BOOM GO BUST

CarMax’s Woes Renew Concerns About Shaky Used-Vehicle Market




Ed Ludlow
Thu, December 22, 2022 

(Bloomberg) -- CarMax Inc. stumbled through another difficult quarter, dragging down stocks across the automotive industry and deepening concerns over the unsteady US used-car market

The auto dealer cited high inflation and low buyer confidence among the factors that are cooling the once-hot sector. CarMax on Thursday reported third-quarter earnings and sales that fell well short of Wall Street’s already depressed expectations.

“Vehicle affordability remains challenging due to macro factors stemming from broad inflation, climbing interest rates and continued low consumer confidence,” Chief Executive Officer Bill Nash said on a conference call with analysts. The latest results “reflect the continuation of widespread pressures across the used-car industry.”

CarMax shares fell 7.2% at 10:56 a.m. in New York after an earlier decline of 12%, the biggest intraday drop since Sept. 29. That dragged down peers such as Carvana Co., which tumbled 9.7%, as well as auto manufacturers, with Ford Motor Co., General Motors Co. and Stellantis NV each sliding more than 3%.

The issues stoke concerns over the used-vehicle market, after prices soared early in the pandemic while supply-chain snags stalled new-car production. This year, they’ve been ratcheting down rapidly as shortages eased and buyers balked at high sticker prices.

Carvana has been hit by the same pressures, forcing the online automobile seller to explore ways to rework its debt amid solvency concerns. It also has heightened concerns about a spillover into the broader car market, something AutoNation Inc., the largest new-car dealer chain in the US, has warned about.

CarMax on Thursday reported adjusted profit of 24 cents a share in the fiscal third quarter, significantly below the 65-cent average of analysts’ estimates compiled by Bloomberg. Net sales in the period were $6.5 billion, the Richmond, Virginia-based company said in a statement, also missing analysts’ projections.

What Bloomberg Intelligence Says:

“A gradual backslide in elevated used-vehicle values hasn’t prevented consumers from heading for the exits, prompting a precipitous drop in unit volume for CarMax and motivating a shift toward older vehicles.”

— Kevin Tynan, transportation analyst

It was a “challenging quarter across the board,” Steven Shemesh, an analyst with RBC Capital Markets, said in a note. “Between a deteriorating macro backdrop and cost-cutting initiatives the near-term is likely to remain volatile.”

The results echo those from the prior quarter, when Nash warned that consumers had shifted their spending away from large purchases amid challenges around affordability. The company’s second-quarter profit miss also weighed on peers and dragged the broader market.

Combined wholesale and retail units sales in the third quarter fell almost 28% year-on-year. Wholesale volumes were hit by CarMax’s move to shift some units to its retail stores to meet consumer demand for low-priced cars.

Wholesale vehicle gross profit tumbled 46% as the per-unit measure was hurt by a “steep market depreciation,” CarMax said.

--With assistance from Sean O'Kane.