Why CarMax Earnings Crashed

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CarMax Inc. (NYSE: KMX) released its fourth-quarter financial results before the markets opened on Wednesday. The company said that it had $0.67 in earnings per share (EPS) on $4.08 billion in revenue, compared with consensus estimates from Thomson Reuters that called for $0.87 in EPS on revenue of $4.17 billion. The same period of last year reportedly had EPS of $0.81 and $4.05 billion in revenue.

During the quarter, used unit sales in comparable stores declined 8.0%. The comparable store sales performance primarily reflected lower store traffic and relatively flat conversion, as well as a tough comparison that lapped its strongest prior-year performance.

At the same time, total wholesale vehicle unit sales increased 8.9% compared with the fourth quarter of fiscal 2017, largely driven by the growth in the store base and an increase in the appraisal buy rate.

CarMax Auto Finance (CAF) income increased 21.9% to $101.1 million in the fourth quarter.

Looking ahead, CarMax currently plans to open 15 stores in fiscal 2019 and 13 to 16 stores in fiscal 2020. Of the 15 stores it plans to open in fiscal 2019, 10 are in metropolitan statistical areas having populations of 600,000 or less, which it defines as small markets.

The company did not issue any guidance in the report, but the consensus estimates call for $1.29 in EPS on $4.73 billion in revenue in the first quarter.

Bill Nash, president and CEO, commented:

We’re disappointed in our fourth quarter comparable store unit sales performance, which we believe was partly affected by macro pricing factors resulting in a softer sales environment.

Shares of CarMax closed Tuesday at $59.96, with a consensus analyst price target of $76.36 and a 52-week range of $54.29 to $77.64. Following the announcement, the stock was down 8% at $55.05 in early trading indications Wednesday.