© Reuters.
CarMax (NYSE:), Inc. reported a decline in total sales and retail unit sales in its second-quarter earnings report for fiscal year 2024. The company revealed a 13% decrease in total sales, amounting to $7.1 billion, compared to the same period last year. Retail unit sales fell by 7.4%, while used unit comps decreased by 9%. The average selling price per unit also declined by approximately $1200, or 4% year-over-year.
Key takeaways from the call include:
- Wholesale unit sales were down 11.2%, with an average selling price decline of approximately $1,300 per unit, or 12% year-over-year.
- CarMax Auto Finance (CAF) income was $135 million, down from $183 million in the same period last year.
- The company plans to restart its share repurchase program and has $2.45 billion of repurchase authorization remaining.
- CAF originated $2.2 billion in the second quarter, resulting in a penetration rate of 42.8%.
- The company continues to focus on enhancing its digital shopping experience and operational efficiencies.
During the earnings call, CarMax executives discussed the impact of strikes on vehicle supply and pricing. They stated that they are closely monitoring the situation and expect to navigate through the challenges, drawing on their past experience. They also mentioned that they will continue to provide vehicles that match their quality standards and affordability, with over a quarter of their inventory priced below $20,000.
The executives also discussed the behavior of consumers who cannot afford a vehicle, noting that some delay their purchase, while others opt for a lower-priced car for reliable transportation. They highlighted the value of their finance product and the availability of credit for customers. Additionally, they mentioned that they plan to open five new stores this year and have not yet announced the number of stores to be built next year.
CarMax reported a reduction in sales penetration due to lender tightening and consumer hesitation, particularly in lower credit tiers. Tier 3 sales accounted for 6.4% of total sales, up from 6% the previous year, while CAF income for the quarter was $135 million, down from $183 million. Total interest margin decreased to $265 million, and the loan loss provision for Q2 was $90 million, resulting in an ending reserve balance of $538 million.
The company also addressed compensation expenses, stating that it has largely anniversaried over previous cost cuts and will be more pressured in the future. It mentioned the possibility of increasing headcount for the next tax season. Additionally, the company discussed its retail gross profit per unit (GPU), noting that the first quarter was an anomaly and the second quarter was more in line with the previous year. It expects to be more in line with the full year of the previous year, which was a step up from historical levels.
CarMax expects to see continued benefits in the second half of the year, although not as strong as the first half due to comparisons with last year’s focus on managing collections. They do not provide 100% servicing for third-party lenders. Sales trends indicate a significant decline in the lower income consumer segment, with sales for households earning $3,000 or less decreasing by 50%. CarMax’s advertising strategy is focused on both sales and purchases, with the team constantly monitoring ROI and adjusting spending accordingly. The company thanked its team for their efforts and support during their 30th anniversary year.
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