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CarMax Shares Plummet on Earnings Miss Amid Soaring Used-Car Payments

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Ticker Tea
April 12, 2024

📝 SUMMARY: CarMax Inc. ($KMX), the Richmond-based used car retailer, saw its shares tumble dramatically, recording the most significant decline since September 2022, after announcing weaker-than-expected earnings for the fourth quarter. The company's shares dropped by as much as 14% during trading, ultimately settling down by 11% to $70.27, wiping out the gains it had made earlier in the year.

For the quarter, CarMax reported earnings of 32 cents per share, substantially below the consensus estimate of 45 cents and a decline from 44 cents a year prior. This marked the second consecutive quarter where the company's revenues fell short of Wall Street predictions. CEO Bill Nash attributed the poor performance primarily to high monthly payments that are keeping potential buyers at bay, as they wait for more favorable financial conditions.

The backdrop to CarMax's struggles includes a used car market that, while off its 2022 peak, still features prices well above pre-pandemic levels. This is compounded by rising financing costs linked to higher interest rates, which have pushed the average monthly payment for CarMax customers from $400 pre-pandemic to about $530.

Despite these challenges, CarMax managed to sell approximately 172,000 vehicles during the quarter, a slight increase over the previous year. However, its wholesale business saw a 4% contraction, and there was a notable drop in gross profit per unit to $2,251 from $2,277 year-over-year. The finance segment, led by Jon Daniels, Senior Vice President of Auto Finance, also reported a downturn in profitability.

This earnings report highlights the broader challenges facing the auto retail sector, particularly around financing and consumer confidence. CarMax's experience reflects a trend where rising costs and economic uncertainty continue to influence consumer behavior, particularly in the large and sensitive used car market.

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