CarMax Struggles to End Fiscal 2022, but We Are Optimistic About Its Future

CarMax ended fiscal 2022 with a quarter bombarded with macroeconomic headwinds and the impact of the chip shortage. Management, continuing to focus on maintaining gross profit per retail unit in the low $2,000 range, squeezed retail gross margin per unit by 250 basis points year over year to 7.4%, while diluted EPS of $0.98 missed the Refinitiv consensus of $1.25. One reason the stock fell over 7% on April 12 is likely the poor comparable store unit sales decline of 6.5%, which was the worst level for this metric, other than at the start of the pandemic, since an 8% fall in fourth-quarter fiscal 2018. Management called out headwinds around poor consumer confidence, expensive vehicles (transaction prices increased 39.7% to $29,312), the omicron COVID-19 variant, and the absence of government stimulus that occurred in the prior year’s quarter. Management also updated its May 2021 long-term targets, which needed updating because full-year fiscal 2022 revenue of $31.9 billion (up 68% from fiscal 2021) is almost at the fiscal 2026 target of $33 billion. The new targets are $33 billion to $45 billion of revenue by fiscal 2026 (we currently model $35.6 billion) and selling between 2 million and 2.4 million combined retail and wholesale units by then, up from a prior target of 2 million.