CarMax (KMX -1.64%), the nation's leading retailer of used cars, released its earnings for the second quarter of its fiscal 2025 on Sept. 26. Its revenue of $7.01 billion surpassed analysts' consensus estimate of $6.83 billion by 2.6%. However, that was still down by 0.9% from the prior-year quarter's $7.07 billion. Its earnings per share (EPS) of $0.85 matched analyst expectations.
Despite mixed performances in some specific segments, the overall picture can be seen as positive, especially considering the challenges in the broader market environment.
| Metric | Q2 Fiscal 2025 Result | Q2 Fiscal 2025 Analyst Estimate | Q2 Fiscal 2024 Result | % Change (YoY) |
|---|---|---|---|---|
| Total revenue | $7.01 billion | $6.83 billion | $7.07 billion | (0.9%) |
| Diluted EPS | $0.85 | $0.85 | $0.75 | 13.3% |
| Retail used unit sales | 211,020 | — | 200,825 | 5.1% |
| Gross profit | $760.5 million | — | $696.8 million | 9.1% |
| Wholesale revenue | $1.15 billion | — | $1.32 billion | (12.7%) |
Source: Analyst estimates for the quarter provided by FactSet.
Understanding CarMax
Founded in 1993, CarMax is the largest retailer of used cars in the United States. Its customer-centric business model combines a vast inventory of vehicles with a no-haggle pricing strategy. This approach aims to provide customers with a transparent and stress-free car buying experience. CarMax has proven particularly adept at adopting technological solutions and refining its omnichannel platform, which allows for seamless online and in-store vehicle purchasing options.
Quarterly Highlights
In its fiscal second quarter, which ended on Aug. 31, CarMax's retail used unit sales grew by 5.1% from the prior year, and comparable store used unit sales rose by 4.3%. This growth was supported by a consistent retail used gross profit per unit of $2,269. Total gross profit increased by 9.1% to $760.5 million.
CarMax's omnichannel sales strategy continues to gain traction. Online sales accounted for 15% of retail unit sales, up from 14% the previous year. Revenue from these online transactions was $2.0 billion.
On the lending side of the business, CarMax Auto Finance's income decreased by 14.4% to $115.6 million, mainly due to a 14.2% increase in provisions for loan losses, reflecting broader industry trends seen in auto loan performance. Despite these challenges, the lending unit financed 42% of the vehicles the company sold, maintaining its role as a crucial contributor to CarMax's overall sales strategy.
The company's gross profit per unit for wholesale vehicles increased by a modest $12 year over year to $975. However, wholesale unit sales decreased by 0.3%, and revenues dropped by 12.7%, primarily due to a decline in average selling prices. This decline highlights a business segment where CarMax faces consistent competitive pressures, and where its results are sensitive to market conditions.
In terms of expenses, selling, general, and administrative (SG&A) costs rose by 4.2% to $610.6 million. However, CarMax decreased SG&A as a percentage of gross profit from 84.1% to 80.3%, indicating effective cost management strategies despite inflationary pressures in the market. Additionally, its gross profit per retail unit from services increased by $84, and its extended protection plan profits grew by $69 per retail unit, both of which contributed positively to its overall margins.
Looking Ahead
CarMax has already opened three new store locations in this fiscal year, and plans to open two more new stores, as well as a standalone reconditioning center and an auction facility before it ends. Alongside these expansions, it aims to continue improving its omnichannel platform and cost management initiatives to maintain growth momentum and provide superior customer experiences.
Investors will want to keep an eye on the company's progress in managing its lending unit in light of the macro environment for borrowers, as well as now it navigates conditions in the wholesale segment.
