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Wednesday, October 27, 2021

CarMax Facing A Reckoning Day

The recent production results of CarMax have highlighted that the industry for used cars is not really immune to most global issues. The situations that have been plaguing other industries have affected this industry equally. Not only is the increase in prices affecting those on the bottom rung, but there is also the fear of the global semiconductor shortage.

The shortage of semiconductors has led to a massive cut back in the production of newer vehicles, and it does take new car production to create the used cars that the company is so bent on selling. It simply can’t be denied that the number of new vehicles currently on the road is a lot lower than it was-and this situation won’t die quietly. 

A Dark Cloud Hovers Over CarMax Blowout Results

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Interestingly, CarMax did end up having quite an interesting quarter in which the revenue for the company rose by 48.8% over the last year- which ended up setting a company record of around $7.99 billion.

This definitely beats the consensus by around 1500 basis points and is generally supported by quite a robust demand in the wholesale channels. The company also went on to note an increase of 19.9% in the total units sold with around a 6.7% increase in retail units sold. Further, there was an increase of 41.8% in the number of wholesale units sold. 

CarMax also reported a 10.2% gross margin or around 170 basis points shy of the significant pressure and expectations in SG&A expenses. SG&A has also been impacted heavily by re-investment but also by increasing wages as well as costs of compensation. This drove the earnings of GAAP of $1.72 which went on to miss out on the consensus by $0.17 and went down by -3.9% from the previous year. 

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The miss in earnings does set CarMax up to miss out on the consensus over the entire year as well and the stock to go down lower. The company also doesn’t provide any guidance- but the outlook does seem favorable.

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