CarMax (KMX) to Report Q2 Earnings: What in the Offing?

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CarMax Inc. KMX is set to report second-quarter fiscal 2019 results, before the market opens on Sep 26. In the last-reported quarter, the company recorded an earnings beat of 9.9%. In the trailing four quarters, it surpassed estimates twice while missed in other two, recording an average miss of 0.4%.

In the past three months, shares of CarMax have underperformed the industry it belongs to. The stock has inched up 1.9% compared with the industry's increase of 15.3%.

Let's see how things are shaping up for the upcoming announcement.

CarMax, Inc. Price and EPS Surprise

CarMax, Inc. Price and EPS Surprise | CarMax, Inc. Quote

Factors Influencing This Quarter

CarMax pursues an aggressive store expansion initiative. During first-quarter fiscal 2019, the company opened three stores, out of which one was at its new market i.e. Greenville, NC. In the second quarter of fiscal 2019, it intends to open three other stores at Santa Fe; Macon, GA; and Oklahoma City. Through these openings, CarMax aims to expand footprint in new and existing locations, thereby, driving its financials.

In first-quarter fiscal 2019, CarMax's selling, general and administrative ("SG&A") expenditure witnessed year-over-year rise of around 9% to $438.2 million. This escalation is mainly on account of expenses related to store openings. Increased investments to develop technology and digital platforms, and rising compensation expenses are also contributing to the headwind. For fiscal 2019, the company projects capital expenditures of around $340 million.

For the soon-to-be-released quarter, the Zacks Consensus Estimate for net sales of wholesale vehicles is pegged at $670 million. In first-quarter fiscal 2019, net sales of wholesale vehicles were $618 million.

For used-vehicle retail, the Zacks Consensus Estimate for net sales is $4 billion. In the prior quarter, the company recorded net sales of $4 billion.

The Zacks Consensus Estimate for the Other segment's sales and revenues are $155 million, whereas the company recorded $154 million in the prior quarter.

Earnings Whispers

Our proven model does not conclusively show an earnings beat for CarMax this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here, as you will see below.

Earnings ESP : CarMax' Earnings ESP is -0.54% as the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $1.21 and $1.22, respectively.

You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank : CarMax presently carries a Zacks Rank #3.

We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks to Consider

Here are a few auto stocks worth considering. As per our model, these comprise the right combination of elements to come up with an earnings beat this time around:

Fox Factory Holding Corp. FOXF has an Earnings ESP of +2.77% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

CNH Industrial N.V. CNHI has an Earnings ESP of +2.63% and a Zacks Rank #2.

LKQ Corporation LKQ has an Earnings ESP of +0.35% and a Zacks Rank #3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: KMX , FOXF , CNHI , LKQ

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