CarMax Dealing with Vehicle Affordability Issues

Image: CarMax’s shares have yet to recover from prior year highs.

By Brian Nelson, CFA

CarMax (KMX) reported better than expected first quarter fiscal 2024 results on June 21. Net sales declined ~7.5%, modestly better than the consensus estimate, while GAAP earnings per share of $0.97 edged out what the Street was looking for. Retail used unit sales decreased 3.1% from the same period a year ago, while comparable store used unit sales fell 3.8% and wholesale units dropped 8.3% on a year-over-year basis. Gross profit per retail used unit was $2,347, roughly in line with last year’s mark. CarMax Auto Finance (CAF) income grew 7% from last year’s quarter.

Management had the following to say about the quarter:

I am encouraged by the trends we saw in the first quarter including continued year-over-year price declines, improvements in vehicle value stability, and ongoing growth in upper funnel demand. We delivered strong retail, wholesale, and EPP gross profit per unit, sourced a record 35,000 vehicles from dealers, continued to actively manage SG&A, and repurchased over $100 million in shares of common stock. As CAF advances to a full-spectrum credit model, we launched our first non-prime asset-backed securitization deal early in the second quarter as part of the expansion of our securitization program that will enable incremental growth in finance income. I am proud of the durable actions we have taken to support our future growth and to further differentiate the value and experience we offer to consumers. 

In the quarter, total gross profit fell 3.1% versus the same period a year ago. CarMax continues to deal with vehicle affordability challenges and “ongoing headwinds due to widespread inflationary pressures, higher interest rates, and tightened lending standards.” The company plans to “expand (its) current asset-backed securitization program from a single issuance to one that more broadly incorporates CAF’s receivables across distinct prime and non-prime segments. In June 2024, CAF launched its first non-prime securitization deal.” CarMax’s quarter wasn’t great, and while industry trends are improving, stiff headwinds are still prevalent. We remain on the sidelines with respect to shares.

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