TLDR
- CarMax stock plummeted 24% to hit its 52-week low after reporting Q2 earnings of $0.64 per share, missing analyst estimates of $1.09
- Revenue fell 6% year-over-year to $6.59 billion, well below the expected $7.04 billion
- Retail used vehicle unit sales dropped 5.4% to 199,729 units with comparable store sales down 6.3%
- CarMax Auto Finance income declined 11.2% to $102.6 million due to higher loan loss provisions
- Company announced plans to cut $150 million in expenses over the next 18 months
CarMax stock crashed more than 24% on Thursday after the used car retailer delivered crushing second-quarter results. The company hit its 52-week low as investors fled following earnings that missed expectations by a mile.
The Richmond-based company reported earnings per share of just $0.64 for the quarter ending August 31. Analysts had expected $1.09 per share, making this a massive disappointment.
Revenue told an equally grim story. CarMax brought in $6.59 billion compared to analyst estimates of $7.04 billion. This marked a 6% decline from the $7.01 billion reported during the same period last year.
The core business showed weakness across the board. Retail used vehicle unit sales fell 5.4% to 199,729 units during the quarter.
Comparable store sales, a key metric for retailers, dropped 6.3% year-over-year. This suggests established locations are losing ground to competitors.
Total revenue from used vehicle sales declined 7.2% to $5.27 billion. Customers are either buying fewer cars or paying less per vehicle than before.
Even the wholesale side struggled. Unit sales in this segment fell 2.2% to 138,302 vehicles.
Finance Division Takes a Hit
CarMax Auto Finance faced its own set of problems during the quarter. The financing arm’s income dropped 11.2% to $102.6 million.
The culprit was rising credit concerns among borrowers. The provision for loan losses jumped to $142.2 million from $112.6 million in the prior year’s quarter.
This increase reflects the company’s expectation that more customers will default on their vehicle loans. The situation is creating additional financial strain on the business.
The company also took a $71.3 million hit from estimated lifetime losses on existing loans. Much of this deterioration comes from borrowers who got financing during 2022 and 2023.
Management Fights Back
Facing pressure from disappointed investors, CarMax leadership announced aggressive cost-cutting plans. The company committed to reducing selling, general and administrative expenses by at least $150 million over the next 18 months.
These savings will roll out gradually. Some benefits should appear during fiscal 2026, but the majority won’t fully impact results until fiscal 2027.
CEO Bill Nash acknowledged the tough operating environment. Despite current troubles, he expressed confidence in the company’s long-term strategy.
“While this was a challenging quarter, we remain confident in our long-term strategy and the strength of the earnings model that we have built,” Nash said. The company opened three new store locations during the quarter in Alabama, California, and Maryland.
It also launched a new reconditioning center in Virginia to support the Richmond market. Total gross profit was $717.7 million, down 5.6% from last year’s second quarter.
Unit margins held up reasonably well. The company generated $2,216 in gross profit per retail used unit and $993 per wholesale unit.
Extended Protection Plans contributed $576 margin per retail unit. This roughly matched last year’s second quarter performance.
CarMax bought 293,000 vehicles total in the second quarter, a 2.4% decrease. Of these, 262,000 came from consumers and 31,000 from dealers.
The company ended the quarter with $1.16 billion in cash and equivalents. For the six months ended August 31, CarMax generated $1.085 billion in operating cash flow compared to $501.4 million last year.
