CarMax Stock is Poised to Bounce

Shares of the largest U.S. used car retailer CarMax, Inc. NYSE: KMX have fallen over (-30%) since its pandemic highs but may be poised for a bounce. The nation’s largest used car retailer felt the inflationary pressures as they paid 69% more for the 324,000 vehicles that they purchased from consumers than the year-ago period. However, they also purchased 95.5% more vehicles for the year than the prior year. This was driven by the rollout of its online instant appraisal offer service making it also the nation’s largest buyer of vehicles from consumers and expanding its market share to the highest level of the current CEO’s tenure. However, the unit volume had noticeably declined in its fiscal Q4 2022 driven by Omicron, declining consumer confidence, vehicle affordability, and lapping of stimulus benefits. The rising costs driven by supply chain shortages were offset by strong consumer demand to drive revenues up 49% compared to the prior year’s quarter. Rising interest rates will help bolster margins and replenish supplies to return the business to normalcy as shares overshoot on the downside as they did on the upside. Prudent investors seeking exposure in the nation’s largest consumer used vehicle retailer can look for opportunistic pullback levels ahead of the bounce.

Q4 Fiscal 2022 Earnings Release

On April 12, 2022, CarMax released its fiscal fourth-quarter 2022 results for the quarter ending February 2022. The Company reported an adjusted earnings-per-share (EPS) profit of $0.98 excluding non-recurring items versus consensus analyst estimates for $1.30, missing estimates by (-$0.32). Revenues grew by 48.8% year-over-year (YOY) to $7.69 billion beating analyst estimates for $7.58 billion. Retail unit sales fell (-5.2%) to 194,318 and compared store used sales fell (-6.5%). For the fiscal year 2022, retail used sales rose 22.9% to 924,338 and compared store used unit sales rose 21.9%. The Company purchased 324,000 vehicles from consumers at a 69% increase from prior year. Nearly 162,000 purchases were made through its nationwide instant appraisal offerings. CarMax Auto Finance income rose 3% YoY to $193.8 million in Q4.

CEO Statements

CarMax CEO Bill Nash stated, “The roll out and rapid adoption of our online instant appraisal offer has solidified our position as the nation’s largest buyer of vehicles from consumers, nearly doubling our fiscal 2022 inventory self-sufficiency and propelling our wholesale business to new heights. We continue to expand the availability of our end-to-end, unaided online experience, and we expect to have this capability available to 100% of customers by the end of our first quarter. We also continue to enhance our finance-based shopping experience, further positioning our business for growth. While the fourth quarter was adversely affected by macro factors, our retail market share growth for the year was the highest it’s been during my tenure as CEO and is a reflection of our ability to deliver the most customer-centric experience in the industry.”

Long-Term Targets

The Company introduced five-year financial targets which include selling 2 million to 2.4 million units by fiscal 2026, generating $33 billion to $45 billion in revenues by fiscal 2026, and growing nationwide share of age 0-10 used vehicle market to more than 5% by end of the calendar year 2025.

Conference Call Takeaways

CEO Bill Nash reviewed the quarterly metrics including the quarter YoY sales growth of 49% to $7.7 billion driven by higher average selling prices and whole volume gains. He pointed out the Company’s market share grew to 4% of the 0 to 10-year old vehicles market. Compared to the year-ago fiscal Q4, the Company sold 11% more cars at 343,000 units. He concluded, “Self-sufficiency continued to be strong during the fourth quarter, remaining above 70%. We reported a fourth-quarter retail gross profit per used unit of $2,195, up $109 per unit versus the prior-year period. With used car prices remaining elevated, we chose to pass along some of our self-efficiency acquisition cost savings to consumers via lower prices. We believe we struck the right balance between covering inflationary cost, maintaining margin and keeping our vehicles more affordable.”

KMX Opportunistic Pullback Levels

Using the rifle charts on the weekly and daily time frames provides a precision view of the landscape for KMX stock. The weekly rifle chart peaked out on its most recent bounce attempt near the $104.99 Fibonacci (fib) level. The weekly rifle chart has a make or break with the downtrend stalling with a flat 5-period moving average (MA) at $90.86 followed by the 15-period MA at $99.12. The weekly 200-period MA resistance is flat at $90.86 and weekly 50-period MA is slipping at $121.93. The weekly stochastic crossed up but stalled just above the 10-band to either mini pup higher through the 20-band or cross back down. The weekly market structure low (MSL) buy triggers on a breakout through $100.35. The daily rifle chart has compressed Bollinger Bands (BBs) at $96.64 and $121.46. The daily 5-period MA is flat consolidating with the 15-period MA around $91.55. The daily 50-period MA is slipping at $96.64. The daily stochastic is attempting a mini inverse pup at the 40-band, but this is also a make or break set-up. Prudent investors can look for opportunistic pullbacks at the $85.36, $83.79 fib, $79.09 fib, $76.10 fib, $72.55 fib, $70.27 fib, $65.54 fib, $63.27 fib, and the $57.78 fib. Upside trajectories range from the $104.99 fib level up towards the $135.45 fib level.