CarMax Inc

CarMax, Inc. (NYSE: KMX) is a retailer of used autos. The Company operates through two segments: CarMax Sales Operations and CarMax Auto Finance (CAF). The CarMax Sales Operations segment consists of all aspects of its auto merchandising and service operations.

Recent Business and Financial Updates

• Strong Retail and Wholesale Performance: CarMax demonstrated robust retail sales growth during the second quarter of fiscal 2025, with retail used unit sales increasing by 5.1% year-over year and comparable store used unit sales rising by 4.3%. Wholesale unit sales experienced a marginal decline of 0.3%. The gross profit per retail unit remained stable at USD 2,269, while the gross profit per wholesale unit was USD 975, consistent with the previous year. Extended Protection Plan (EPP) margins improved by USD 69 per retail unit to USD 575, and service margins grew by USD 84 per retail unit compared to the prior year’s second quarter. The company acquired 300,000 vehicles from consumers and dealers, marking a 2.9% year-over-year increase. Of these, 269,000 vehicles were purchased directly from consumers, reflecting a 1.2% decline, while dealer purchases surged by 61.4% to 31,000 units.
• Financial Growth and Profitability: Net earnings per diluted share grew by 13.3% to USD 0.85, up from USD 0.75 in the same quarter last year. Total gross profit increased by 9.1% year-over-year to USD 760.5 million. Retail used vehicles’ gross profit rose by 5.9%, while wholesale vehicles’ gross profit grew by 0.9%. Additionally, other gross profit increased by 33.1%, driven by higher EPP revenues and improved service efficiency, reflecting the company’s focus on strengthening its revenue streams. Online retail sales accounted for 15% of total retail unit sales, compared to 14% in the prior year. Revenue from online transactions encompassing retail and wholesale unit sales, constituted approximately 29% of total net revenues, slightly lower than 31% in the previous year due to a decline in the average wholesale selling prices.
• Effective Cost Management: Selling, General, and Administrative (SG&A) expenses rose by 4.2% to USD 610.6 million, driven by increased compensation and benefits costs, as well as inflationary pressures on utilities and store maintenance expenses. Despite this rise, SG&A as a percentage of gross profit improved to 80.3%, compared to 84.1% in the prior year, underscoring CarMax’s continued focus on operational efficiency and cost control.
• CarMax Auto Finance (CAF) Performance: CAF reported an income of USD 115.6 million, a decline of 14.4% compared to the prior year. This decrease was primarily attributed to a higher provision for loan losses, which increased to USD 112.6 million. This included a USD 52.2 million adjustment for estimated lifetime losses on existing loans, reflecting broader industry challenges related to worsening auto loan loss trends. CAF’s total interest margin percentage remained stable at 6.1%, consistent with the prior year and the first quarter of fiscal 2025. As of August 31, 2024, CAF’s allowance for loan losses was USD 500.8 million, representing 2.82% of ending managed receivables, slightly higher than the previous quarter but lower than the 3.08% recorded a year ago. CAF financed 42.0% of units sold, compared to 42.8% in the prior year.
• Strategic Initiatives and Expansion: CarMax repurchased 1.4 million shares of common stock for USD 106.1 million during the second quarter, leaving USD 2.15 billion available under the current repurchase authorization. The company continued its expansion efforts, opening two new stores in El Paso, Texas, and Gainesville, Georgia. Plans for fiscal 2025 include the addition of five new store locations, a stand-alone reconditioning center, and an auction facility.
• CEO’s Perspective: Bill Nash, President and CEO of CarMax, expressed satisfaction with the company’s progress, stating, “We are pleased with the continued improvement of the business in the second quarter, which reflects the positive impact of our durable actions to further differentiate the value and experience we offer associates and customers. Our diversified business model is well-positioned to drive future increases in sales and profitability as we further leverage our omni-channel capabilities.”

Technical Observation (on the daily chart):

The Relative Strength Index (RSI) over a 14-day period stands at a value of 66.72, currently recovering from overbought zone, with expectations of a consolidation or an upward momentum if the price breaks above important resistance of USD 90. Additionally, the stock's current positioning is above both the 50-period SMA and 200-period SMA, which may serve as dynamic short to medium-term support levels.

As per the above-mentioned price action, recent key business and financial updates, momentum in the stock over the last month, and technical indicators analysis, a ‘WATCH’ rating has been given for CarMax, Inc. (NYSE: KMX) at the closing market price of USD 84.56 as of December 05, 2024. 

Individuals can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario. 

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

Related Risk: This report may be looked at from a high-risk perspective and a recommendation is provided for a short duration. This report is solely based on technical parameters, and the fundamental performance of the stocks has not been considered in the decision-making process. Other factors which could impact the stock prices include market risks, regulatory risks, interest rates risks, currency risks, social and political instability risks etc. 

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance level is December 05, 2024. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the New York Stock Exchange (NYSE), NASDAQ Capital Markets (NASDAQ), and or REFINITIV. Typically, all sources (NYSE, NASDAQ, or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.