CarMax stock drops as investors weigh profit pressure and new CEO’s plan
CarMax beat quarterly estimates, but shares fell as the used-car retailer reported lower profit per vehicle and outlined a multiyear turnaround.
By Daniel Okafor · Business Editor
3 min read
CarMax shares fell about 8% in midday trading Wednesday after the used-car retailer topped Wall Street’s quarterly forecasts but reported weaker vehicle-level profitability. The drop showed investors remained focused on whether new CEO Keith Barr can revive growth and reduce costs in a tougher used-car market.
For its fiscal first quarter, CarMax reported earnings of $1.31 a share, above the 95 cents analysts expected, according to average estimates compiled by LSEG. Revenue came in at $8.01 billion, also ahead of the $7.42 billion Wall Street expected, CNBC reported.
The stronger-than-expected headline results were offset by pressure on margins. CarMax said total gross profit fell 4.4% from a year earlier to $854.4 million, while retail used-vehicle gross profit declined 9.5%.
The company said retail gross profit per used vehicle was $2,177, down $230 from the prior-year period, when it reached a company record. Net revenue rose 6.2% from nearly $7.6 billion a year earlier, while net earnings fell 11.8% to $185.6 million from $210.4 million, according to CarMax.
New CEO outlines early priorities
Barr, who joined CarMax as CEO on March 16 after previously leading InterContinental Hotels Group, told CNBC he plans to provide more detail on his strategy in late fall. He said the effort will take several years and that company leadership is “super confident” in the plan.
“Our new strategy is focused on great offerings, easy experience, adding value, running lean, all of which, again, will drive sustainable long-term growth, which will create value for our shareholders,” Barr told CNBC.
CNBC reported that Barr has spent his first three months studying the auto business, reviewing CarMax’s operations and looking for areas where the company can grow while cutting costs. He also said the company is working to make the car-buying process smoother for customers moving between online tools and physical stores.
Early changes include adjustments to the CarMax website, such as displaying monthly payments, and the use of an artificial intelligence call agent service, according to CNBC. Barr also pointed to CarMax’s technology, store base and scale as parts of a strategy aimed at producing steady growth.
CarMax shares remained up about 25% for the year despite Wednesday’s decline, CNBC reported. The stock had risen roughly 16% since Barr took over in March.
Carvana also falls
Shares of Carvana, CarMax’s largest competitor, were also down more than 7% in midday trading Wednesday, CNBC reported. The move came as Carvana disclosed plans for new franchised Stellantis stores.
According to CNBC, Carvana plans to use those franchise locations for vehicle service and test drives while continuing to sell vehicles only online, including to customers who visit the stores.
Barr declined to comment to CNBC on Carvana’s plans. He said CarMax has found that most of its used-car buyers still prefer to go to stores and see a vehicle before completing a purchase.
Barr took over after steep declines in CarMax’s share price increased pressure on former CEO Bill Nash, who stepped down in November, CNBC reported.
This story draws on original reporting from CNBC.