CarMax Earnings Fall Short of Expectations

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CarMax Inc. (NYSE: KMX) reported its fiscal second-quarter results before the markets opened on Wednesday. Although earnings were in line with Wall Street expectations, revenues fell just a little short and investors sent the stock lower as a result.

The company said that it had $0.88 in earnings per share (EPS) on $4.00 billion in revenue, versus consensus estimates from Thomson Reuters of $0.88 in EPS on revenue of $4.09 billion. In the same period of last year, CarMax posted EPS of $0.82 and $3.88 billion in revenue.

Wholesale vehicle unit sales declined 1.3% from last year. Other sales and revenues declined 4.8% compared with the second quarter of fiscal 2016, primarily reflecting a decrease in new vehicle sales due to the disposal of two of our four new car franchises during fiscal 2016.

Extended protection plan (EPP) revenues increased 17.1%, reflecting the growth in used unit sales and pricing changes. In addition, last year’s EPP revenues were reduced by an increase in estimated cancellation reserves. Net third-party finance fees improved by 43.3%, primarily due to the reduced proportion of our sales attributable to Tier 3 finance providers.

Compared with last year’s second quarter, CarMax Auto Finance income declined 2.4% to $96.0 million. The decline was due to an increase in the provision for loan losses and a lower total interest margin percentage.

On the books, CarMax’s cash and cash equivalents totaled $316.0 million at the end of the quarter, up from $100.5 million in the same period from last year.

Shares of CarMax were trading down less than 3% at $54.12 on Wednesday. The stock has a consensus analyst price target of $61.56 and a 52-week trading range of $41.25 to $60.81.