CarMax Jumps as Profit on Used Vehicles Drives Earnings Beat - Yahoo Finance

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(Bloomberg) -- CarMax Inc. beat Wall Street’s earnings estimates as the auto retailer squeezed more profit from each vehicle, countering a sales drop and softening used-car prices.

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The Richmond, Virginia-based dealer chain reported adjusted profit of 44 cents a share in the fiscal fourth quarter, well above the 20-cent average of analysts’ estimates compiled by Bloomberg but down from 98 cents a share a year ago. Gross profit per retail used unit came to $2,277 in the period ended Feb. 28, up $82 from a year ago, the retailer said Tuesday in a statement.

Shares of CarMax rose 7.3% at 9:35 a.m. in New York. The stock had fallen about 36% over the past 12 months through Monday’s close.

The average retail selling price of a used car fell 9.3% from a year ago, or about $2,700, CarMax said. Net sales in the quarter were $5.72 billion, which missed analysts’ projections for $6.08 billion.

CarMax’s report offers a measure of hope to investors after a volatile stretch for the pre-owned vehicle market. Prices have stabilized industrywide in recent months after sliding for much of last year, though some buyers are still reluctant due to inflationary pressures, higher interest rates and tighter borrowing standards.

Bigger size and scale will help CarMax navigate a changing industry landscape better than Carvana Co., which said last month that it expects lower sales volumes to offset higher gross profit per vehicle.

“The pre-owned market is shifting to lower-unit volume and higher transaction prices — like the new vehicle segment has done,” said Bloomberg Intelligence analyst Kevin Tynan. “CarMax has the mechanisms in place to maintain gross profit per unit while leaving low-margin transactions to competitors like Carvana that built out infrastructure before scaling to profitable volume.”

CarMax reaffirmed its long-term financial targets, including selling as many as 2.4 million vehicles through retail and wholesale channels by fiscal 2026. By the end of calendar 2025, the company expects to increase its share of the US market to 5%, up from 4% currently, for sales of used cars up to 10 years old.

(Updates share trading in third paragraph.)