Strong SUV and truck sales drove an across-the-board earnings beat for CarMax (KMX) Wednesday, as the big auto dealer benefited from a surplus of attractively priced, off-lease vehicles as well as its digital initiatives.
The used-car superstore reported that fiscal first-quarter earnings climbed 26% year over year to $1.13 on a 10% rise in revenue to $4.54 billion. Results topped Zacks consensus estimates for a 9% gain on both the top and bottom lines.
Total unit sales of used vehicles jumped 14.1% to 195,273. Large and medium SUVs and trucks represented 27% of the sales mix and went up three percentage points vs. the year-ago quarter, CarMax said on Wednesday's earnings call.
Despite the stronger sales of SUVs and trucks, CarMax reported the average selling price or ASP of used vehicles fell 1.9% to $19,478, marking an acceleration from the 1.6% drop in used-vehicle prices for the prior quarter.
CarMax said it paid less to acquire used vehicles at auctions and appraisals, helping it offset the uptick in ASPs that would normally result from more SUVs and trucks in the vehicle sales mix.
"This speaks to the execution that the stores are doing and the great job that our buyers do, making sure that we're getting the best priced vehicles," Bill Nash, CarMax president and CEO, told analysts on the call.
A surge in new car sales between 2014 and 2016 is now creating a glut of off-lease cars, experts say. That is starting to hit automakers such as General Motors (GM), Ford Motor (F) and Fiat Chrysler (FCAU) hard.
But used-car retailers such as CarMax and AutoNation (AN) are benefiting as consumers find high-quality, off-lease vehicles more attractive vs. new vehicles.
CarMax's beat looked "very strong despite sluggish trends in both the broader retail industry and car market," Scot Ciccarelli, an RBC Capital Markets analyst, said in a note following the company's earnings call.
CarMax sales also benefited from "company-specific improvements such as in-store scheduling, improved website navigation, and pre-sale activities like online loan pre-qualifications," Ciccarelli added.
CarMax Auto Finance
The company's auto financing division posted total income of $109 million vs. Ciccarelli's expectation of $103 million. It was a beat for the unit for the first time in over a year, the analyst said.
Ahead of its report Wednesday, CarMax's credit unit had generated some caution given the industry-wide increase in loan delinquencies and loss rates in the automotive sector.
The unit's result "should provide some comfort to investors that have feared a sharp spike in losses," Ciccarelli said.
Shares of CarMax swung wildly Wednesday, before closing 0.8% higher at 59.74 on the stock market today.
Ford shares reversed lower to 0.7%, Fiat Chrysler rose 1.3% while GM fell 0.8%.
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