Cost controls helped CarMax report better-than-expected quarterly earnings and the stock was rising in premarket trading.
The used-car seller reported fiscal fourth-quarter earnings per share of 44 cents from $5.7 billion in sales.
Wall Street was looking for profit of 20 cents a share from $6.1 billion in sales. A year ago, CarMax (ticker: KMX) reported earnings of 98 cents a share on sales of $7.7 billion.
Comparable-store sales, a key metric for any retailer, fell 22%. Analysts were projecting a 27% drop.
“Our deliberate steps to navigate the pressures facing the used car industry are driving sequential improvements in our business,” said CEO Bill Nash in a news release. “During fiscal year 2023, we made significant progress to further improve the most customer-centric omni-channel experience in the industry, including enabling online self-progression for all of our retail customers and completing the nationwide rollout of our finance prequalification product.”
Shares rose 7.6% in premarket trading. S&P 500 and Dow Jones Industrial Average futures were up 0.3% and 0.1%, respectively.
Coming into the quarter, it felt as if CarMax was stuck between a rock and a hard place, just like so many other automotive-related companies, struggling to deal with rising interest rates and declining vehicle affordability.
CarMax has been faced with the dilemma of either protecting market share or per-unit profitability. It looks as if the company is choosing the latter.
Per-unit profitability remained stable. Retail gross profit per used car sold came in at $2,277. Wall Street projected retail gross profit per used vehicle at $2,169. A year ago, per unit profits came in at $2,195.
Whether or not opting for per unit profits, over market share, is the most prudent decision for the company is moot. Either option poses problems for the stock. Earnings estimates would be down either way.
Wall Street projects fiscal year 2024 earnings of $2.90 a share. CarMax earned almost $7 a share in fiscal year 2022. Fiscal year 2023 came in at $3.03 a share. When this fiscal year began, Wall Street projected roughly $7 a share, flat with fiscal year 2022.
Falling estimates are a headwind for any stock. Coming into Tuesday trading, CarMax shares are down roughly 36% over the past 12 months. The used car dealer isn’t alone. The average stock in the Russell 3000 Auto and Auto Parts Index is down about 40% over the past 12 months. The S&P 500 and Dow Jones Industrial Average are off about 9% and 3%, respectively, over the same span.
Rising interest rates and declining vehicle affordability is impacting the entire auto industry.
CarMax management hosts a conference call at 9 a.m. Eastern time to discuss results.
Write to Al Root at allen.root@dowjones.com
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