CarMax Inc. (NYSE: KMX) recently hit a 52-week low after its second-quarter financial performance fell short of expectations due to weaker retail sales and increased loan loss provisions. This led to a miss in both earnings and revenue. The used-car retailer reported earnings per share of 64 cents, falling short of the analyst consensus of $1.09. The company’s quarterly sales amounted to $6.594 billion, representing a 6% year-over-year decline and missing the forecasted $7.024 billion.
The CarMax Auto Finance (CAF) segment saw its income drop by 11.2% to $102.6 million. This decline was chiefly due to higher loan loss provisions counterbalancing gains in net interest margins. Notably, CAF’s total interest margin percentage increased to 6.6% of average auto loans outstanding, a 50 basis point rise compared to the previous year’s second quarter.
Overall vehicle sales for CarMax fell by 4.1% in the second quarter, totaling 338,031 units. This included a 5.4% decrease in retail used vehicle sales to 199,729 units, with comparable store used unit sales falling 6.3%. The decline in retail sales also led to a 7.2% drop in retail used vehicle revenues. On the wholesale side, unit sales decreased by 2.2% to 138,302, while revenues slightly dipped by 0.4% due to lower volumes despite a 1.6% increase in the average wholesale price.
Additionally, other sales and revenues reduced by 4.2%, largely because of weaker extended protection plan revenues tied to reduced retail sales. During the quarter, CarMax acquired 293,000 vehicles, a 2.4% decrease year-over-year, with 262,000 purchased from consumers and 31,000 from dealers.
Despite these challenges, CEO Bill Nash remained optimistic about the company’s long-term strategy and earnings model. CarMax’s total gross profit stood at $717.7 million, a decrease of 5.6% from the previous year, yet unit margins remained strong. The gross profit per retail used unit was $2,216, and $993 per wholesale unit. The Extended Protection Plans achieved a $576 margin per retail unit, consistent with last year’s figures.
During this period, CarMax expanded by opening three new stores in Tuscaloosa, Alabama; El Cajon, California; and Hagerstown, Maryland, while also launching a reconditioning/auction center in New Kent County, Virginia to support the Richmond metro area. Efforts to improve efficiency continued with a 1.6% reduction in SG&A expenses compared to the prior year, and the company aims to achieve $150 million in incremental SG&A reductions over the next 18 months.
Overall, while CarMax faces near-term challenges, the company is focused on strengthening operations and finding efficiencies to enhance its future financial performance.