On June 21, 2024, CarMax Inc (KMX, Financial) released its 8-K filing for the first quarter of fiscal year 2025, ending May 31, 2024. CarMax, the largest used-vehicle retailer in the US, reported a mixed performance with declines in both retail and wholesale sales.
Company Overview
CarMax sells, finances, and services used and new cars through a chain of around 250 used retail stores. Formed in 1993 as a unit of Circuit City and spun off into an independent company in late 2002, CarMax is based in Richmond, Virginia. Used-vehicle sales typically account for about 83% of revenue, with wholesale contributing around 13%, and the remaining portion composed of extended service plans and repair. In fiscal 2024, the company retailed and wholesaled 765,572 and 546,331 used vehicles, respectively. Despite being the largest used-vehicle retailer in the US, CarMax estimates it had only about 3.7% US market share of vehicles 0-10 years old in 2023, aiming for over 5% share in the coming years.
Performance and Challenges
CarMax reported a 3.1% decrease in retail used unit sales and a 3.8% decline in comparable store used unit sales from the prior year’s first quarter. Wholesale units also saw an 8.3% decline, impacted by lower year-over-year seasonal appreciation. The company cited vehicle affordability challenges, inflationary pressures, higher interest rates, and tightened lending standards as ongoing headwinds affecting sales performance.
Financial Achievements
Despite the sales decline, CarMax delivered strong margins in retail, wholesale, and Extended Protection Plans (EPP). The gross profit per retail used unit was $2,347, in line with last year, while the gross profit per wholesale unit reached $1,064, and EPP gross profit per retail unit hit $563, both first-quarter records. CarMax Auto Finance (CAF) income grew 7.0% to $147.0 million, driven by growth in CAF’s average managed receivables and net interest margin percentage.
Income Statement Highlights
CarMax reported total net sales and operating revenues of $7,113.4 million, a 7.5% decrease from $7,687.1 million in the prior year’s first quarter. The company’s net earnings per diluted share were $0.97, down from $1.44 a year ago, which included a $0.28 benefit from a legal settlement.
Balance Sheet and Cash Flow
CarMax’s SG&A expenses increased 14.1% to $638.6 million, driven by continued cost management efforts. The company repurchased over $100 million in shares of common stock during the first quarter of fiscal year 2025, reflecting its commitment to returning value to shareholders.
Key Metrics
| Metric | Q1 FY25 | Q1 FY24 | Change |
|---|---|---|---|
| Retail Used Unit Sales | 211,132 | 217,924 | -3.1% |
| Wholesale Unit Sales | 147,685 | 161,048 | -8.3% |
| Net Sales and Operating Revenues | $7,113.4 million | $7,687.1 million | -7.5% |
| Net Earnings per Diluted Share | $0.97 | $1.44 | -32.6% |
CEO Commentary
“I am encouraged by the trends we saw in the first quarter including continued year-over-year price declines, improvements in vehicle value stability, and ongoing growth in upper funnel demand. We delivered strong retail, wholesale, and EPP gross profit per unit, sourced a record 35,000 vehicles from dealers, continued to actively manage SG&A, and repurchased over $100 million in shares of common stock. As CAF advances to a full-spectrum credit model, we launched our first non-prime asset-backed securitization deal early in the second quarter as part of the expansion of our securitization program that will enable incremental growth in finance income,” said Bill Nash, president and chief executive officer.
Analysis
CarMax’s performance in Q1 FY25 reflects the broader economic challenges impacting the automotive retail industry. The decline in retail and wholesale sales underscores the difficulties posed by inflationary pressures and higher interest rates. However, the company’s ability to maintain strong margins and grow its finance income through CAF highlights its resilience and strategic focus on long-term growth. The expansion of its asset-backed securitization program and continued share repurchases demonstrate CarMax’s commitment to enhancing shareholder value and positioning itself for future success.
Explore the complete 8-K earnings release (here) from CarMax Inc for further details.
