Earnings preview: Will CarMax (KMX) stock retain strength after Q3 report?

CarMax Inc. (NYSE: KMX) has been thriving on the steady increase in sales, supported by the effective execution of its growth strategy. The market has responded positively to the upbeat performance in recent quarters and the stock set new records consistently this year.

Bullish Outlook

When the used-car retailer unveils its third-quarter numbers on December 20, before the regular trading session starts, analysts will be looking for earnings of $1.15 per share – up 6% from last year – on revenues of $4.67 billion. Considering the company’s impressive track record of beating estimates, the stock will likely gain further after the earnings announcement and cross the $100-mark for the first time.

Related: CarMax Q2 2019 Earnings Conference Call Transcript

It is estimated that volumes moved up in the most recent quarter, helped by the growing demand for used vehicles at affordable prices. There has been an equally encouraging trend in the company’s wholesale segment. While the positive market conditions are set to lift the bottom-line, it will be partially offset by higher selling, general and administrative expenses. It needs to be noted that typically, the company’s margins do not gain as much as sales do.

Omnichannel Push

The management’s initiatives to enhance the omnichannel capabilities have been paying off, making the facility available to more than one-third of the company’s customers. This, combined with the aggressive store-expansion drive and growing online traffic, should translate into revenue growth. Also, the favorable lending environment is expected to attract customers to the showrooms.

Q2 Outcome

In the second quarter, another strong performance by the Used Vehicle segment, which accounts for more than 80% of the company’s revenue, lifted the top-line to $5.2 billion. Consequently, earnings advanced 13% to $1.40 per share, exceeding the expectations.

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CarMax shares traded slightly below the $100-mark ahead of the quarterly report, which is a record high. The stock gained progressively in recent months and is up 48% since the beginning of the year. In the past six months alone it grew 17%.

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