CarMax Inc.’s fiscal third-quarter earnings miss fueled further concerns about the state of used-car affordability and a larger, lingering slowdown in the used-car market.
Used-vehicle giant CarMax slowed its inventory purchases from consumers in light of steep market depreciation in wholesale prices in the quarter ended Nov. 30. Company leaders said the retailer increased its focus on selling a higher mix of older, lower-priced vehicles — partly to reduce costs and partly to meet increased demand from consumers for less-expensive vehicles.
CarMax shares fell 3.6 percent to close Thursday at $57.21 after it released its earnings, and those results triggered declines in the share prices of some of its used-vehicle retail competitors, including Carvana Co. and AutoNation Inc.
CarMax retailed 180,050 used vehicles in the quarter, down 21 percent from the same period a year earlier. That contributed to an 86 percent drop in net income, to $37.6 million. CarMax’s third-quarter revenue fell 24 percent to $6.5 billion. In the nine months ended Nov. 30, CarMax retailed 637,939 used vehicles, down nearly 13 percent.
“You have to go back to vehicle affordability,” CarMax CEO Bill Nash said in a Thursday conference call. “It’s just keeping a lot of people on the sidelines right now.”
Rising interest rates also are keeping customers out of the market, Nash said. He estimated that monthly payments for customers with Tier 1 credit ratings using CarMax Auto Finance, the retailer’s captive finance arm, are up $150 year over year. Higher rates — mixed with overall inflationary pressures and retail prices consumers still see as high — are keeping would-be buyers away, he said.
Despite the volume decline, Nash said he is comfortable with CarMax’s gross profit per vehicle retailed — $2,237 in the quarter, nearly level with the $2,235 mark in the same period a year earlier. But he said the company will continue to monitor that over the next few quarters as warranted.
“I expect [average selling prices] to continue to fall, which I think overall, for the industry, is a good thing to help drive some gap between new and late-model used,” Nash said. “We feel comfortable with where our GPUs are, and we’ll continue to test.”
CarMax CFO Enrique Mayor-Mora said the company continues to trim expenses to be better aligned with sales, as it had the prior quarter.
The retailer further reduced staffing through attrition in its stores and customer experience centers, limited hiring and the use of contractors in its corporate offices and cut marketing spend in accordance with sales, Mayor-Mora said.
“As sales got more challenged in the third quarter, we went deeper into the staffing levels in the field,” he said. “And it’s still through attrition, so it does take a little bit longer, but at the same time, we did lower our staffing targets to reflect the current sales environment.”
Mayor-Mora said the company remains focused on reducing expenses and expects that to continue in its fiscal fourth quarter.
CarMax ranks No. 1 on Automotive News’ list of the top 100 retailers ranked by used-vehicle sales, with retail sales of 924,338 used vehicles in 2021.