It has been about a month since the last earnings report for CarMax (KMX). Shares have lost about 3% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.
CarMax Q1 Earnings & Sales Surpass Estimates
CarMax posted first-quarter fiscal 2021 (ended May 31, 2020) net earnings per share of 23 cents against the Zacks Consensus Estimate of a loss of 6 cents. The outperformance can be attributed to higher-than-expected revenues from used vehicles. Precisely, used-vehicle sales totaled $2786.2 million, surpassing the consensus mark of $1,281 million. A profit of $1.59 per share was reported in the year-ago quarter.
Net sales in the reported quarter decreased 39.8% year over year to $3,228.8 million. The top line, however, beat the Zacks Consensus Estimate of $2,607 million. Total gross profit slid 52.3% year over year to $354.2 million.
In first-quarter fiscal 2021, CarMax opened four stores in its existing markets, Tampa, Philadelphia, New Orleans and Los Angeles.
During the quarter under review, CarMax’s used-vehicle sales declined 38.6% from the prior-year period to $2,786.2 million due to store closures and lower footfall amid coronavirus-induced lockdown. The units sold fell 39.8% year over year to 135,028 vehicles. The average selling price of used vehicles increased 1.5% from the year-ago quarter to $20,346. Used-vehicle gross profit per unit came in at $1,937 compared with $2,215 in the year-ago period. Comparable store used-vehicle units and revenues dropped 41.8% and 40.8%, respectively, from the prior-year level.
Wholesale vehicle revenues plummeted 48.2% from the year-ago period to $342.9 million in the reported quarter. Units sold also plunged 47.6% year over year to 63,295 vehicles due to lower traffic and a reduction in the appraisal buy rate. The average selling price of wholesale vehicles was down 2% from the prior-year quarter to $5,110. Wholesale vehicle gross profit per unit came in at $978 versus $1,043 in the year-ago period.
Other sales and revenues decreased 38.9% year over year to $99.7 million in the fiscal first quarter, primarily owing to a reduction in extended protection plan revenues, which declined 34.1% from the year-ago level to $73.4 million.
CarMax Auto Finance reported a 56.1% year-over-year plunge in income to $51 million in the quarter amid higher loan loss provision. Provision for loan losses increased to $122 million from $38.2 million in the prior year quarter.
Costs, Financials and Share Buyback
Selling, general and administrative expenses fell 23.7% from the prior-year quarter to $373.7 million. CarMax had cash and cash equivalents of $658 million as of May 31, 2020 and $1.08 billion of unused capacity on the credit revolver. Long-term debt amounted to $1,705.1 million, reflecting a decrease from $1,789.5 million in the year-ago period.
In the wake of coronavirus-induced uncertainty, CarMax tapped brakes in the stock buyback program. Prior to suspension of buybacks, the firm spent $40.7 million to repurchase 515,500 shares during first-quarter fiscal 2021. As of May 31, 2020, it had $1.51 billion remaining under the share-repurchase authorization.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 107.19% due to these changes.
Currently, CarMax has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile 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.
Estimates have been trending upward for the stock, and the magnitude of these revisions 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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