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Carmax Inc(KMX-N)

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Why CarMax Stock Crashed 9.8% Today

Motley Fool - Thu Sep 28, 10:31AM CDT

What happened

Investors in CarMax(NYSE: KMX) are having a rough Thursday. Shares of the used car superstore chain tumbled 9.8% through 10:10 a.m. ET after the company reported a narrow miss on fiscal Q2 2024 earnings.

Heading into the quarter, analysts had forecast CarMax would earn $0.78 per share on sales of $7 billion. As it turned out, CarMax beat that revenue target with $7.1 billion in sales. Earnings, however, came up a bit short at $0.75 per share.

So what

And even CarMax's sales news wasn't all good.

Sales for the quarter may have beaten expectations, but they were still down 13.1% year over year. Same-store sales slid 9%.

The good news is that profit margins were still strong for CarMax, with margins on retailed used cars holding mostly steady while margins on wholesaled used cars rose slightly. The bad news is that the volume of cars that CarMax sold declined -- down 7.4% for retail units sold and down 11.2% for wholesaled units.

So despite margins per car inching higher, with CarMax selling fewer cars, period, it ended up making less profit, period. Thus, profits declined 5.1%.

Now what

Looking ahead, CarMax management didn't give any clear guidance for the rest of this fiscal year. What it did say, however, was disturbing, as it cited "persistent widespread pressures across the used car industry" and promised to "control what we can" -- primarily by cutting costs.

The problem is that there's a lot that CarMax cannot control -- car prices are high and being made even higher by inflation and rising interest rates. Throw in "tightened lending standards and prolonged low consumer confidence," and it's a tough time to be selling used cars right now.

The good news here is that Wall Street analysts are forecasting a rebound in demand, and profits, for around CarMax's fiscal Q4 (that's the November quarter). The bad news is that earnings will probably be down again next quarter -- and for the year as a whole.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CarMax. The Motley Fool has a disclosure policy.

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