CarMax (KMX 80.06, +9.01, +12.69%) is trading higher today after reporting Q1 (May) earnings results this
morning. CarMax is the nation's largest retailer of used vehicles. It currently
operates 192 used car stores in 41 states. CarMax has a no-haggle price policy
which means a price is posted on each vehicle and that's what you pay. Negotiating
will get you anywhere.
This no-haggle pricing approach is attractive to buyers because they know that thy are paying the same price as anyone else. CarMax also offers a very wide selection of cars from all manufacturers and they will buy any car. Cars that can’t be sold on the lot due to their age/condition cutoffs will be sold to a wholesaler. The hope is that this will be a better experience than selling on Craigslist or the like.
Turning to the MayQ earnings results, EPS rose 18% year/year to $1.33 while revenue rose 5.5% year/year to $4.79 bln. Both results were above market expectations. KMX doesn’t provide guidance. Total used vehicle unit sales increased 1.6%, while comparable store used unit sales fell -2.3% on a year/year basis. The comp decline primarily reflected lower store traffic, partially offset by improved conversion, as well as a tough comparison as KMX lapped its strongest prior year performance. Also, that -2.3% comp was an improvement from the -8.0% comp in FebQ.
While its comp performance improved significantly from FebQ, KMX believes macro pricing factors still had some effect on MayQ sales. Total wholesale vehicle unit sales increased 9.6% year/year, largely driven by an increase in KMX's appraisal buy rate and the growth in its store base.
Breaking down its sales numbers a bit, the vast majority of revenue comes from Used vehicle sales (84% of MayQ revenue) where KMX sells cars from its lot. Another big chunk is Wholesale vehicle sales (13% of revenue). With CarMax, you can sell any car to them. KMX also generates a small amount of revenue from extended warranty plans etc.
In terms of new store openings, KMX opened three stores in MayQ. It added two stores in existing television markets (Dallas and Miami), and it entered the Greenville, NC television market. Subsequent to the end of the quarter, KMX opened a store in Santa Fe, New Mexico, representing its second store in the Albuquerque television market.
In sum, KMX can be pretty volatile around earnings. The company does not guide so analysts are a bit in the dark. However, investors seem quite pleased with this MayQ report. That comp number was a nice improvement from FebQ. Gas prices and interest rates remain relatively low, which have been nice tailwinds. KMX is a name to keep on the radar over the longer term. It currently has just 192 stores which is still a pretty small store base. They have the opportunity to keep expanding over time.
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