CarMax Inc (KMX) Reports Q3 Fiscal 2024 Earnings: Mixed Results Amidst Industry Pressures
Net Revenues: $6.1 billion, a decrease of 5.5% from the previous year's quarter.
Retail Used Unit Sales: Decreased by 2.9%, with comparable store sales down 4.1%.
Wholesale Unit Sales: Increased by 7.7%, with gross profit per wholesale unit remaining strong at $961.
SG&A Expenses: Decreased by 5.4% to $560.0 million, reflecting cost management efforts.
CarMax Auto Finance (CAF): Income down 2.3% to $148.7 million due to net interest margin compression.
Net Earnings Per Share: Increased to $0.52, up from $0.24 in the prior year's quarter.
Share Repurchase: Resumed with 648,500 shares bought back for $41.9 million.
On December 21, 2023, CarMax Inc (NYSE:KMX) released its 8-K filing, detailing the financial outcomes for the third quarter ended November 30, 2023. The report presents a nuanced picture of the company's performance, with net earnings per share rising despite a decline in net revenues and retail used unit sales.
Company Overview
CarMax Inc (NYSE:KMX) operates as the largest used-vehicle retailer in the U.S., with a market share of approximately 4% of vehicles aged 0-10 years as of 2022. The company's business model encompasses selling, financing, and servicing used and new cars through its chain of about 240 retail stores. Founded in 1993 and spun off from Circuit City in 2002, CarMax has been a pioneer in offering a large selection of vehicles and a commitment to transparency and customer service. The company's revenue streams are primarily from used-vehicle sales (78% in fiscal 2023) and wholesale activities (20% in fiscal 2023).
Financial Performance and Challenges
CarMax's third-quarter results reflect the ongoing challenges in the used car industry, including vehicle affordability issues, inflationary pressures, higher interest rates, and tightened lending standards. Despite these headwinds, the company managed to achieve a strong gross profit per retail used unit of $2,277, consistent with the previous year's quarter. The increase in net earnings per share to $0.52 from $0.24 is a significant highlight, indicating improved profitability year-over-year.
The company's cost management efforts are evident in the 5.4% reduction in SG&A expenses, which contributed to the overall profitability. However, the net revenues saw a decline of 5.5% to $6.1 billion, and retail used unit sales decreased by 2.9%. The company attributes the decline in unit sales to affordability challenges and broader economic factors.
Key Financial Metrics and Commentary
CarMax's financial achievements, such as the SG&A expense reduction and the stability of gross profit per unit, are crucial in an industry characterized by narrow margins and high competition. The company's ability to maintain profitability per unit sold, both in retail and wholesale, demonstrates resilience in a challenging market environment.
"Our third quarter performance reflects the continued efforts of the team that have resulted in several quarters of sequential improvements across key components of our business, despite the persistent widespread pressures in the used car industry," said Bill Nash, president and chief executive officer.
CarMax's focus on omni-channel investments and the positive impact on customer acquisition and vehicle sourcing are also noteworthy, as they represent strategic moves to adapt to changing consumer behaviors and market dynamics.
Financial Tables Summary
The earnings report includes detailed financial tables that provide insights into the company's sales components, unit sales, average selling prices, and vehicle sales changes. These tables highlight the mixed results of the quarter, with used vehicle revenues declining by 7.2% and wholesale vehicle revenues increasing by 1.1%.
Financial Aspect | Q3 FY2024 | Q3 FY2023 | Change |
|---|---|---|---|
Used Vehicle Sales | $4,832.1 million | $5,204.6 million | (7.2%) |
Wholesale Vehicle Sales | $1,165.2 million | $1,152.2 million | 1.1% |
SG&A Expenses | $560.0 million | $591.8 million | (5.4%) |
Net Earnings Per Share | $0.52 | $0.24 | 116.7% |
Analysis of CarMax's Performance
The company's performance analysis indicates that while CarMax is facing industry-wide challenges, its strategic initiatives and cost management are yielding positive results. The growth in wholesale units and the resumption of share repurchases signal confidence in the company's long-term prospects. However, the decline in net revenues and retail used unit sales suggests that CarMax must continue to navigate a complex market landscape.
CarMax's commitment to omni-channel retailing and customer experience enhancements, coupled with its disciplined approach to cost control, positions the company to potentially capitalize on market opportunities as they arise. The financial health of CarMax, as evidenced by the earnings report, will be of interest to value investors and those monitoring the Vehicles & Parts industry closely.
For a more detailed breakdown of CarMax Inc (NYSE:KMX)'s third-quarter fiscal 2024 earnings and to stay updated on the company's upcoming fourth-quarter earnings release, visit Guru
Explore the complete 8-K earnings release (here) from CarMax Inc for further details.
This article first appeared on GuruFocus.
