CarMax's stock slides 9% after earnings reflect pressures on used car industry

By Ciara Linnane

Sector is being hurt by weak demand

CarMax Inc.'s stock (KMX) slid 9% Thursday, after the used car retailer's second-quarter earnings fell from a year ago amid continued pressure in the sector.

Richmond, Va.-based CarMax had net income of $118.6 million, or 75 cents a share, for the quarter through Aug. 31, down from $125.9 million, or 79 cents a share, in the year-earlier period.

Sales fell to $7.074 billion from $8.145 billion a year ago. The FactSet consensus was for EPS of 75 cents and sales of $7.024 billion.

"We continue to drive sequential improvements in our business despite persistent widespread pressures across the used car industry," CEO Bill Nash said in a statement.

Combined retail and wholesale used vehicle unit sales fell 9% to 342,662. Online retail sales accounted for 14% of retail unit sales, up from 11% a year ago.

"We remain committed to effectively managing our cost structure,' Chief Financial Officer Enrique Mayor-Mora told analysts on the company's earnings call, according to a FactSet transcript.

" Our performance in the first half of the year has us on track to deliver on our goal of low-single-digit gross profit growth to lever SG&A for the full year, even when excluding the benefits from this year's legal settlement."

The company is planning to resume share buybacks in the second half after pausing them as a cost saving.

William Blair analysts said the numbers were ahead of their expectations and are likely to continue to show sequential improvement through the rest of the year.

"Ultimately, CarMax remains a very well-managed profitable company in a very large market, and we believe it is simply a matter of when--not if--the used car industry rebounds to its typical volume of roughly 40 million cars sold annually," said analysts Sharon Zackfia and Tania Anderson in a note to clients.

"Risks include challenges associated with managing a large pool of fast-depreciating assets, reliance on asset-backed securitizations to fund CarMax Auto Finance, and the inherent economic sensitivity associated with selling big ticket discretionary items."

William Blair has an outperform rating on the stock, the equivalent of buy.

The stock has gained 31% in the year to date, while the S&P 500 SPX has gained 11.3%.

-Ciara Linnane

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09-28-23 1227ET

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