KMX Earnings Preview: Will CarMax be back on pace this year?


CarMax, Inc. (NYSE: KMX) is preparing to publish second-quarter results on Thursday. Over the years, it has evolved into a diversified company, with scale of operations and omnichannel strategy laying the foundation for long-term growth. As the largest used car retailer in the country, CarMax is better equipped than its peers to deal with macroeconomic uncertainties and volatility in consumer demand, but elevated interest rates and rising auto loan defaults are a threat to its near-term prospects. Paints a bleak picture of prospects.

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CarMax’s value has nearly halved since the stock retreated from its 2021 record high, but it remains on a bullish trend so far this year. Given potential future headwinds, shares look overvalued now. With the market returning to normalcy post Covid, CarMax is on track to further increase its market share in the coming years, which is good news for long-term investors. The market will be closely watching the upcoming earnings report, looking for signals on the company’s future performance. The stock is rising ahead of the announcement.

Recently, margins have come under pressure due to higher SG&A expenses. Meanwhile, measures adopted by management are reducing cost pressures, including increasing used salable inventory units, slowing planned store growth and pausing share repurchases to ensure greater capital flexibility. CarMax has better pricing power than others due to good customer experience in terms of selection and delivery, although average selling prices have declined in recent quarters.

Q2 report

The company is expected to report second-quarter 2024 earnings before the opening bell on Thursday, Sept. 28. Experts’ estimates indicate that the recent downward trend continued in the August quarter – net income is expected to decline 3% from last year to $0.77 per share, while revenue is $7.01 billion, representing a decline of 18%.

CarMax executives in a recent statement expect the remainder of fiscal 2024 to benefit from a cost-cutting program initiated in the second half of 2023. One goal the company wants to achieve is to strengthen SG&A-gross profit leverage over time. On an annual basis the rate is in the mid 70% range.

“With regard to capital structure, our first priority is to finance the business. While our adjusted net debt-to-capital ratio was slightly below our 35% to 45% target range, given the ongoing market uncertainties, we continue to appropriately manage our net leverage to maintain the flexibility that gives us CAF and Allows for both to access capital markets efficiently. CarMax as a whole. With this goal of maintaining flexibility in mind, we will continue to pause our share buybacks in the first quarter.” said CarMax CFO Enrique Mayer-Mora.

decline in earnings

Over the last two quarters, the company posted stronger-than-expected earnings, while four consecutive quarters prior to that had the company missing estimates. Earnings for the first quarter ending May 2023 declined 8% year-over-year to $1.44 per share. At $7.7 billion, revenues were down 17% from last year and reflected weakness across all operating segments – used vehicle sales, wholesale vehicle salesAnd Other Sales and Revenue, Comparable store used vehicle sales and units declined by double digits.

CarMax stock, which is currently at a three-month low, was trading higher in early trading on Monday after closing lower in the previous session.

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