It has been about a month since the last earnings report for CarMax (KMX - Free Report) . Shares have added about 9.2% 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 the most recent earnings report in order to get a better handle on the important catalysts.
CarMax's Q3 Earnings Beat Estimates, Revenues Miss
CarMax posted earnings per share of $1.09 in the third quarter of fiscal 2019 (ended Nov 30, 2018), up 34.6% from 81 cents in the year-ago quarter. Moreover, earnings surpassed the Zacks Consensus Estimate of $1.01.
Net sales and operating revenues in the reported quarter increased 4.6% year over year to $4.3 billion. However, the figure missed the Zacks Consensus Estimate of $4.33 billion. Total gross profit rose 5.6% year over year to $569.2 million.
During the quarter under review, used-vehicle revenues rose 3.6% to $3.5 billion as unit sales increased 2.3% to 173,476 vehicles. The average selling price of used vehicles rose 1.3% to $27,273. Comparable store used-vehicle unit sales declined 1.2%. The downside was primarily caused by lower store traffic, partially offset by improved conversion.
Wholesale vehicle revenues rose 9.2% to $603.6 million in the reported quarter. Unit sales increased 10% to 110,403 vehicles, courtesy of a boost in store base and a higher appraisal buy rate. The average selling price of wholesale vehicles declined 1% to $5,214.
Other sales and revenues increased 12.1% year over year. Moreover, the extended protection plan’s (EPP) revenues rose 11.1%.
CarMax Auto Finance (“CAF”) reported an increase of 6.7% in income to $109.7 million in the quarter under review, reflecting collective effects of an 8.4% rise in average managed receivables and a slightly lower total interest margin percentage.
During third-quarter fiscal 2019, CarMax opened four stores in new television markets of Wilmington, NC; Lafayette, LA; Corpus Christi, TX; and Shreveport, LA.
Share Repurchase Program
In the quarter under review, CarMax spent $254.3 million to repurchase 3.7 million shares under the existing share buyback program. Also, the board approved a share repurchase extension of $2 billion. As of Nov 30, 2018, the company had $2.38 billion of authorization remaining under its share repurchase program.
CarMax had cash and cash equivalents of $35 million as of Nov 30, 2018, up from $26.3 million as of Nov 30, 2017. Long-term debt (excluding current position) amounted to $992.1 million as of Nov 30, 2018, down from $1.04 billion as of Nov 30, 2017.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, CarMax has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.
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.