After missing earnings expectations last quarter, CarMax (KMX, Financial) rebounded with an EPS beat in Q1. The used car dealership effectively managed expenses and repurchased $100 million in common stock amid a tough business climate. Despite these efforts, challenging conditions like high interest rates and tightened lending standards led to a 3.8% decline in comparable store used unit sales.
- Used car prices have dropped over 12% since June 2022, according to CarGurus.com, due to a recovery in supply.
- KMX lowered its prices by $700/unit, or 2.7%, but avoided deeper price cuts to preserve margins, which wasn't enough to boost sales.
- KMX struggled to source newer used vehicles, buying fewer cars from consumers who are now more interested in new cars. This led to a 13.7% drop in vehicle purchases from consumers while purchases from dealers increased by 70.8%, yet overall purchases still fell by 8.6% year-over-year.
- The 3.7% decrease in retail used vehicle gross profit and a 7.5% sales decline pushed EPS down by 33% to $0.97.
- CarMax Auto Finance (CAF) was a bright spot, with income growing 7% year-over-year to $147 million due to growth in average managed receivables and higher net interest margins.
Overall, it was another challenging quarter for KMX. The company faces a dilemma: cutting prices further to boost competitiveness would hurt margins, but maintaining higher prices risks continued declines in sales volumes and market share.
