CarMax Reports Fiscal 1st-Quarter Results

Company beats expectations on earnings and revenue thanks to a 12.1% upside in used vehicle sales

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CarMax Inc. (KMX, Financial) – the biggest used vehicles dealer in the U.S. – released its first-quarter 2018 financial results on June 21. The quarter ended on May 31.

CarMax closed the quarter reporting a net profit of $211.7 million and EPS – on a diluted basis – of $1.13, a 25.6% increase year over year, and beat analysts’ expectations on earnings by 15 cents. The difference between the actual EPS and forecasted EPS generated a positive surprise of 15.30%.

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Source: Yahoo Finance

For the first quarter, the company’s revenue came in at $4.54 billion, a nearly 10% increase from a year ago and beat consensus’ expectations by $80 million.

With $3.843 billion in invoiced customers, used vehicle sales contributed 84.6% to the company’s total first-quarter revenues, a 12.1% increase from the comparable reporting period of fiscal 2017.

During the quarter, the company sold 195,273 vehicles for an average price of $19,478 per unit, which represents a 14.1% increase year over year while comparable store sales increased 8.2% year over year. Comparable store revenue was up 6.1%.

Besides strong performance in the CarMax’s store teams plus digital initiatives, the company believes its “first-quarter used unit sales also benefited somewhat from the delay of federal income tax refunds in February, which shifted some sales from the fourth quarter of last year into this year’s first quarter.”

Wholesale vehicle sales decreased 2.5% year over year to $553.4 million. During the quarter in question, CarMax sold 103,443 vehicles to wholesale car dealers – flat from the previous year’s comparable quarter sales - for an average price of $ 5,113, which represents a 2.9% decline year over year.

To complete the picture for first-quarter revenue, CarMax reported $145.6 million in other sales and revenues, a 12.3% increase from the comparable quarter of 2017.

Concerning CarMax Auto Finance - its second reportable segment- the company posted an 8.5% increase in income to $109.4 million.

The stock is trading around $61.50 per share, up $2.76 or 4.62% from the previous trading day. The market capitalization is $11.57 billion, the price-earnings (P/E) ratio is 19.17, the price-book (P/B) ratio is 3.75 and the price-sales (P/S) ratio is 0.7.

The forward P/E ratio of 15.94 combined with the forecasted EPS for fiscal 2018 of $3.64 returns a value of $58.02, which is $3.48 lower than the current valuation.

Analysts set a target price per share of $68.25, which represents a 9.2% upside from the current share price. The recommendation rating is 2.3 out of 5.

GuruFocus gives CarMax a financial strength of 4 out of 10 and a profitability and growth rating of 7 out of 10.

During the period from Jan. 1 to March 31, Chris Davis (TradesPortfolio), Ruane Cunniff (TradesPortfolio), Ron Baron (TradesPortfolio) and Dodge & Cox decreased their positions in CarMax.

Disclosure: I have no positions in CarMax.