Earnings preview: What to expect from CarMax Q1 2020 results?

CarMax (NYSE: KMX) is scheduled to report its earnings results for the first quarter of 2020 on Friday before the market opens. The results will be benefited by the aggressive store-expansion initiatives as the used-car retailer plans to open three stores in existing markets.

Also, CarMax tapped digital platform improvements for increasing website traffic. The bottom line will be driven by higher revenue and costs and expenses leverage. The quarterly performance is likely to be based upon improved conversion, store base growth, and lower cancellation activity.

Analysts expect the company’s earnings to jump by 10.50% to $1.47 per share and revenue will increase by 6.90% to $5.12 billion for the first quarter. In comparison, during the previous year quarter, CarMax posted a profit of $1.33 per share on revenue of $4.79 billion.

The company surprised investors by beating analysts’ expectations in the past four quarters. It is anticipated that CarMax would report upbeat results for the first quarter of 2020. Majority of the analysts have changed their recommendation to “hold” rating in June from “strong buy” in May, with an average price target of $83.38.

For the fourth quarter, CarMax reported a 58% jump in earnings driven by a 5.7% increase in revenue and a decline in income tax provision. The prior-year quarter’s earnings were reduced by the revaluation of its net deferred tax asset, and a one-time discretionary bonus paid to eligible associates.

Used unit sales in comparable stores rose 2.8% and total used unit sales grew 5.6%. The comparable store sales performance primarily reflected improved conversion, partially offset by lower store traffic. Total wholesale unit sales increased by 3.7%, largely driven by the growth in its store base.

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During the fourth quarter of fiscal 2019, CarMax opened five stores, including three stores in new television markets, and two in existing television markets. The company now intends to open 13 stores in fiscal 2020 and a similar number of stores in fiscal 2021.

CarMax estimates capital expenditures to increase to about $350 million in fiscal 2020 from $304.6 million in fiscal 2019. The increase in planned capital spending in fiscal 2020 reflects several factors, including a shift of some spending originally planned for 2019 into 2020 and the addition of three customer experience centers to support its omnichannel roll-out.

Shares of CarMax opened higher on Wednesday but changed course to the red territory on the NYSE. The stock has risen over 13% in the past year and over 36% in the past three months.

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