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Why Is CarMax (KMX) Down 3.4% Since Last Earnings Report?

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A month has gone by since the last earnings report for CarMax (KMX). Shares have lost about 3.4% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is CarMax due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

CarMax Misses Q4 Earnings Estimates

CarMax reported fourth-quarter fiscal 2022 (ended Feb 28, 2022) net earnings per share of 98 cents, missing the Zacks Consensus Estimate of $1.28 amid lower-than-anticipated sales volume from the used-vehicle segment. The bottom line also decreased from $1.27 per share recorded in the year-ago period.

The auto retailer registered revenues of $7,686.7 million for the February-end quarter, beating the Zacks Consensus Estimate of $7,566 million. Also, the top line recorded a 48.8% year-over-year increase.

Segmental Performance

CarMax’s used-vehicle net sales summed $5,739.8 million for the reported quarter, up 32.6% year over year owing to an increase in average retail selling prices. The metric also surpassed the consensus mark of $5,607 million. While the units sold in this segment inched down 5.2% year over year to 194,318 vehicles, the average selling price of used vehicles soared 39.7% from the year-ago quarter to $29,312. Units sold also fell short of the consensus mark of 202,879 vehicles. Comparable store used-vehicle units declined 6.5%, while revenues climbed 30.5% from the prior-year level. Used-vehicle gross profit per unit (GPU) came in at $2,195, up from the prior-year quarter’s $2,086.

For the fiscal fourth quarter, wholesale vehicle revenues skyrocketed 160.2% from the year-ago level to $1,765.6 million. The reported figure also beat the Zacks Consensus Estimate of $1,638 million. Units sold and average selling price surged 43.8% and 85.2% year over year to 149,095 and $11,495, respectively. Wholesale vehicle GPU came in at $1,191, which increased from the year-ago period’s $990.

Other sales and revenues rose 15.2% year over year to $181.3 million for the fiscal fourth quarter but missed the consensus mark of $188 million. CarMax Auto Finance witnessed a 3% year-over-year uptick in income to $193.8 million for the February-end quarter.

Other Tidbits

Selling, general and administrative expenses flared up 22.5% from the prior-year quarter to $620.9 million. The firm had cash/cash equivalents and long-term debt of $102.7 million and $3,255.3 million, respectively, as of Feb 28, 2022.

During the fiscal fourth quarter, CarMax bought back 0.9 million shares of common stock for $101.7 million under the share repurchase program. As of Feb 28, 2022, it had $774.5 million remaining under the share-repurchase authorization. To investors’ delight, KMX boosted the buyback program by $2 billion.

The company opened four new locations during the fiscal fourth quarter. A total of 10 new stores were opened in fiscal 2022. As of Feb 28, 2022, KMX operated 230 used car stores. In fiscal 2023, CarMax targets to open 10 more stores. It expects capital expenditure to increase from $308.5 million in fiscal 2022 to $500 million in fiscal 2023.

CarMax has also upwardly revised its long-term targets. It now envisions selling 2-2.4 million vehicles by fiscal 2026, up from the prior view of 2 million units. Additionally, it expects to generate revenues in the band of $33-$46 billion by fiscal 2026, up from the previous view of $33 billion. It has reaffirmed the growth of its national market share of 0- to 10-year-old vehicles of more than 5% by mid-decade.

 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

The consensus estimate has shifted -14.86% due to these changes.

VGM Scores

Currently, CarMax has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise CarMax has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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