A month has gone by since the last earnings report for CarMax (KMX). Shares have lost about 4.3% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is CarMax due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
CarMax Q2 Earnings & Revenues Beat Estimates, Up Y/Y
CarMax has posted earnings per share of $1.24 in the second quarter of fiscal 2019 (ended Aug 31, 2018), up 26.5% from 98 cents in the year-ago quarter. Moreover, earnings surpassed the Zacks Consensus Estimate of $1.22.
Net sales and operating revenues in the reported quarter increased 8.6% year over year to $4.77 billion. Further, the figure beat the Zacks Consensus Estimate of $4.71 billion. Total gross profit rose 7.7% year over year to $650.6 million.
During the quarter under review, used-vehicle revenues rose 7.6% to $4 billion as unit sales gained 5.8% to 196,880 vehicles. The average selling price of used vehicles rose 1.7% to $20,005. Comparable store used-vehicle unit sales rose 2.1%. The upside was primarily caused by improved conversion and was partly offset by lower store traffic.
Wholesale vehicle revenues rose 14.6% to $628 million in the reported quarter. Unit sales increased 14.6% to 120,866 vehicles, courtesy of boost in appraisal traffic, appraisal buy rate and growth in store base. The average selling price of wholesale vehicles remained almost unchanged at $4,955.
Other sales and revenues increased 12.4% year over year. Moreover, the extended protection plan’s (EPP) revenues rose 15.2%.
CarMax Auto Finance (“CAF”) reported an increase of 1.6% in income to $109.7 million in the quarter under review, reflecting collective effects of 8.7% rise in average managed receivables, increase in the provision for loan losses and slightly lower total interest margin percentage.
During second-quarter fiscal 2019, CarMax opened three stores. The company entered the television market in Macon, GA, and added two stores in existing television markets (comprising Albuquerque, NM, and Oklahoma City, OK).
Further, within 12 months, starting from Aug 31, 2018, CarMax plans to enter 10 new television markets and expand presence in five existing ones.
Share Repurchase Program
In the quarter under review, CarMax spent $171.2 million to repurchase 2.3 million shares under the existing share buyback program. As of Aug 31, 2018, the company had $638.3 million of authorization remaining under its share repurchase program.
CarMax had cash and cash equivalents of $37.1 million as of Aug 31, 2018, up from $25.8 million as of Aug 31, 2017. Long-term debt (excluding current position) amounted to $840.2 million as of Aug 31, 2018, up from $815.8 million as of Aug 31, 2017.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, CarMax has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, CarMax has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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