CarMax (KMX, Financial) was also a two-time offender, proving to be a detractor in both the quarter and fiscal year. In the first year of the pandemic, shares more than doubled as supply chain disruptions limited the ability of automakers to deliver new vehicles to the market, pushing prospective buyers into the secondary market and sending the prices of used vehicles soaring. As we close the second year of the pandemic, demand for used vehicles remains high, but dealers’ inventories remain tight. And as inflation’s reach has broadened (importantly to include gasoline), investors are concerned with consumers’ ability to pay ever-higher prices for used vehicles. In the short term, unit volumes may be volatile, but it’s important to note that CarMax’s business model of targeting a consistent level of cash profit per vehicle sold helps insulate earnings from a decline in prices. Looking longer term, we remain optimistic that CarMax’s investments in its omnichannel (in-store, online or hybrid) buying experience, combined with national scale, positions them for success in the future.
From Wallace Weitz (Trades, Portfolio)'s Hickory Fund first-quarter 2022 commentary.
