Why Is CarMax (KMX) Up 8% Since Last Earnings Report?

It has been about a month since the last earnings report for CarMax (NYSE:KMX). Shares have added about 8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is CarMax due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

CarMax Q4 Earnings & Sales Beat Estimates

CarMax reported fourth-quarter fiscal 2021 (ended Feb 28, 2021) net earnings per share of $1.27, surpassing the Zacks Consensus Estimate of $1.24. This outperformance can be attributed to the higher-than-anticipated sales from the company’s wholesale vehicles segment. However, the bottom line compares unfavorably with the year-ago earnings of $1.30 per share, marking a year-over-year decline of 2.3%.

The auto retailer registered revenues of $5,164.3 million during the February-end quarter, beating the Zacks Consensus Estimate of $5,140 million. Moreover, the top line recorded a 4.1% year-over-year increase. However, total gross profit declined 4.7% year over year to $641.4 million.

The company projects capital spending to shoot up to roughly $350 million in fiscal 2022, up from the $164.5 million recorded in fiscal 2021 and the $331.9 million in fiscal 2020. This expected upswing reflects the firm’s continued spending on technology and the opening of 10 new locations.

Segmental Performance

CarMax’s used-vehicle net sales summed $4,328.7 million in the reported quarter, up 1.8% year on year on increase in average retail selling prices. The reported figure, however, lagged the consensus mark of $4,383 million. The units sold in this segment edged down 0.9% year over year to 204,928 vehicles. Nonetheless, the average selling price of used vehicles increased 2.9% from the year-ago quarter to $20,980. The used-vehicle gross profit per unit came in at $2,086, lower than the prior-year quarter’s $2,195. Comparable store used-vehicle units dropped 2.3%, while revenues inched up 0.6% from the prior-year level.

In the fiscal fourth quarter, wholesale vehicle revenues jumped 23.7% to $678.5 million from the year-ago level. The reported figure also handily beat the Zacks Consensus Estimate of $558 million. Units sold, however, dipped 1.2% year over year to 103,676 vehicles due to one less auction day in the quarter compared with the prior year, delays in tax refunds and lower store traffic, partially offset by strong appraisal buy rate. The average selling price of wholesale vehicles climbed 25.3% from the prior-year quarter to $6,207. Wholesale vehicle gross profit per unit came in at $990, down from the year-ago period’s $993.

Other sales and revenues slid 1.9% year over year to $157.4 million during the fiscal fourth quarter. The reported figure also missed the consensus mark of $163 million.

CarMax Auto Finance registered a 68.2% year-over-year jump in income to $188.2 million in the February-end quarter, chiefly reflecting a fall in the provision for loan losses to $4.6 million from the year-earlier quarter’s $53 million, alongside an increase in net interest margin and average managed receivables.

Costs, Financials and Share Buyback

Selling, general and administrative expenses flared up 14.7% from the prior-year quarter to $556.1 million. CarMax had cash and cash equivalents of $132.3 million as of Feb 28, 2021 compared with $58.2 million as on Feb 29, 2020. Long-term debt (excluding the current portion) amounted to $1,698.5 million, reflecting an increase from the year-ago period’s $1,534.7 million.

CarMax repurchased 0.7 million shares of common stock for $66.3 million under its share-repurchase program during the fiscal fourth quarter. As of Feb 28, 2020, it had $1.34 billion remaining under the share-repurchase authorization.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month. The consensus estimate has shifted 6.64% due to these changes.

VGM Scores

At this time, CarMax has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

CarMax has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.