CarMax earnings snapshot: what to watch for on Friday

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CarMax (NYSE: KMX) Stock prices have been on a wild ride since the start of the pandemic. While the stock initially slumped as demand for cars plunged early last year, yields have beaten the broader market so far in 2021. Investors are excited about the prospect of Stronger sales, debt reductions and price increases ahead for major pre-owned vehicle retailers.

With that big picture in mind, let’s look at what investors can expect to hear from the company in its earnings report scheduled for release on Friday, June 25.

Image source: Getty Images.

What is driving the rebound?

All the ingredients are there for a strong rebound in growth. In fact, Wall Street analysts expect revenue to grow 129% year over year to $ 6.23 billion.

Of course, most of that spike is due to the unusually low period a year ago which included aggressive containment measures for COVID-19. But CarMax said in its latest earnings report that sales picked up at the start of the first fiscal quarter.

Federal stimulus payments, falling COVID-19 cases and warmer weather all combined to set new sales record in March, CarMax executives said early April. Look for more records to set in this next report, compared to 2019 sales levels.

Market share is another growth metric to follow to reduce pandemic volatility. That number took a hit during the pandemic, falling to 4.3% from 4.7%. Management said in April that the figure was rising again, and investors will seek confirmation of that bullish reading on Friday.

Profitability wins

CarMax has faced a wide variety of sales conditions in recent years as the demand for new cars has risen and fallen. The price and availability of these premium products play an important role in setting conditions in the used vehicle segment.

But thanks to these fluctuations, CarMax regularly earns between $ 2,000 and $ 2,400 in gross profit per vehicle sold. Investors could see unusually high profits this week, thanks to favorable industry trends like strong demand and rising prices for new cars.

CEO Bill Nash and his team aim to balance this earnings growth with investments to keep market share growing. “Our goal,” he told investors, “[is] to maximize both unit sales and long-term profitability.

Look ahead

Management will make some general comments on the strength of the business heading into the new fiscal year, including inventory, pricing and demand. This forecast could grab the attention of most investors immediately following Friday’s report. Currently, most investors expect CarMax sales to increase by around 20% in this new fiscal year.

In the longer term, the company has a good chance of achieving a significantly higher market share now that the industry is growing again and customers are buying from its lots again. CarMax has one of the largest and most comprehensive online vehicle sales platforms in place today.

While spending on this channel could put pressure on profits over the next few quarters, the platform gives the retailer a chance to connect with new buyers and target a much larger portion of the huge car industry. second hand. This helps explain why management hopes to break through the 5% market share mark by 2025 while growing sales at a compound annual rate of 10% over the next several years.

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Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool recommends CarMax. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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