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Why Is CarMax (KMX) Up 22.4% Since Last Earnings Report?

Zacks Equity Research
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A month has gone by since the last earnings report for CarMax (KMX). Shares have added about 22.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is CarMax due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

CarMax's Earnings Surpass Estimates in Q4, Rise Y/Y

CarMax posted net earnings per share of $1.13 in fourth-quarter fiscal 2019 (ended Feb 28, 2019), up 68.7% from 67 cents in the year-ago period. Moreover, earnings surpassed the Zacks Consensus Estimate of $1.04 per share. The company’s net earnings increased 57.6% year over year to $192.6 million.

Further, net sales and operating revenues in the reported quarter increased 5.7% year over year to $4.32 billion. However, the figure missed the Zacks Consensus Estimate of $4.39 billion. Total gross profit rose 11.7% year over year to $599.4 million.

During fourth-quarter fiscal 2019, CarMax’s used-vehicle sales rose 5.8% from the prior-year period to $3.6 billion as unit sales increased 5.6% to 180,207 vehicles. The average selling price of used vehicles rose 0.3% from the year-ago quarter to $19,978. Comparable store used-vehicle unit sales rose 2.8% from the prior-year level. The improved performance reflects improved conversion, partially offset by lower store traffic.

Wholesale vehicle revenues rose 3.1% from a year ago to $543.8 million in the reported quarter. Unit sales increased 3.7% year over year to 102,887 vehicles, courtesy of growth in the store base. The average selling price of wholesale vehicles declined 1% from the prior-year quarter to $5,024.

Other sales and revenues increased 14.6% year over year. Moreover, the extended protection plan’s (EPP) revenues rose 19.9% from the year-ago level.

CarMax Auto Finance (“CAF”) reported a year-over-year increase of 2.6% in income to $103.7 million in the quarter under review, reflecting collective effects of 7.8% rise in average managed receivables and a slightly lower total interest margin percentage.

Fiscal 2019 Results

In the fiscal year, the company’s net earnings increased 33.1% year over year to $4.79 per share.

Its net sales and operating revenues improved 6.1% to $18.2 billion from the year-ago figure of $17.1 billion.


Store Openings

During fourth-quarter fiscal 2019, CarMax opened five stores, which included three in new television markets, namely Buffalo, NY; Montgomery, AL; and New Orleans, LA. During the fiscal year, it opened 15 stores, taking the total used-car store count to 203 as of Feb 28, 2019.

Share Repurchase Program

In the quarter under review, CarMax spent $270.1 million to repurchase 4.4 million shares under the existing share buyback program. During the fiscal year, it repurchased 13.6 million shares of common stock for $902.9 million. As of Feb 28, 2019, the company had $2.11 billion of authorization remaining under its share repurchase program.

Financial Position

CarMax had cash and cash equivalents of $47 million as of Feb 28, 2019, up from $44.5 million in the corresponding period of fiscal 2018. Long-term debt (excluding current position) amounted to $1.2 billion as of Feb 28, 2019, reflecting an increase from $995 million in the comparable year-ago period.

Plans for Fiscal 2020

CarMax plans to open 13 stores each in fiscal 2020 and 2021. Further, it projects capital expenditure of $350 million in fiscal 2020, owing to change in spending plans and the addition of three customer experience centers to support omni-channel roll-out.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, CarMax has a nice Growth Score of B, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, CarMax has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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