CarMax (KMX) Up 9.9% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for CarMax (KMX). Shares have added about 9.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is CarMax due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

CarMax Earnings Surpass Estimates in Q2, Rise Y/Y

CarMax Inc. reported better-than expected results in second-quarter fiscal 2020 (ended Aug 31, 2019), wherein earnings and revenues surpassed estimates. The specialty retailer of used and new vehicles posted net earnings per share of $1.40, beating the Zacks Consensus Estimate of $1.33. The bottom line also compared favorably with a profit of $1.24 per share reported in the year-ago quarter.

Notably, higher-than-expected revenues across all its segments led to the outperformance. Precisely, sales in the used-vehicle segment — which contribute to bulk of CarMax’s revenues — came in at $4,346.3 million, surpassing the consensus estimate of $4,300 million. Wholesale vehicle revenues of $678.3 million also surpassed the consensus mark of $634 million.

Net sales and operating revenues in the reported quarter increased 9.1% year over year to $5,201 million. The top line beat the Zacks Consensus Estimate of $5,026 million. Total gross profit rose 6.1% year over year to $693.5 million.

In second-quarter fiscal 2020, CarMax opened three stores: two in existing markets — San Francisco and Phoenix, and one in a new market— Lubbock.

Segmental Performance

In second-quarter fiscal 2020, CarMax’s used-vehicle sales rose 9.3% from the prior-year period to $4,346.3 million on the back of higher unit sales and improved average selling price. The units sold also increased 6.2% year over year to 209,091 vehicles. The average selling price of used vehicles increased 2.9% from the year-ago quarter to $20,581. Used vehicle gross profit per unit came in at $2,183 versus $2,179 in the year-ago period. Comparable store used-vehicle units and revenues sold rose 3.2% and 6.3%, respectively, from the prior-year level. This robust performance reflects improved conversion and solid growth in web traffic.

Wholesale vehicle revenues rose 8% from a year ago to $678.3 million in the reported quarter. Units sold also increased 4.7% year over year to 126,513 vehicles, courtesy of growth in store base and appraisal buy rate. Moreover, the average selling price of wholesale vehicles rose 2.7% from the prior-year quarter to $5,090. Wholesale vehicle gross profit per unit came in at $928versus $919 in the year-ago period.

Other sales and revenues increased 9.1% year over year to $176.6 million. Moreover, the extended protection plan’s revenues rose 15% from the year-ago level.

CarMax Auto Finance reported a 4% year-over-year increase in income to $114.1 million in the quarter under review, reflecting collective effects of 7.8% rise in average managed receivables, partly offset by a decline in total interest margin percentage.

Costs, Financials and Share Buyback

Selling, general and administrative expenses increased 6.0% from the prior-year quarter to $480.8 million. Store openings and spending to boost the firm’s technology, along withomni-channel strategic initiatives led to the rise in SG&A costs.

CarMax had cash and cash equivalents of $40.7 million as of Aug 31, 2019, up from $37.1 million in the corresponding period of 2018. Long-term debt (excluding current position) amounted $1,689.1, reflecting an increase from $1,328 million in the year-ago comparable period. Its debt-to-capital ratio stands at 32%.

In the quarter under review, the company spent $128.3 million to repurchase 1.5 million shares under the existing share buyback program. As of Aug 31, 2019, it had $1.78 billion remaining under its share repurchase authorization.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

Currently, CarMax has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.


Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. Notably, CarMax has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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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.


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