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CarMax (KMX) Up 31.8% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for CarMax (KMX - Free Report) . Shares have added about 31.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is CarMax due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

CarMax Reports Stellar Q3 Earnings & Sales

CarMax reported third-quarter fiscal 2021 (ended Nov 30, 2020) net earnings per share of $1.42, surpassing the Zacks Consensus Estimate of $1.11. This outperformance can be attributed to the higher-than-expected gross profit from the company’s wholesale vehicles segment. The wholesale vehicle sales totaled $114.4 million, beating the consensus mark of $112 million. Encouragingly, the bottom line compares favorably with the year-ago earnings of $1.04 per share, marking a year-over-year jump of 36.5%.

The auto retailer registered revenues of $5,184.9 million during the November-end quarter, beating the Zacks Consensus Estimate of $4,977 million. Moreover, the top line recorded an 8.2% year-over-year increase. Total gross profit increased 2.9% year over year to $631.4 million.

In the fiscal first quarter, CarMax had put brakes to its store-expansion strategy. The company resumed construction activity on new stores during the fiscal third quarter and anticipates to open roughly eight to 10 stores in fiscal 2022.

Segmental Performance

CarMax’s used-vehicle net sales summed $4,209.7 million in the reported quarter, up 4.5% year on year on increase in average retail selling prices. The reported figure also surpassed the consensus mark of $4,169 million. The units sold in this segment inched up 1% year over year to 194,576 vehicles. Also, the average selling price of used vehicles increased 3.3% from the year-ago quarter to $21,402. Used-vehicle gross profit per unit came in at $2,151, higher than the prior-year quarter’s $2,145. Comparable store used-vehicle units edged down 0.8%, while revenues were up 2.5% from the prior-year level.

In the fiscal third quarter, wholesale vehicle revenues jumped 35.6% to $828.4 million from the year-ago level. The reported figure also handily beat the Zacks Consensus Estimate of $630 million. Units sold also grew 10.8% year over year to 126,317 vehicles on record appraisal buy rate, partially offset by reduced appraisal traffic. The average selling price of wholesale vehicles climbed 23% from the prior-year quarter to $6,245. Wholesale vehicle gross profit per unit came in at $906, down from than the year-ago period’s $937.

Other sales and revenues slid 2.3% year over year to $146.8 million during the fiscal third quarter. The reported figure also missed the consensus mark of $153 million.

CarMax Auto Finance reported a 54.7% year-over-year jump in income to $176.4 million in the November-end quarter, chiefly reflecting a fall in the provision for loan losses to $8.2 million from the year-earlier quarter’s $49 million, alongside an increase in net interest margin and average managed receivables.

Costs, Financials and Share Buyback

Selling, general and administrative expenses fell 1.2% from the prior-year quarter to $478.8 million. CarMax had cash and cash equivalents of $236.6 million as of Nov 30, 2020 compared with $56.5 million as on Nov 30, 2019. Long-term debt (excluding the current portion) amounted to $1,437.8 million, reflecting an increase from the year-ago period’s $1,421 million.

CarMax repurchased 1.2 million shares of common stock for $109.2 million under its share-repurchase program during the fiscal third quarter. As of Nov 30, 2020, it had $1.4 billion remaining under the share-repurchase authorization.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

Currently, CarMax has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, CarMax has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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