CarMax Surpasses Q2 Expectations with $0.85 EPS, Despite Slight Revenue Dip
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CarMax Surpasses Q2 Expectations with $0.85 EPS, Despite Slight Revenue Dip

CarMax, Inc. (KMX) reported a strong second quarter performance with a 5.1% increase in retail used unit sales and a 4.3% rise in comparable store used unit sales.
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CarMax, Inc. (NYSE: KMX) reported its financial results for the second quarter ending August 31, 2024, showcasing a notable performance. The company experienced a 5.1% increase in retail used unit sales and a 4.3% rise in comparable store used unit sales compared to the same period last year.

However, wholesale units saw a slight decline of 0.3%. Gross profit per retail used unit stood at $2,269, mirroring last year’s figures, while gross profit per wholesale unit was $975, also consistent with the prior year’s performance.

CarMax’s Extended Protection Plan (EPP) margin grew by $69 per retail unit, reaching $575, and service margin increased by $84 per retail unit from the previous year’s second quarter. The company bought 300,000 vehicles from consumers and dealers, up 2.9% from last year, with 269,000 vehicles purchased from consumers and 31,000 through dealers, marking a significant 61.4% increase in dealer purchases.

Despite a 4.2% increase in Selling, General, and Administrative (SG&A) expenses, which totaled $610.6 million, CarMax managed to maintain strong leverage in SG&A as a percentage of gross profit. The company’s CarMax Auto Finance (CAF) income declined by 14.4% to $115.6 million due to an increase in the provision for loan losses, which overshadowed growth in CAF’s average managed receivables and a stable net interest margin percentage. Net earnings per diluted share were $0.85, up 13.3% from $0.75 a year ago.

CarMax Reports Better than Expected Results For Fiscal Q2

When comparing CarMax’s current performance against market expectations, the company exceeded the anticipated earnings per share (EPS) of $0.84 by delivering an actual EPS of $0.85. This 13.3% year-over-year increase in EPS indicates a robust financial performance despite some challenges in the auto loan sector. The revenue, however, fell short of expectations. Analysts had projected quarterly revenue of $6.82 billion, but CarMax reported $7.01 billion, a slight decrease of 0.9% from last year’s $7.07 billion.

The total gross profit for the quarter was $760.5 million, reflecting a 9.1% increase from the previous year’s second quarter. This growth was driven by a 5.9% increase in retail used vehicle gross profit and a 33.1% rise in other gross profits, primarily from EPP revenues and service efficiencies. Despite the increase in SG&A expenses, the company managed to reduce SG&A as a percentage of gross profit to 80.3% from 84.1% in the prior year, indicating effective cost management strategies.

CarMax’s wholesale vehicle gross profit saw a marginal increase of 0.9%, while the gross profit per wholesale unit remained stable at $975. The company’s ability to maintain gross profit margins despite a decrease in wholesale revenues by 12.7% demonstrates strong operational efficiency. However, the decline in CAF income due to higher provisions for loan losses reflects broader industry challenges impacting the auto finance sector.

CarMax Committed to Expanding its Footprint

CarMax plans to continue leveraging its diversified business model to drive future sales and profitability. The company’s CEO, Bill Nash, emphasized the importance of their omni-channel capabilities in enhancing the customer experience and differentiating CarMax in the market. The company remains committed to expanding its footprint with the opening of new store locations and stand-alone facilities.

For the fiscal year 2025, CarMax aims to open a total of five new store locations, one stand-alone reconditioning center, and one stand-alone auction facility. This expansion is expected to support the company’s growth strategy and enhance its market presence. Additionally, CarMax’s recent execution of higher prime and non-prime public asset-backed securitization deals is set to strengthen the funding foundation for CAF’s full-spectrum lending platform.

CarMax also highlighted its focus on managing through industry-wide auto loan loss pressures while maintaining strong margins and cost management efforts. The company’s forward-looking statements indicate a cautious but optimistic approach, with an emphasis on adapting to market changes and leveraging strategic investments to sustain growth. The upcoming third-quarter results, scheduled for release on December 19, 2024, will provide further insights into the company’s performance and strategic direction.

Disclaimer: The author does not hold or have a position in any securities discussed in the article.


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