AutoMax †KMX) reported better-than-expected quarterly results early Friday, despite fears that rising inflation could especially hurt used car sales. CarMax shares were lower before the opening.
In May, online rival Carvana †KMX) cut thousands of jobs after warning that historically high prices will slow used car sales to recessionary levels.
And about a week ago, Ford †f) CEO John Lawler signaled an increase in delinquent auto loans. CarMax also has a car financing company.
estimates: Analysts polled by FactSet expected CarMax earnings for the first quarter of May to fall 42% to $1.53 a share. Revenue rose 19% to $9.124 billion. Same-store sales were expected to fall 11.6%, down from a 6.5% decline in the previous quarter.
CarMax is confronted with difficult compositions. Same-store sales and sales rose a year ago, with stimulus measures boosting consumer spending.
Results: CarMax’s earnings fell 41% to $1.56 per share. Sales rose 21% to $9.3 billion. Vehicle sales were down 5.5%, while used vehicle sales were down 11%. But used vehicle revenues rose 13.9% on rising prices, with gross profit per used vehicle up $134.
Outlook: Wall Street expects full-year EPS of $5.89, down 16% year-over-year, FactSet says.
The CarMax release made no mention of earnings estimates.
Shares of CarMax fell 0.3% before the opening on the stock exchange today. KMX shares rose 2.2% to 91.76 on Thursday, near the 50-day moving average but well below the 200-day line.
The relative strength line for KMX stocks is improving after a slump.
“Meme stocks” Carvana rose Friday morning after rising 15% on Thursday. But CVNA stocks are not far from the March 2020 pandemic lows.
AutoNation †A) did not trade yet on Friday. Earlier in June, the AN share flirted with an early entry, but then bounced back sharply for several days. While the stocks have recovered somewhat, they remain modest below their 50- and 200-day lines.
Rising inflation, tariffs threaten used car sales
CarMax has benefited from rising used car prices, but headwinds are mounting.
The rapid rise in inflation could hurt car sales, especially deterring price-sensitive used car buyers, analysts say.
To curb inflation, the Fed is aggressively raising interest rates.
Rate hikes make consumer loans less attractive and increase net interest margins for lenders. CarMax Auto Finance helps customers with car loans.
CarMax Auto Finance net income declined 15% in fiscal Q1 to $204.5 million, reflecting the $82.2 million movement in loan loss provisions.
Meanwhile, a growing number of online used car startups, including Carvana, are threatening CarMax. But the brick-and-mortar giant has responded by making fast-growing online auto sales.
CarMax’s focus on growing market share has disappointed some investors. They would like it to use record used car prices to improve profitable growth.
Pricing is a double-edged sword for used car dealers. As sales prices skyrocketed amid shortages of new vehicles, CarMax and rivals have paid to acquire inventory.
Find Aparna Narayanan on Twitter at @IBD_Aparna†
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