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CarMax Tanks as Expenses Hurt Unit Profitability While Sales Boom

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By Dhirendra Tripathi

Investing.com – CarMax stock (NYSE:KMX) fell 10% Thursday as the company’s unit profitability eroded in the second quarter despite record sales.

Profit per share came in below estimates while sales were higher. Higher staffing and sales compensation hurt profitability. The company had benefited from Covid-related cost-saving steps last year, an item missing this time.

Selling, general and administrative expenses, as a percent of gross profit, was 70.4%, up from 58.8%.

Vehicle resellers like CarMax and Carvana (NYSE:CVNA) have had historic sales for more than a year now as a shortage of chips has meant that some of the popular models have not been easily available in the market. Consumers have thus chosen to go for second-hand purchases. As a result, prices of second-hand vehicles have also strengthened. But CarMax sprang a surprise.

Average retail selling prices rose 31%, reflecting higher acquisition costs. Gross profit per retail used unit at CarMax was $2,185, compared to $2,205 in the first quarter and $2,214 in second quarter of last financial year.

Wholesale gross profit per unit was $1,005, an $81 per unit decrease when compared with the second quarter last year.

An increase in warranty service costs hurt the gross profits, too.

Combined retail and wholesale used vehicle unit sales were 419,895, up 20% from the prior year’s second quarter.

Net revenue for the quarter was a record $8 billion, up 49%. Profit per share was $1.72.

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