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Will Rising ASPs Offset High Costs in CarMax (KMX) Q2 Earnings?

CarMax Inc. KMX is slated to release second-quarter fiscal 2023 results on Sep 29, before the opening bell. The Zacks Consensus Estimate for the quarter’s earnings and revenues is pegged at $1.40 per share and $8.67 billion, respectively.

The used car dealership chain posted an earnings beat in the last reported quarter on higher-than-anticipated revenues from the company’s wholesale vehicles segment. CarMax surpassed earnings estimates in two of the trailing four quarters for as many misses, with the average negative surprise being 7.14%. This is depicted in the graph below:

CarMax, Inc. Price and EPS Surprise

CarMax, Inc. Price and EPS Surprise
CarMax, Inc. Price and EPS Surprise

CarMax, Inc. price-eps-surprise | CarMax, Inc. Quote

Trend in Estimate Revision   

The Zacks Consensus Estimate for CarMax’s fiscal second-quarter earnings per share has been revised downward by 5 cents in the past seven days. The bottom-line projection indicates a year-over-year decline of 18.6%. The Zacks Consensus Estimate for quarterly revenues suggests year-over-year growth of 8.5%.

Factors to Note

The estimated decline in total vehicles sold by CarMax in the second quarter of fiscal 2023 is likely to have played spoilsport. The Zacks Consensus Estimate for total units sold during the to-be-reported quarter is pegged at 416,743, implying a decline from the year-ago period’s level of 419,895 units.

However, the rising average selling price (ASP) of used and wholesale cars amid a supply-demand mismatch is likely to have buoyed CarMax’s second-quarter fiscal 2023 revenues. For the August-end quarter, the consensus estimate for used vehicle ASP is pegged at $27,380, indicating an increase from the year-ago figure of $26,141. The consensus estimate for wholesale vehicle ASP is pegged at $11,060, indicating an increase from the year-ago figure of $8,701.

CarMax’s omni-channel efforts to optimize customer shopping experience are also likely to have supported the top line during the to-be-reported quarter. The Zacks Consensus Estimate for CarMax’s net sales from used vehicles is $6,579 million, indicating an uptick from $6,104 million recorded in the prior-year quarter. The Zacks Consensus Estimate for quarterly net sales of wholesale vehicles is pegged at $2,062 million, indicating an increase from the prior-year period’s $1,702 million.

On the flip side, the high cost of sales amid devasted supply chain system, inflationary concerns and logistical challenges are likely to have weighed on gross profits. The Zacks Consensus Estimate for quarterly gross profit from the used-vehicle segment is pegged at $488 million, calling for a decline from $507 million reported in the year-earlier quarter.

Contrarily, the wholesale segment’s gross margins are likely to have remained strong. The consensus mark for quarterly gross profit from the wholesale vehicle segment is pegged at $213 million, suggesting an increase from the $189 million reported in the prior-year quarter.

Notably, CarMax has been bearing the brunt of escalating SG&A expenses owing to higher advertising costs, store expansion efforts and omnichannel marketing strategies. The trend is expected to have continued in the to-be-reported quarter as well, thereby denting margins. Also, store expansion and digitization efforts might have clipped profits to some extent.

Earnings Whispers

Our proven model does not conclusively predict an earnings beat for CarMax this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is not the case here.

Earnings ESP: CarMax has an Earnings ESP of -1.45%. This is because the Most Accurate Estimate of earnings is pegged 2 cents lower than the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: CarMax currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Peer Releases

CarMax’s key peers include Advance Auto Parts AAP, O’Reilly Automotive ORLY and AutoZone AZO.

Advance Auto reported second-quarter 2022 (ended Jul 16, 2022) results on Aug 23. It posted adjusted earnings of $3.74 per share, up 10% from the year-ago quarter figure. The reported figure was in line with the Zacks Consensus Estimate. The company generated net revenues of $2,665.4 million, falling short of the Zacks Consensus Estimate of $2,748 million but edging up 0.6% from the year-ago reported figure.

Discouragingly, Advance Auto trimmed its 2022 guidance. It estimates full-year net sales in the band of $11-$11.2 billion, down from the previous guided range of $11.2-$11.5 billion. Comparable store sales are now envisioned to decline up to 1% as against the prior forecast of 1-3% growth. Adjusted operating income margin is envisioned in the range of 9.8-10%, down from the prior estimate of 10-10.2%. Adjusted EPS is now forecast between $12.75 and $13.25, down from the previously guided range of $13.30-$13.85. The auto parts retailer now intends to buy back stocks worth $500-$600 million in 2022. It aims to open 125-150 new stores this year.

O’Reilly released second-quarter 2022 results on Jul 27. It posted adjusted earnings per share of $8.78, missing the Zacks Consensus Estimate of $8.98. The bottom line, however, increased 5.4% from $8.33 recorded in the prior-year quarter. O’Reilly registered quarterly revenues of $3,670.7 million, missing the consensus mark of $3,696 million. The top line, however, was nearly 6% higher than the prior-year figure of $3,465.6 million.

During the quarter, ORLY opened 62 new stores in the United States. It did not open any new stores in Mexico. The total store count was 5,900 as of Jun 30, 2022. The company had cash and cash equivalents of $253.9 million at the end of the second quarter, falling from $631.6 million in the year-ago quarter. Its long-term debt was $4,669.8 million, higher than the year-ago level of $3,825.2 million.

AutoZone posted fourth-quarter fiscal 2022 results on Sep 19. It came out with earnings of $40.51 per share, up 13.4% from the prior-year figure of $35.72. The bottom line surpassed the Zacks Consensus Estimate of $38.38 a share. The net sales also grew 8.9% to $5,348.3 million. The top line beat the Zacks Consensus Estimate of $5,143 million.

During the fiscal year that ended Aug 27, 2022, AutoZone opened 118 new stores and closed one in the United States, opened 39 stores in Mexico and 20 stores in Brazil. The total store count was 6,943 as of Aug 27, 2022. AZO had cash and cash equivalents of $264.4 million as of Aug 27, 2022, down from $1,171.3 million on Aug 28, 2021. The total debt amounted to $6,122.1 million as of Aug 27, 2022, marking an increase from $5,269.8 million on Aug 28, 2021.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.


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O'Reilly Automotive, Inc. (ORLY) : Free Stock Analysis Report
 
Advance Auto Parts, Inc. (AAP) : Free Stock Analysis Report
 
AutoZone, Inc. (AZO) : Free Stock Analysis Report
 
CarMax, Inc. (KMX) : Free Stock Analysis Report
 
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