Carmax (KMX, Financial) grew sales and net profits at 76% and 84%, respectively, through the first nine months of the fiscal year ending in February 2022. This growth reflects an easy comparison versus Covid-impacted fiscal 2021 as well as one of the strangest used-car markets on record. Supply shortages in the new car market led to increased demand for used cars. Used car prices soared, but supply was limited.
Carmax fared better than many competitors because of a superior ability to source used cars. Its instant cash offers, helped by its year-ago acquisition of the Edmunds car-listing service, proved a hit with consumers interested in selling their cars. Sellers can get a quote by just entering their license plate number and answering a few questions. Instant cash offers represent the latest step in Carmax’s evolution towards becoming an omni-channel retailer. Already, two-thirds of Carmax’s customers don’t have to come to a store to buy a car. They can buy online and have a car shipped to their homes. They can also finance online. In the most recent quarter, 9% of Carmax’s sales went to customers who completed their transactions remotely.
We expect market conditions to normalize in the year ahead. Even if growth slows as this occurs, we expect Carmax to continue gaining market share. As the largest used car retailer in America, Carmax has long been advantaged over its 30,000 competitors. Most of the competitors will struggle to adjust to a world of digital sales. We view e-commerce as an opportunity for Carmax to increase its lead.
From Ruane Cunniff (Trades, Portfolio)'s Sequoia Fund 2021 annual report.
