CarMax Q3 Earnings Beat Expectations, Sending Shares Soaring
CarMax, Inc. (KMX) announced strong third-quarter fiscal year 2025 earnings results, exceeding analysts’ projections and driving a significant surge in its stock price. The company reported quarterly sales of $6.223 billion, surpassing the anticipated $6.042 billion, and earnings per share (EPS) of 81 cents, outperforming the consensus estimate of 64 cents.
Strong Performance Across Key Metrics
The positive results were driven by robust performance across various key metrics. Retail used unit sales saw a 5.4% year-over-year (Y/Y) increase, while comparable store used unit sales rose by 4.3% Y/Y. Wholesale units also experienced growth, increasing by 6.3% Y/Y. This growth in unit sales contributed significantly to the overall earnings beat.
Financial Highlights and Growth Drivers
CarMax Auto Finance (CAF) income reached $159.9 million, a 7.6% Y/Y increase, fueled by improved net interest margin and higher average managed receivables. The provision for loan losses remained in line with second-quarter expectations. Gross profit per retail used unit held steady year-over-year at $2,306, while gross profit per wholesale unit increased by $54 to $1,015. The Extended Protection Plan margin also saw improvement, rising by $53 per retail unit to $573. These strong margins contributed significantly to the higher-than-expected earnings.
Share Repurchases and Financial Position
During the quarter, CarMax repurchased 1.5 million shares of common stock for $114.8 million, showcasing confidence in its future prospects. As of November 30, 2024, the company still had $2.04 billion available for further repurchases. The company’s strong financial position is evident in its cash and equivalents of $271.9 million and restricted cash from collections on auto loans receivable totaling $541.15 million. Inventories stood at $3.665 billion at the end of the quarter.
Management Commentary and Future Outlook
Bill Nash, CarMax’s president, and chief executive officer, attributed the strong performance to solid execution and a more stable vehicle valuation environment. He highlighted the robust EPS growth as a result of increased unit sales and buys, solid margins, growth in CAF income, and effective SG&A management. The opening of a new store in Alliance, Texas, further demonstrates the company’s commitment to expansion.
Investor Exposure and Stock Performance
Investors can gain exposure to CarMax through ETFs such as the Valued Advisers Trust Kovitz Core Equity ETF (EQTY) and Invesco Bloomberg Analyst Rating Improvers ETF (UPGD). Following the positive earnings report, KMX shares surged, trading higher by 6.44% to $86.66 premarket at the last check.
