Used automotive vehicle retailer Carmax (NYSE:KMX) missed analysts’ expectations in Q1 CY2024, with revenue down 1.7% year on year to $5.63 billion. It made a GAAP profit of $0.32 per share, down from its profit of $0.44 per share in the same quarter last year.
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CarMax (KMX) Q1 CY2024 Highlights:
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Revenue: $5.63 billion vs analyst estimates of $5.81 billion (3.2% miss)
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EPS: $0.32 vs analyst expectations of $0.45 (28.8% miss)
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Gross Margin (GAAP): 10.4%, down from 10.7% in the same quarter last year
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Free Cash Flow of $199.8 million is up from -$482 million in the same quarter last year
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Same-Store Sales were down 2% year on year
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Store Locations: 245 at quarter end, increasing by 5 over the last 12 months
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Market Capitalization: $12.52 billion
“We are encouraged by the performance of our business during the fourth quarter. We reported growth in total used unit sales and comps, delivered strong retail and wholesale gross profit per unit, continued to actively manage SG&A and grew CAF income significantly year-over-year,” said Bill Nash, president and chief executive officer.
Known for its transparent, customer-centric approach and wide selection of vehicles, Carmax (NYSE:KMX) is the largest automotive retailer in the United States.
Vehicle Retailer
Buying a vehicle is a big decision and usually the second-largest purchase behind a home for many people, so retailers that sell new and used cars try to offer selection, convenience, and customer service to shoppers. While there is online competition, especially for research and discovery, the vehicle sales market is still very fragmented and localized given the magnitude of the purchase and the logistical costs associated with moving cars over long distances. At the end of the day, a large swath of the population relies on cars to get from point A to point B, and vehicle sellers are acutely aware of this need.
Sales Growth
CarMax is one of the larger companies in the consumer retail industry and benefits from economies of scale, enabling it to gain more leverage on fixed costs and offer consumers lower prices.
As you can see below, the company’s annualized revenue growth rate of 7.9% over the last five years was mediocre as it opened new stores and expanded its reach.
This quarter, CarMax missed Wall Street’s estimates and reported a rather uninspiring 1.7% year-on-year revenue decline, generating $5.63 billion in revenue. Looking ahead, Wall Street expects sales to grow 2.3% over the next 12 months, an acceleration from this quarter.
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Same-Store Sales
A company’s same-store sales growth shows the year-on-year change in sales for its brick-and-mortar stores that have been open for at least a year, give or take, and e-commerce platform. This is a key performance indicator for retailers because it measures organic growth and demand.
CarMax’s demand has been shrinking over the last eight quarters, and on average, its same-store sales have declined by 8.8% year on year. This performance is quite concerning and the company should reconsider its strategy before investing its precious capital into new store buildouts.
In the latest quarter, CarMax’s same-store sales fell 2% year on year. This decrease was an improvement from the 22% year-on-year decline it posted 12 months ago. It’s always great to see a business improve its prospects.
Key Takeaways from CarMax’s Q1 Results
We struggled to find many strong positives in these results. Its revenue and gross margin missed analysts’ expectations, leading to an EPS miss. Furthermore, CarMax’s management team pushed its goal of 2 million vehicles sold annually to 2026-2030, citing uncertainty in the recovery timing of the used car market. Overall, this was a mediocre quarter for CarMax. The company is down 12.6% on the results and currently trades at $69.17 per share.
CarMax may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.