctuating market conditions and consumer demand. With a focus on maintaining stability and pursuing strategic growth, CarMax continues to drive forward in a dynamic industry.
InvestingPro Insights
CarMax, Inc. (NYSE: KMX) has shown a mixed financial performance in the recent quarter, with certain metrics indicating areas of challenge and opportunity. According to InvestingPro data, CarMax operates with a market capitalization of $12.19 billion and a P/E ratio of 26.84, reflecting investor assessment of the company's profitability potential relative to its share price.
InvestingPro Tips highlight that CarMax is dealing with a significant debt burden and a declining trend in earnings per share. These factors are crucial for investors to consider, as they may impact the company's financial flexibility and bottom line. Additionally, with 5 analysts having revised their earnings downwards for the upcoming period, investor sentiment appears cautious regarding CarMax's near-term earnings potential.
It is also notable that CarMax's stock is considered to be in overbought territory according to the Relative Strength Index (RSI), suggesting that the stock price may be higher than the company's current financial performance justifies. This could be an important consideration for investors thinking about the timing of their investment decisions.
For those interested in further insights, InvestingPro offers additional tips on CarMax, including discussions on sales projections, gross profit margins, and valuation multiples. Subscribers can access these insights to deepen their understanding of the company's financial health and market positioning. Currently, a special Cyber Monday sale is offering up to 60% off on InvestingPro subscriptions, and using the coupon code sfy23 will provide an extra 10% off a 2-year InvestingPro+ subscription. There are 14 additional InvestingPro Tips listed for CarMax, which could be valuable for investors seeking comprehensive analysis.
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