Why CarMax Earnings Look So Good to Investors

CarMax Inc. (NYSE: KMX) reported fourth-quarter and full-year 2019 results before markets opened Friday. The used-car retailer reported quarterly diluted earnings per share (EPS) of $1.13 on revenues of $4.32 billion. In the same period a year ago, CarMax reported EPS of $0.67 on revenue of $4.08 billion. Fourth-quarter results also compare to the Thomson Reuters consensus estimates for EPS of $1.06 and $4.43 billion in revenue.

The company reduced fiscal 2017 fourth-quarter EPS by $0.10 per share. The new tax law accounted for $0.07 of the reduction and the remaining $0.03 was paid as a discretionary bonus to “eligible associates.”

For the full year, CarMax reported EPS of $4.79 and revenues of $18.17 billion, compared with EPS of $3.70 and revenues of $17.12 billion for the prior year. Analysts had estimated full-year EPS of $4.72 and revenues of $18.31 billion. The fourth-quarter reduction in EPS was also applied to the full-year totals.

CEO Bill Nash said:

We’re pleased to report double-digit growth in pretax earnings this quarter, even excluding the prior period’s discretionary bonus. And, with strong cash flow, we continued returning value to shareholders via our stock repurchase program. We’re also pleased with the response to our omni-channel roll-out in Atlanta, where consumers can now buy a car completely from home, in-store or through a seamlessly integrated combination of online and in-store experiences. We remain on track to have this experience available to the majority of our customers by the end of fiscal 2020.

The company repurchased 13.6 million shares of common stock for $902.9 million in the fiscal year. As of February 28, 2019, CarMax said it had $2.11 billion remaining available for repurchase under the outstanding authorizations.

Same-store sales volume rose 2.9% in the quarter and 0.3% for the year. Same-store revenue rose 3.0% for the quarter and 1.9% for the year.

Used vehicle sales for the quarter rose by 5.6% and wholesale vehicle sales rose 3.7%. Average selling prices rose 0.3% on used car sales and fell 1.0% on wholesale sales.

CarMax did not provide guidance in its earnings release except to say that it plans to add 13 new stores in fiscal years 2020 and 2021. The company added 15 new stores in the past year and now has a total of 203 locations. Analysts are looking for first quarter EPS of $1.45 and revenues of $5.11 billion. For the 2020 fiscal year, analysts forecast EPS of $5.05 and revenues of $19.44 billion.

The company’s stock traded up about 5.8% in Friday’s premarket, at $67.38 in a 52-week range of $55.24 to $81.27. The 12-month price target on the stock was $79.15 before this morning’s earnings announcement.