Used car retailer CarMax reported weaker-than-expected second quarter earnings which sent a message across the whole car industry of a weakening used car market. Both retail and wholesale units sold tumbled yr/yr were way below forecasts. $KMX stock lost around one quarter of its value today on the result. No doubt higher interest rates and other macroeconomic headwinds, such as high inflation have hit the car industry with force. With that other auto retailers fell today including Carvana (CVNA -21%), AutoNation (AN -10%) and Group 1 Automotive (GPI -12%).
“While this was a challenging quarter across the used car industry, our ongoing progress in strengthening and expanding our omnichannel experience continues to positively differentiate us and enable us to grow market share,” said CEO Bill Nash.
CarMax Second Quarter Earnings 2022 Highlights
- EPS 79 cents per share miss ed the consensus forecast of $1.39 per share and down 54% from the same period last year
- Group revenues rose 1% to $8.1 billion, missing analysts’ estimates of $8.54 billion
- Gross profit per retail used unit fell 2.4% sequentially as average selling prices continued to fall qtr/qtr.
- Retail vehicle sales were down 6.4% to 216,939 units
- Wholesale unit sales collapsed 15.1%.
- Note that the larger wholesale drop was caused by KMX continuing to reallocate older vehicles from wholesale to retail to keep up with demand for lower-priced cars. KMX estimates wholesale unit sales would have fallen by less than 10% without this decision.
- Used unit sales in comparable stores were down 8.3%.
- In late June, KMX noted that through the first few weeks of AugQ, it was running a low single-digit decline in comp sales. From there (with interest rate pressure) they fell sharply in July and August, ending in mid-teen drops.
- Gross profit per wholesale unit fell 12.3% yr/yr.
- Wholesale prices at dealer auctions are down by 2.3% through the first half of September which suggests this trend will persist into Q3 (Nov).
- Looking for positives we get there was a 4.4% yr/yr rise in gross profit per retail used unit. Another positive was a 50.0% increase in vehicles purchased when you compare back to pre-Instant Offer two years ago.
- KMX’s finance arm is also experiencing headwinds, with income falling 8.6% yr/yr.
- KMX remains confident in its ability to leverage its credit platform to ensure Tier 1 credit losses remain within its 2.0-2.5% range.
Market Reaction
CarMax shares gapped 22.3% lower following the earnings release to $67.25. The stock closed at 65.16 down 21.26 or 24.60% today with a low of 64.44. KMX is down $62.8 or 49.08% year to year and well off its 52-week high of $155.98.
Outlook
“As we navigate the near-term pressures facing our industry, we are further sharpening our focus on driving additional operational efficiencies across our business,” Bill Nash added. “We will also remain focused on continuing our work to achieve our long-term goals, including further improving our omnichannel experience for our customers and
CarMax, like rival CVNA noted last month, stated that it continued to grow its market share. There is an observable pattern these companies can simultaneously capture market share as consumers shift away from the traditional dealer model to more online/e-commerce offerings.
KMX continued to make in-roads on its strategic growth initiatives, such as investments to advance its online platform.
Car prices fell slightly from last quarter but still up nearly 10% yr/yr. The concern with unbridled inflation and soaring interest rates consumers are being squeezed and these rising car prices are simply unaffordable. The spread between cheaper and more expensive cars is also concern with KMX’s inventory of sub-$25K vehicles falling.
From The TradersCommunity News Desk