CarMax (KMX) reported better-than-expected quarterly results on Friday, as high used-car prices offset lower volumes. CarMax stock jumped on Friday, regaining a key level.
“GPUs (gross earnings per unit) were particularly strong, above the historical band despite higher wholesale prices,” Stephens analyst Daniel Imbro wrote in a note to clients on Friday.
However, operating expenses continued to be higher than expected “as KMX makes long-term investments to increase market share,” he added. Imbro rates CarMax shares at overweight and price targets are being reviewed.
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Estimates: Analysts polled by FactSet had expected CarMax’s earnings for the first quarter, ending May, to fall 42% to $1.53 per share. Revenue rose 19% to $9.124 billion. Same-store sales are expected to fall 11.6%, following a 6.5% drop in the prior quarter.
CarMax faced tough competition. Same-store revenue and sales soared a year ago as stimulus checks boosted consumer spending.
Results: CarMax earnings fell 41% to $1.56 per share. Revenue rose 21% to $9.312 billion. Vehicle sales fell 5.5%, with used vehicle sales falling 11%. Same store sales decreased 12.7%. But used-vehicle revenue jumped 13.9% due to higher prices.
The average used car price rose 28%, or about $6,300, to $28,844. Gross profit used per unit, or GPU, increased by $134 to $2,339. Wholesale GPU increased by $4 to $1,029.
CarMax Auto Finance revenue fell 15.4% due to an increase in loan loss provision, offset by an increase in net interest margin.
Operating expenses increased by 18.5% due to higher salary and personnel costs, as well as technological investments.
“While the used vehicle market environment was challenging in the first quarter, we continued to make progress on key strategic priorities that enable CarMax to grow its profitable market share,” CEO Bill Nash said Friday. in an earnings release.
Outlook: Wall Street expects annual EPS of $5.89, down 16% year over year, according to FactSet.
CarMax’s statement did not mention earnings forecasts.
Shares of CarMax jumped 7.3% to 98.47 in heavy volume on the stock market today, up 13% for the week as it added a fifth day to its rally. KMX stock jumped above the 50-day moving average but remains below the 200-day line.
The relative strength line for KMX stocks is improving after a six-month decline.
“Meme stock” Carvana added 9.6% to 31.39 on Friday from a peak of 15% the previous session. But the CVNA stock remains near the March 2020 pandemic lows.
AutoNation (AN) climbed 4.1% to 116.30 on Friday, closing above the 200-day line. Earlier in June, AN stock flirted with an early entry, but then reversed sharply over several days. .
Rising inflation and rates threaten used car sales
CarMax has benefited from soaring used car prices, but headwinds are mounting.
In May, online rival carvana (KMX) cut thousands of jobs after warning that record prices were slowing used car sales to recessionary levels.
And about a week ago, Ford (F) CEO John Lawler reported an increase in delinquencies on auto loans. CarMax also runs an auto finance business.
Rapidly rising inflation could hurt auto sales and especially chill the price-sensitive used-car buyer, analysts said.
In an attempt to curb inflation, the Federal Reserve aggressively raises interest rates. Rate hikes increase lenders’ net interest margins, but make lending less attractive to consumers. CarMax Auto Finance helps customers with auto loans.
CarMax Auto Finance’s net profit fell 15% in the fiscal first quarter to $204.5 million. Much of the pressure on net finance income came from loan loss provisions of $57.8 million, reflecting an $82.2 million change from the prior year’s results.
Meanwhile, a growing number of online used car startups, including Carvana, are threatening CarMax. But the brick-and-mortar giant responded by rapidly increasing its online car sales.
CarMax’s focus on growing its market share disappointed some investors. They would like to see him use record used car prices to improve profitable growth.
Pricing is a double-edged sword for used car dealerships. As sale prices soared due to the shortage of new vehicles, CarMax and its competitors paid to acquire inventory.
Find Aparna Narayanan on Twitter at @IBD_Aparna.
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