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CarMax stock drops on Q2 earnings, interest rate pressures

Shares of used car retailer CarMax (KMX) are falling this morning over its mixed second-quarter earnings, citing declining used car demand and higher interest rates impacting business. Yahoo Finance Live takes a look at the stock action surrounding the auto dealer in a tightened consumer environment.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

BRAD SMITH: We got to talk CarMax.

BRIAN SOZZI: Yeah, let's go CarMax shares. They're getting run over after the company's quarter had four flat tires. Shares in focus today. Under pressure. Company releasing their second quarter fiscal 2024 results. Net revenues down, earnings under pressure, used car sales under pressure. And Brad, I encourage everybody watching this right now, go to the CarMax investor relations page, open up the company's earnings release, scroll halfway down the page, and you will see an explanation of why their sales and profits were under so much pressure.

Higher interest rates, and we've been talking about it all morning long. The market mood is souring because we might now be seeing the [? lagging ?] effects on corporate America of all of these rate hikes from the Federal Reserve. Essentially, CarMax is saying to investors, the cost to own a new car, to finance a new car has gotten prohibitively expensive because of rate hikes.


BRIAN SOZZI: And people are not buying and that as a big problem. And that is something we're also seeing to a lesser extent on credit card-- credit card operations for major retailers. [INAUDIBLE] out early this week with a note sounding the caution bell on Nordstrom because of weakening credit conditions.

BRAD SMITH: Yeah, a few numbers here just to kind of put that on the context that you were mentioning a moment ago. Total wholesale vehicle unit sales decreased 11.2% during the quarter. That came in at about 141,000 versus the prior year second quarter. Sequential improvement from the year-over-year declines in the second half of last year and this year's first quarter.

All that said, other sales and revenues declined by about 5.7% compared with the same quarter last year. Also decreased primarily driven by a decline in this extended protection plan revenues reflecting the effect of the decline in retail unit sales. So all of this comes back to the declines in retail unit sales at the end of the day, as well as some of the widespread inflationary pressures that they mentioned, higher interest rates, tightened lending standards.

All of these things are going to impact any type of mindset that a customer has going into a major buying decision like a vehicle, whether it be new or used. And prolonged low consumer confidence, they're also citing, played a role during this quarter.

BRIAN SOZZI: I know there's lots of investors-- lots of things for investors to be watching right now. We have the debate. We have various market notes. But I just think this single earnings report for a company like CarMax that touches so many households and so many different areas and lines of business, it's probably one of the most important things or most important documents I will have read when this week is over. I think that report is very telling of what we could be looking at this coming earnings season.

BRAD SMITH: Well, people don't have to watch the debate. We've got our own Rick Newman to do that for you--

BRIAN SOZZI: Thanks, Rick.

BRAD SMITH: --to spare you the expense.