KMX stock careened lower Thursday after the used-car kingpin reported earnings sharply below analyst targets. The latest chapter in the unwinding used auto market story, following Carvana's painful collapse begun in August, pressured a range of peer stocks in the auto sales industry.
CarMax reported earnings of 24 cents per share, a drop of more than 85% from year-ago levels and far below the FactSet analysts target of 64 cents. Revenue dropped 23.7% to $6.51 billion, undercutting views for $7.16 billion.
The company sold 20.8% fewer vehicles vs. year-ago levels, and reported same-store sales down 22.4%.
Management said "steep market depreciation as well as retail selectivity" drove the declines. Translation? Used car prices are falling fast and car buyers are growing much more picky.
CarMax Earnings: Used Auto-Price Bubble Unwinds
Prices for used cars at the auction/wholesale level began dropping in January, according to the Manheim Used Vehicle Index. A five-year slide in new car inventories bottomed in February, and then inventories reversed and climbed higher in March through September. Historically low new car inventories, especially since pandemic economic issues snarled industry supply chains, played a key role in driving used car prices to record levels.
In May, used car market disrupter Carvana announced it would lay off 12% of its workforce, and take on higher cost debt.
An email to employees from Carvana Chief executive Ernie Garcia at the time said, "It is an understatement to say a lot has changed about our environment. Inflation and interest rates are up, supply chains are disrupted, and consumer and investor sentiment has shifted."
Richmond, Va.-based CarMax began warning of the trend shift during its Q1 report in April.
"From an affordability standpoint, you've got interest rates going up, inflation, you've got the Ukraine-Russia war. There's just a lot weighing on the consumer right now," Bill Nash, CarMax's chief executive, said on the company's first-quarter conference call.
Various indicators, including CarGurus' Used Car price Index, show overall retail used car prices falling since July. The declines have further to go, according to CarMax Chief Executive William Nash.
"I expect ASPs (average sales prices) to continue to fall, which I think overall for the industry is a good thing to help drive some gap between new and late-model used," cars, Nash said. He also said the company was comfortable with their current per-unit price targets.
"We have spent almost 30 years building a diversified business that can profitably navigate the ups and downs of the used-car industry. We believe we are well positioned to effectively manage through this cycle," Nash said in the company's earnings release.
New car prices have continued to increase, according to Labor Department data, although the rate of increase began to flatten, rising only 0.1% in November.
KMX Stock Hits 32-Month Low
The CarMax earnings release said the company was "prioritizing initiatives that reduce costs, unlock operating efficiencies, profitably grow market share."
Part of that tightening was in inventories. Inventory was down almost 27% vs. year-ago levels. The company's cash reserves rose to more than $688 million, up from near $65 million a year ago.
In Thursday's conference call, Chief Financial Officer Enrique Mayor-Mora said CarMax had trimmed staffing targets and reduced investment aimed at capacity increases. At this point, there have been no layoffs, Mayor-Mora said. "Our culture is one that's a people-first mindset."
CarMax stock fell as low as 52.10, the lowest since April 2020. KMX stock then pared losses, closing down 3.7% to 57.20.
Research firm CFRA kept its hold opinion on the stock and lowered its price target to 50, from 75. CarMax said it was pausing share repurchases, and had $2.45 billion remaining under the current initiative.
Among related industry group stocks, Penske Auto Group, Lithia Motors, AutoNation and Asbury Auto Group all logged steep intraday declines, but Penske slashed losses while Lithia, AutoNation and Asbury closed higher.
