CarMax reported better-than-expected quarterly earnings early Friday as strong pricing for used cars offset weaker volumes. CarMax stock jumped Friday, retaking a key level.
"GPUs (gross profit per unit) were especially strong, above the historical band despite the increase in wholesale prices," Stephens analyst Daniel Imbro wrote in a note to clients on Friday.
However, operating expenses continued to run higher than expected "as KMX makes long-term investments to drive share," he added. Imbro rates CarMax stock at overweight and price targets are under review.
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CarMax Earnings
Estimates: Analysts polled by FactSet expected CarMax earnings for the first quarter, ended in May, to slump 42% to $1.53 per share. Revenue was seen rising 19% to $9.124 billion. Same-store sales were forecast to fall 11.6%, worsening from a 6.5% drop the prior quarter.
CarMax faced tough comps. Revenue and same-store sales soared a year ago, with stimulus checks boosting consumer spending.
Results: CarMax earnings fell 41% to $1.56 a share. Revenue rose 21% to $9.312 billion. Vehicle sales fell 5.5%, with used vehicle sales down 11%. Same-store sales declined 12.7%. But used vehicle revenues jumped 13.9% on higher prices.
The average used car price rose 28%, or roughly $6,300, to $28,844. Used gross profit per unit, or GPU, rose $134 to $2,339. Wholesale GPU rose $4 to $1,029.
CarMax Auto Finance income fell 15.4% due to higher provision for loan losses, offset by higher net interest margin.
Operating expenses rose 18.5% on higher wage and staffing costs, as well as tech investments.
"While the used vehicle market environment was challenging in the first quarter, we continued to make progress on the key strategic priorities that enable CarMax to grow profitable market share," CEO Bill Nash said in an earnings release Friday.
Outlook: Wall Street expects full-year EPS of $5.89, down 16% year over year, FactSet says.
The CarMax release did not mention earnings guidance.
CarMax Stock
Shares of CarMax vaulted 7.3% to 98.47 in big volume on the stock market today, up 13% for the week as it added a fifth day to its rally. KMX stock surged above the 50-day moving average but remains below the 200-day line.
The relative strength line for KMX stock is improving after a six-month slump.
"Meme stock" Carvana added 9.6% to 31.39 Friday to a 15% spike the previous session. But CVNA stock remains not far from March 2020 pandemic lows.
AutoNation climbed 4.1% to 116.30 Friday, closing above the 200-day line. Earlier in June, AN stock flirted with an early entry, but then reversed sharply lower over several days. .
Rising Inflation, Rates Threaten Used-Car Sales
CarMax has benefited from soaring used-car prices, but headwinds are mounting.
In May, online rival Carvana slashed thousands of jobs after warning that all-time-high prices are slowing used car sales to recession levels.
And about a week ago, Ford CEO John Lawler flagged a rise in auto loan delinquencies. CarMax also runs an auto finance business.
The rapid rise in inflation could hurt auto sales and especially chill the price-sensitive used-car buyer, analysts say.
To attempt to curb inflation, the Federal Reserve is aggressively raising interest rates. Rate hikes boost net interest margins for lenders, but make loans less attractive to consumers. CarMax Auto Finance helps customers with car loans.
CarMax Auto Finance net income fell 15% in fiscal Q1 to $204.5 million. Much of the pressure on the finance net income came from loan loss provisions of $57.8 million, reflecting $82.2 million swing from the prior year's results.
Meanwhile, a growing crop of online used-car startups, including Carvana, threaten CarMax. But the brick-and-mortar giant has responded by rapidly growing its online car sales.
CarMax's focus on growing market share has disappointed some investors. They would like to see it use record used car prices to improve profitable growth.
Pricing is a double-edged sword for used car dealers. While selling prices have skyrocketed amid new-vehicle shortages, CarMax and rivals have paid up to acquire inventory.
Find Aparna Narayanan on Twitter at @IBD_Aparna.
