CarMax stock pops on Q4 earnings beat

Yahoo Finance Live anchors Julie Hyman and Brad Smith break down the rise in stock for CarMax.

Video transcript

- Let's talk about some other movers. We've got CarMax. That stock is moving higher by almost 6% after topping earnings estimates. Revenue, though, falling short of analysts' expectations.

The company did reiterate its long term financial targets. It is planning new store growth to five locations. A couple of interesting things here-- the magnitude of the beat, pretty impressive here-- $0.44 a share versus the $0.20 estimated. The company did say the average retail selling price of a used car fell by 9.3%. However, in the earnings release, they highlighted vehicle affordability as an issue, Brad.

- Yeah, they did talk about the vehicle affordability. They talked about how much of the vehicles they're continuing to buy. They bought 262,000 vehicles from consumers and dealers.

That was actually down versus last year by about 22 and 1/2% and then additionally talking about the deliberate steps to really prioritize profitability. You heard from Bill Nash, the president and chief executive officer, saying that they tried to further improve the most customer centric omnichannel experience in the industry, an industry that certainly has been battered. We were taking a look at some of the industry competitors.

Of course, Carvana was Yahoo Finance's Laggard of the Year last year, the worst performer there, and ultimately has seen a bit of a bounce but a bounce off of some pretty dismal activity that we saw during 2022. Here today, though, you're seeing it up by about 9% here. But in this report, I mean, net revenues, down 25%.

So retail, used unit sales decline 12 and 1/2, 12.6% in the fourth quarter. And [INAUDIBLE] store, used unit sales declined 14%. So, there was a lot of bad that was within this report, but it's perhaps not as bad as it could have been. And I think the prioritization and the continued talking about the profitability and what they can do, at least in this immediate term to pull some of those levers, that is certainly being listened to by the investor community right now.

- Yeah, one more thing I just want to highlight here, and that's the financing arm of CarMax, right? That is when you buy a car, and you finance that purchase. And this is important not just for CarMax, but also, does it give a little preview of what we might hear from some of the banks?

Not-- obviously, their loan portfolios is much more diverse than that of CarMax but still something to take note of here. The net interest margin percentage declining at CarMax-- that's something perhaps we can expect from the banks as well. The company also talking about increasing its loan loss provisions, and the loan loss allowance, 3.02% of its managed receivables, which is an increase from 2.9%.

So directionally, anybody who has loans on their balance sheet, right, you're going to expect that we should pay attention to net interest margin and should pay attention to the allowance or loan loss provisioning. In other words, how much do companies put aside for potential defaults or non-payment of loans? That's something that I think, not just this earnings season, but really throughout the year is going to get more and more attention.

- I was reading through this report, and I was like, I know Julie's going to bring that up for sure. I don't even need to worry about that.

- There you go.

- Yes, spot on.