Earnings Preview: Higher costs might drive CarMax profits down

CarMax Inc. (KMX) is scheduled to report second-quarter 2019 earnings on September 26. Wall Street estimates revenues will grow 7% year-over-year to $4.70 billion and earnings will see an improvement of 24.5% to $1.22 per share.

In first-quarter 2019, CarMax beat analyst estimates on both revenues and earnings. The top line grew 5.5% while EPS improved 17.7%. Net income rose 12.7% helped by lower tax rates. The company saw sales increases in all its segments during the first quarter.

For the second quarter, used vehicle sales are expected to come in the same range as the first quarter while wholesale vehicle sales and other sales are expected to increase slightly.

Comparable store sales, which is an important metric to keep an eye on, dropped 2.3% last quarter. This decline was lower than the 8% drop recorded in the fourth quarter, indicating an improving trend and generating optimism.

CarMax has been opening several stores to broaden distribution and grow its numbers. The company has also been significantly investing in its e-commerce channel which is expected to benefit from its existing store footprint. However, these initiatives have led to higher costs which have put pressure on the company.

CarMax has a mixed record concerning meeting market expectations on results. The stock is up 17% so far this year and is likely to fluctuate based on the outcome of the second quarter results on Wednesday.

CarMax stock rises on upbeat results