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Holly LaFon
Holly LaFon
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Ruane Cunniff Comments on Carmax

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March 06, 2018 | About:

Carmax (NYSE:KMX), the country’s largest retailer of used cars, had a good year with strong performance from both new and existing stores. Sales rose about 9% and EPS grew about the same. The top-line growth should have translated into even more earnings growth but did not because Carmax has been investing heavily in technology. It is determined to preserve its spot as the most consumer-friendly option for buying a used car. To that end, it undertook a dizzying array of digital initiatives that included revamping its website, improving its search engine marketing and improving the image quality of the cars it shows online. It also launched online pre-approvals for financing and conducted a test for home delivery. This year, we expect to see the roll out of online ordering and the benefits of a dramatically improved customer retention management system that will give Carmax easily accessible information on its customers. Carmax opened 16 stores during the year, taking the total up to 185. It could ultimately have as many as 300, with the most opportunity coming in small stores located closer to customers. Carmax’s financing business also performed well in 2017. Given that it only lends to prime customers, we expect that it should be able to preserve its financing spread as interest rates rise.

From Ruane Cunniff (Trades, Portfolio)'s Sequoia Fund 4th Quarter 2017 Manager's Commentary.

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Holly LaFon
I'm a financial journalist with a master of science in journalism from Medill at Northwestern University.

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