CarMax (NYSE: KMX) is scheduled to report its second-quarter earnings results on Tuesday before the market opens. The top line will be benefited by aggressive store-expansion initiatives, web traffic growth, lending environment, and conversion. The used-car retailer’s leverage of costs and expenses will be reflected in the bottom-line growth.
The company achieves revenue from the sale of used vehicles at retail stores, wholesale vehicles at auctions, extended protection plan and guaranteed asset protection products, as well as from Auto Finance. As of May 31, 2019, CarMax operated 206 used car stores in 102 US television markets, 2 new car franchises, and conducted wholesale auctions at 76 used car stores.
The opening of stores, variable costs related to sales, and share-based compensation expense could drive the selling, general and administrative expenses higher. This will also include continued investments in technology platforms and digital initiatives.
The company remained at a significant competitive advantage due to the powerful integration of its in-store and online capabilities. In the near term, CarMax anticipates certain inefficiencies in some of its operations as it continues to enhance its omnichannel capabilities.
Analysts expect the company’s earnings to increase by 7.30% to $1.33 per share and revenue will rise by 6.20% to $5.06 billion for the second quarter. The company has surprised investors by beating analysts’ expectations in all of the past four quarters. Majority of the analysts recommended a “hold” rating with an average price target of $97.75.
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For the first quarter, CarMax posted a 12% increase in earnings backed by strong conversion, solid growth in web traffic, and store base growth. Used unit sales in comparable stores increased 9.5% and total used unit sales grew 13%. Total wholesale unit sales rose by 6.6%, largely driven by an increase in appraisal buy rate and the growth in its store base.
During the first quarter of fiscal 2020, CarMax opened three stores, two in new markets at Waco, Texas and McAllen, Texas and one in an existing market at Memphis, Tennessee. The company plans to open 10 stores in the balance of fiscal 2020 and 13 stores in fiscal 2021 with four store opening happening in Q1 2021.