CarMax (KMX) reported impressive earnings for its fiscal first quarter, surpassing analysts’ expectations. The leading used-car retailer posted earnings of $1.44 per share on $7.687 billion in revenue for the quarter ended May 31. While CarMax’s earnings fell nearly 8% compared to the previous year, its revenue dropped by 17%.
Analysts had predicted CarMax earnings of 79 cents per share and revenue of $7.495 billion, according to FactSet. Despite the decline in earnings and revenue, CarMax’s deliberate actions to control costs, including a reduction in selling, general, and administrative (SG&A) expenses by 14.8%, contributed to the positive results.
CarMax’s retail used unit sales declined by 9.6% from a year ago, while wholesale units retreated by 13.6% compared to the previous year. Comparable store used unit sales also fell by 11.4% from a year ago. However, CarMax CEO Bill Nash expressed optimism about the company’s performance, stating that their deliberate actions are driving improved trends in the business, despite the challenging macro environment.
Following the strong earnings report, CarMax stock soared, with shares leaping 10% to reach $86.21 on the stock market. CarMax stock had previously topped a cup-with-handle buy point of $73.57 in May and is now considered to be far extended.
In contrast, CarMax’s online rival, Carvana (CVNA), experienced a significant decline in its stock price, plunging by 16.1% on Friday. Despite Carvana’s stock skyrocketing around 350% year to date due to an improving financial outlook, the company’s performance took a hit.
In other news, there were reports of a potential takeover bid for embattled auto, home, and renters insurer Root (ROOT) at a big premium. However, bidder Embedded Insurance has not been able to negotiate a deal, according to the Wall Street Journal. Carvana, which is an online used-car seller, had invested in Root in 2021, and the two companies had partnered to provide car insurance to Carvana customers. As a result of the failed negotiations, Root stock sank by 14.8% on Friday after experiencing a surge earlier in the week.
Overall, CarMax’s strong earnings performance and cost control measures have propelled its stock to new heights, while Carvana faces challenges in the market. The potential takeover bid for Root adds another layer of complexity to the situation, impacting both Carvana and Root stocks. Investors will be closely monitoring these developments in the coming weeks.
What factors contributed to the 17% drop in revenue for CarMax during the quarter that ended on May 31
CarMax (KMX) has reported better-than-expected earnings for its fiscal first quarter. The popular used-car retailer recorded earnings of $1.44 per share, along with $7.687 billion in revenue for the quarter that ended on May 31. While there was an 8% decrease in earnings compared to the previous year, revenue dropped by 17%.
According to FactSet, analysts had predicted earnings of 79 cents per share and revenue of $7.495 billion for CarMax. Despite the decline in both earnings and revenue, CarMax successfully managed its costs by implementing measures such as reducing selling, general, and administrative (SG&A) expenses.
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CarMax’s stellar earnings performance showcases the strength of the used car market, leaving Carvana scrambling to catch up. The dynamics at play highlight the importance of established networks and expertise in this competitive industry.
The used car market continues to show its resilience as CarMax impresses with its earnings, while Carvana faces a setback. This disparity highlights the importance of adapting to changing consumer preferences and market conditions in the automotive industry.