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CarMax’s (NYSE:KMX) Q3 Sales Top Estimates But Stock Drops


Radek Strnad /
2024/09/26 7:18 am EDT

Used automotive vehicle retailer Carmax (NYSE:KMX) reported Q3 CY2024 results beating Wall Street’s revenue expectations, but sales were flat year on year at $7.01 billion. Its GAAP profit of $0.85 per share was 1.1% below analysts’ consensus estimates.

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CarMax (KMX) Q3 CY2024 Highlights:

  • Revenue: $7.01 billion vs analyst estimates of $6.83 billion (2.7% beat)
  • EPS: $0.85 vs analyst expectations of $0.86 (1.1% miss)
  • Gross Margin (GAAP): 10.8%, in line with the same quarter last year
  • EBITDA Margin: 3.1%, in line with the same quarter last year
  • Free Cash Flow Margin: 7.3%, up from 0.7% in the same quarter last year
  • Locations: 245 at quarter end, up from 240 in the same quarter last year
  • Same-Store Sales were flat year on year (-12.5% in the same quarter last year) (miss vs. expectations of a 0.6% year on year increase)
  • Market Capitalization: $11.63 billion

“We are pleased with the continued improvement of the business in the second quarter, which reflects the positive impact of our durable actions to further differentiate the value and experience we offer associates and customers, continued year-over-year price declines, and improved stability in vehicle valuations,” said Bill Nash, president and chief executive officer.

Company Overview

Known for its transparent, customer-centric approach and wide selection of vehicles, Carmax (NYSE:KMX) is the largest automotive retailer in the United States.

Vehicle Retailer

Buying a vehicle is a big decision and usually the second-largest purchase behind a home for many people, so retailers that sell new and used cars try to offer selection, convenience, and customer service to shoppers. While there is online competition, especially for research and discovery, the vehicle sales market is still very fragmented and localized given the magnitude of the purchase and the logistical costs associated with moving cars over long distances. At the end of the day, a large swath of the population relies on cars to get from point A to point B, and vehicle sellers are acutely aware of this need.

Sales Growth

CarMax is one of the larger companies in the consumer retail industry and benefits from economies of scale, enabling it to gain more leverage on fixed costs and offer consumers lower prices.

As you can see below, the company’s annualized revenue growth rate of 6.2% over the last five years was tepid , but to its credit, it opened new stores and expanded its reach.

CarMax Total Revenue

This quarter, CarMax’s revenue fell 0.9% year on year to $7.01 billion but beat Wall Street’s estimates by 2.7%. Looking ahead, Wall Street expects revenue to remain flat over the next 12 months.

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Same-Store Sales

Same-store sales growth is a key performance indicator used to measure organic growth and demand for retailers.

CarMax’s demand has been shrinking over the last eight quarters, and on average, its same-store sales have declined by 11% year on year. This performance is quite concerning and the company should reconsider its strategy before investing its precious capital into new store buildouts.

CarMax Year On Year Same Store Sales Growth

In the latest quarter, CarMax’s year on year same-store sales were flat. This performance was a well-appreciated turnaround from the 12.5% year-on-year decline it posted 12 months ago, showing the business is doing better.

Key Takeaways from CarMax’s Q3 Results

We enjoyed seeing CarMax exceed analysts’ revenue expectations this quarter, but same store sales for used vehicles missed. EBITDA and EPS also missed, suggesting that while topline was solid, profitability underperformed. Overall, this was a mixed quarter with disappointing EBITDA. The stock traded down 7.3% to $69.02 immediately following the results.

Is CarMax an attractive investment opportunity right now?What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock.We cover that in our actionable full research report which you can read here, it’s free.