CarMax’s Awful Earnings Send a Warning to All Car Stocks. Here’s What to Know.

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Used car giant

CarMax

delivered an earning miss that has sent the stock lower in premarket trading Tuesday. The results are a warning to all automotive investors: Buckle up for a rocky period of quarterly results.

For its fiscal fourth quarter ended in February, CarMax (ticker: KMX) reported earnings of 98 cents a share from $7.7 billion in sales. Wall Street expected profit of $1.27 a share from $7.5 billion in sales. Expenses were higher than forecast including high provisions for bad debt. (CarMax finances some of its vehicle sales).

The company moved more than 340,000 vehicles through its retail and wholesale channels. That was up about 11% year over year. But retail sales volume dropped 5.2% year over year and same-store sales in the fiscal fourth quarter fell 6.5%.

The retail drop and bad debt provision are hints that inflation is impacting buying behavior. (The average used car transaction price rose about 40% year over year, coming it at about $29,000 per unit).

Vehicle availability is a factor too. Industry inventories are low. A persistent shortage of semiconductors has constrained global auto production for more than a year. The lack of inventory is contributing to higher car prices and is a problem in itself.

CarMax shares were down about 3% at about $100.

S&P 500
and

Dow Jones Industrial Average
futures were both up slightly.

CarMax did manage to increase market share in fiscal 2022. The company reported it sold 4% of the cars zero to 10 years old, up from about 3.5% a year ago.

“We are extremely proud of our accomplishments in fiscal 2022, which we believe position us well for continued long-term growth across our retail and wholesale business, and CarMax Auto Finance,” said CEO Bill Nash in the company’s news release. “While the fourth quarter was adversely affected by macro factors, our retail market share growth for the year was the highest it’s been during my tenure as CEO and is a reflection of our ability to deliver the most customer-centric experience in the industry.”

CarMax plans to open 10 stores in fiscal 2023. CarMax opened 10 stores in fiscal 2022 and had 230 locations as of the end of February.

The company hosts a conference call a 9 a.m. Eastern time to discuss results. Investors and analysts will be anxious to hear about the direction of prices and demand going into the new fiscal year.

Coming into Tuesday trading, CarMax stock has fallen about 21% in 2022.

Write to Al Root at [email protected]