CarMax’s Steady Climb: A New Yorker’s Take

CarMax, the behemoth in the used car game, isn’t slowing down. Here’s how they’re doing it, step by step.

Navigating the Sales Landscape

CarMax isn’t just holding its ground; it’s making waves. They’ve raked in total sales of $7.5 billion, a 6% uptick from last year. Not bad, especially considering they pulled this off amidst pricing pressures. With more cars moving off the lot, their retail unit sales jumped by 9%, boosted by used unit comps rising 8.1%.

Retail Price Dynamics

Sure, the average retail selling price took a slight dip, down about $400 per unit, landing at $26,100. But don’t let that text fool you. It’s all part of a strategy. By keeping the prices competitive, they’ve driven up volume—a classic New Yorker’s hustle if you ask me.

Gross Profit: Where the Magic Happens

CarMax’s retail gross profit per used unit hit a record high of $2,407, marking a $60 increase year-over-year. That’s how you do it in the Big Apple—focus on profits, not just sales. Meanwhile, their wholesale unit sales nudged up 1.2%, even as the wholesale gross profit per unit saw a minor decline.

Crunching the Numbers: Expenses and Profits

SG&A and Profit Leverage

Operating expenses took a bit of a rise, up 3% to $660 million. Yet, the company leveraged its SG&A expenses with a whopping 680 basis point boost. Profits soared, with total gross profit at $894 million—a 13% bump. This isn’t just a story about sales; it’s about smart spending.

Financial and Stock Moves

Earnings per diluted share shot up 42%, while CarMax went on a stock-buying spree, snapping up 3 million shares for $200 million. With $1.74 billion still authorized for future purchases, they’re playing a long game.

Auto Finance and Market Trends

CarMax Auto Finance took a small hit with sales penetration falling by 150 basis points. The change came as higher credit buyers opted for self-funding. Still, the company’s loan loss provision rose to $102 million. They’re managing risk smartly amidst an unpredictable economy.

Digital and Marketing Shifts

The digital sales frontier has its own story. Although they saw a small decline, CarMax is pushing the envelope with their omnichannel strategy in a new ad campaign. Customers don’t have to settle for one buying method anymore. And with AI, they’re moving from SEO to GEO—talk about rolling with the times.

The Road Ahead

CEO William Nash remains confident. He credits internal improvements like inventory management and pricing strategies. Meanwhile, CFO Enrique Mayor-Mora is all about leveraging expenses. They’re focused on boosting growth while managing costs—an enduring Big Apple survival guide.

For more detailed financials, check out the transcript.

To dive deeper into CarMax’s financial journey, this piece first appeared on GuruFocus.