CarMax Exceeds Revenue Estimates Despite Challenges

By Ananta Agarwal

Reuters – Used car retailer CarMax (NYSE: KMX) beat Wall Street estimates for second-quarter revenue, attributed to price cuts boosting unit sales in the retail segment, resulting in a 6.4% rise in shares during afternoon trading.

The pre-owned vehicle sector has faced challenges, with profitability declining as new vehicle availability improved post-pandemic, which had previously elevated used car prices.

In recent years, CarMax has implemented cost-cutting measures to maintain its margins, reducing marketing and capital expenditures.

The company saw a 2.9% increase in vehicles sold in the second quarter, with retail unit sales rising 5.1% and revenue increasing 1.5% year-over-year.

However, growth in unit sales was tempered by a reduction in CarMax’s lending income, necessitating higher provisions for loan losses. Weaker consumer budgets have negatively impacted some borrowers’ car loan payments.

CarMax’s overall quarterly revenue reached $7.01 billion, a decrease of about 1% from the previous year but surpassing analysts’ average forecast of $6.79 billion, according to LSEG data.

Despite increased provisions, equity analyst Sharon Zackfia from William Blair noted that retail sales momentum could offset risen loan provisions in future quarters.

The company’s average vehicle selling price for the second quarter decreased by 4.6% for used retail units and 12.9% for wholesale units.

CarMax reported earnings per share of 85 cents, slightly below the estimated 86 cents, yet 13.3% higher than 75 cents from the previous year.