CarMax Moves Higher After Reaffirming Targets

Blowout Results Support CarMax Guidance

CarMax NYSE: KMX is the leader in used car sales in the United States. It is by far the single largest dealer of pre-owned vehicles and plans to capture 5% of the used car market within the next couple of years. The company's strategy is to build out an omnichannel customer-centric platform with nationwide coverage and it is well on its way. The company operates approximately 222 used car locations, has a growing digital presence, and plans to add at least 10 more stores over the next year. Based on what we're seeing in the used-car market and in this company's results, we are expecting it to exceed its own guidance for sales and market share. 

“In May, we introduced long-term targets of $33 billion in revenue and 2 million units sold per year through our retail and wholesale channels by fiscal year 2026. We also expect to grow our market share of national used auto market of cars 0-10 years old to more than 5% by calendar year 2025,” Set CarMax in the fiscal q1 earnings press release. 

CarMax Drives Right Past The Consensus Estimate

CarMax had a mind-blowing fiscal first quarter and one that helps us understand why we've been getting so many offers in the mail to buy our used vehicles. The company reported not only a triple-digit increase in sales but also an increase in inventory purchases double the sales growth. Used cars are a hot market right now. That’s why CarMax reported $7.70 billion in Consolidated revenue for a gain of 138.4% from last year. That figure is very impressive but versus a very easy comp in the previous years period, so we're focusing on the 2-year comp of up 43% and the fact revenue beat the consensus estimate by 2300 basis points.

The company says it's sold 452,188 units through both the wholesale and retail channels which is up 128% from the prior year and 31% in the 2-year comparison. Sales were driven both by demand and price increases; retail unit sales increased 100.6% with a 99.1% increase in comparable-store sales while Wholesale revenue grew 186% over last year and 50% over the past two years.

Moving down the report, the company's margins widened as well. Margin gains were driven by cost leverage, internal efficiency, and higher realized prices for vehicles. The gross profit per unit for retail cars increased by 13.8% while the gross profit per unit for wholesale cars increased by 4.8%. On the bottom line, the GAAP EPS of $2.63 beat the consensus by a dollar and grew 65% over the past two years putting the company firmly on track to beat consensus estimates for the full year as well. 

The Analyst Rev Up Their Price Targets For CarMax

The analysts are already speaking out in the wake of Carmax Q1 results and the sentiment is very positive. No analysts have increased their rating on the stock but the consensus price target of the most recent has the stock trading near $150. On a technical basis, that $150 consensus implies a new all-time high and, based on the charts, we see the stock retesting the current all-time high very soon and possibly breaking out before the end of the summer. The only downside to CarMax is that it doesn't pay a dividend. Investors who want exposure to the used car market and a growing dividend should turn their attention to Sonic Automotive.