Shares of vehicle
retailer CarMax (KMX 56.32, -1.46, -2.53%) have been in reverse since mid-September, diving by
nearly 30% over this span. The volatility in the stock market has played a role
in the stock's weakness along with concerns of rising interest rates and a
slowing economy. As concerns mount and consumer sentiment wanes, the impact on
big-ticket purchases like vehicles could be material. However, with a solid Q3
earnings report tomorrow morning, KMX could execute a U-turn and turn back
For the quarter, analysts are expecting KMX to report EPS of $1.00 on revenue of $4.33 bln, representing yr/yr growth of 23% and 5%, respectively. Heading into the report, KMX has posted back-to-back top and bottom line beats in Q2 and Q1. Looking strictly at earnings, the company has not missed the Street's expectations for ten straight quarters.
The big story, though, heading into this earnings report is its announcement from December 4 that it will be rolling out a new car buying experience that pits it squarely against recent IPO Carvana (CVNA). Namely, KMX announced that its customers will now have a choice in how they buy a car, whether it be from home, in-store, or a combination of both. The first market to offer this service will be Atlanta, but, KMX plans to have the experience available nationally by February 2020.
Furthermore, KMX is also launching a new express pickup option, which allows customers to do most of the purchasing process online and complete the buying process in the store in as little as 30 minutes. These initiatives will likely be a major topic of interest during the earnings call tomorrow morning at 9:00 am.
As for the quarter report, there are a couple other key metrics outside of the headline numbers that investors should keep an eye on:
- Comparable Sales: Last quarter, used unit sales in comparable stores increased 2.1%, following a decline of 2.3% in 1Q18. The improvement in Q2 was driven by better conversion, partially offset by lower traffic.
- Total Used Vehicle Sales: Last quarter, total used vehicle sales rose by 5.8%, boosted by better conversion and the addition of three new stores. In 1Q18, total used vehicle sales edged higher by 1.6%.
- Used Vehicle Gross Profit: In 2Q18, used vehicle gross profit was essentially flat at $2,179, while wholesale vehicle gross profit per vehicle declined to $919 from $950. However, total wholesale units jumped by almost 15% in the quarter as a result of higher appraisal traffic, growth in store base, and an increase in buy-rate.
KMX does not provide specific financial guidance for EPS or revenue. It does, however, provide its outlook for new store growth. The company said that it planned to open four stores in Q3, all in new markets, in Louisiana, North Carolina, and Texas. And, over the next year, KMX expects to open a total of 15 new stores, with ten openings planned for new television markets.