The used-car retailer missed its earnings expectations by a wide margin, citing affordability challenges that stemming from inflation and low consumer confidence, the investors of CarMax Inc. were enduring the worst day in more than 20 years on Thursday.
The stock of KMX plunged 23.9% in midday trading, on track for the biggest one-day decline since its 28.1% plunge on Jan. 20, 2000. It was the worst performer in the S&P 500 index SPX on Thursday, and was headed for the lowest close since April 2020.
According to FactSet, the car affordability stemmed from persistent and broad inflation, climbing interest rates and low consumer confidence, and led to a marketwide decline in used auto sales.
Net income for the quarter to August 31 fell to $125.9 million, or 79 cents a share, from $285.3 million, or $1.72 a share, in the same period a year ago. It was well below the FactSet consensus for earnings per share of $1.39.
Revenue rose 2% to $8.14 billion, which is less than the FactSet consensus of $8.54 billion. Cost of revenue went up 3.3% to $7.41 billion, a 3.3% increase from 10.21%, bringing the gross margin down to 9.05%.
Nash said he believed that sales were hurt by a shift in what consumers prefer to spend their money on, from large purchases to smaller discretionary items. Nash said the company continued to offer a higher mix of lower-priced vehicles, which hurt margins.
The total vehicle unit sales fell 10.3% to 376,616, but the average price for a used vehicle went up 9.6% to $28,657 and the average wholesale-vehicle price rose 17% to $10,179.
Comparable-store used vehicle unit sales fell 8.3%, compared with the FactSet consensus for a 3.6% decline.
Nash said the second quarter began with a low-single-digit decline in comparable-store sales. Sales fell sharply at the beginning of July, with August sales ending with a midteens percentage decline.
The company pulled additional levers to align expenses with the lower sales levels, according to the Chief Financial Officer Enrique Mayor-Mora.
The mayor-Mora said that this included reducing staffing through attrition in our stores and CECs customer experience centers, as well as a reduction in staffing and contractor utilization in our corporate offices, as well as better aligning marketing spend to sales.
As I close, I want to reiterate that while the market conditions and consumer behaviors are challenging, we believe that these pressures are transitory and that our foundation remains strong, as CEO Nash said in the prepared remarks section of the call. CarMax stock fell 49.5% year-to-date, while the SPDR Consumer Discretionary Select Sector exchange-traded fund XLY has slid 28.6% and the S&P 500 has dropped 23.5%.