CarMax is faced with the dilemma of protecting market share or per-unit profitability.
Dreamstime
Used car dealer
CarMax
is stuck between a rock and a hard place, just like so many other automotive-related companies in 2023, struggling to deal with rising interest rates and declining vehicle affordability.
Investors will get a chance to see how the year is developing when the company reports fiscal year 2023 fourth-quarter earnings on Tuesday, before the market opens for trading.
Wall Street is looking for 20 cents in per-share earnings from $6.1 billion in sales. A year ago, CarMax (ticker: KMX) reported 98 cents in per-share earnings from $7.7 billion in sales.
Things are down year over year. What’ smore, analysts project that comparable-store sales, a key metric for any retailer, will drop 27% versus the year-ago quarter. Same-store sales fell 21% year over year in the fiscal third quarter of 2023.
It’s a steep drop. CarMax is faced with the dilemma of either protecting market share or per-unit profitability. It looks as if the company is choosing the latter.
Per-unit profitability is expected to remain stable. Wall Street projects retail gross profit per used vehicle sold will come in at about $2,200 per used car, just about flat year over year.
Whether or not opting for per unit profits, over market share, is the most prudent decision for the company is moot. Either option poses problems for the stock. Earnings estimates would be down either way.
Wall Street projects fiscal year 2024 earnings of $2.90 a share. CarMax earned almost $7 a share in fiscal year 2022. Fiscal year 2023 should come in at about $2.85 a share. When this fiscal year began, Wall Street projected roughly $7 a share, flat with fiscal year 2022.
Falling estimates are a headwind for any stock. CarMax shares are down roughly 36% over the past 12 months. The used car dealer isn’t alone. The average stock in the Russell 3000 Auto and Auto Parts Index is down about 40% over the past 12 months. The
S&P 500
and
Dow Jones Industrial Average
are off about 9% and 3%, respectively, over the same span.
Rising interest rates and declining vehicle affordability is impacting the entire auto industry.
CarMax management hosts a conference call at 9 a.m. Eastern time to discuss results.
Write to Al Root at [email protected]
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