Categories Analysis, Industrials

CarMax (KMX) might stay in the fast lane post-COVID. Here’s why?

The long-term target is to achieve combined annual unit sales of 2 million for retail and wholesale and $33 billion of revenue by fiscal 2026

The automotive and mobility industries were among the worst hit by the coronavirus, but the used car segment remained largely unaffected by the crisis and emerged as a surprise winner. CarMax, Inc. (NYSE: KMX), a market leader in pre-owned car sales, generated record profit in the early months of the fiscal year as demand conditions improved steadily.

Boom Time

Statistics show that people opted for second-hand vehicles over new ones, to preserve liquidity amid concerns of personal finances getting affected by the deepening crisis. People’s unwillingness to use public transportation during the pandemic added to the sales boom.

Read management/analysts’ comments on CarMax’s Q1 2022 earnings

In recent months, shares of the Richmond-based company traded above their long-term average and hit an all-time high last week. However, there is enough room for further growth. KMX is unlikely to disappoint investors, especially those looking for long-term engagement. There is no reason to ignore the stock that remains affordable despite the steady gains.

In what could be a testament to its strong growth prospects, CarMax opened two new stores in the current fiscal year and is on track to open ten more before year-end. Competitive pricing, broad selection, and effective marketing helped the company dominate the market consistently, thereby generating good shareholder value.

Digital Shift

When it comes to future growth, aggressive e-commerce initiatives will be the main growth driver, with the majority of customers initiating the first step of their purchases through the company’s digital platform. At the same time, there are continuing efforts to complement the omnichannel shift with a superior customer experience.

The long-term goal is to sell 2 million cars annually by 2026, which looks achievable since the country’s large used car market remains untapped to a large extent.  Having acquired recently, an online resource for automotive inventory and information, CarMax intends to keep exploring more acquisitions in the coming months.

Our approach to capital allocation is aligned with this belief and is supported by the significant amount of cash our diversified business model generates. First, we continue to focus on our core business by aggressively investing in the digital capabilities required to enhance our omnichannel experience, vehicle and customer acquisition, and the strategic expansion of our store footprint.

Bill Nash, chief operating officer of CarMax

Record Earnings

Earnings grew in each of the trailing four quarters and exceeded Wall Street’s prediction. In the first three months of fiscal 2022, profit surged to a record high of $2.63 per share from $0.03 per share in the same period of last year. Net sales and operating revenues more than doubled to $7.69 billion, with strong contributions from the retail and wholesale vehicles segments. The average selling price in the used car segment increased 10.7% year-over-year.

CarMax will be publishing its second quarter 2022 results on Thursday before the opening bell, amid expectations for a 6% increase in earnings to $1.89 per share on revenues of $6.85 billion, which represents a 28% growth.

Key highlights from AutoZone’s Q4 2021 earnings results

KMX is one of the fastest-growing stocks that gathered considerable momentum during the pandemic. It moved up 56% so far this year and is getting stronger ahead of the earnings. The stock traded higher on Monday afternoon, after opening the session at $144.42.

Looking for more insights on the earnings results? Click here to access the full transcripts of the latest earnings conference calls!

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