Shares of CarMax (NYSE: KMX) were down almost 5% during the pre-market trading hours, at the time of writing, after the company reported mixed fourth-quarter results.
Revenues topped estimates but earnings fell significantly short of analysts’ expectations, adversely affected by macro factors, including rising inflation, declining consumer confidence, the Omicron related surge in COVID cases, and the lapping of stimulus benefits.
Q4 Numbers
Adjusted earnings of $0.98 per share declined 22.8% year-over-year and were far short of the analysts’ expectations of $1.33 per share. The company reported earnings of $1.27 per share for the prior-year period.
However, revenues jumped 48.8% year-over-year to $7.7 billion and exceeded consensus estimates of $7.67 billion.
The increase in revenues reflected a surge in Wholesale units, which increased 43.8% to 149,095 vehicles, offsetting sales of Retail used unit decline of 5.2% to 194,318 vehicles. Comparable store used unit sales declined 6.5%.
During the quarter, CarMax sold a total of 343,413 units through its retail and wholesale channels, registering a 29.3% growth compared to the year-ago period.
For the full year, CarMax sold 1,630,550 combined units, registering a 38.4% year-over-year growth.
The company opened four and ten new retail locations for the fourth quarter and full year, respectively.
Notably, CarMax’s share of the old used vehicle market between 0 and 10 years increased to 4.0% in 2021, compared to 3.5% in calendar year 2020.
Updates Long-Term Targets
Based on the current performance in fiscal 2022, the company updated its five-year financial targets as provided in May 2021.
The company now forecasts selling between 2 million and 2.4 million vehicles through the combined retail and wholesale channels by fiscal 2026, versus prior guidance of 2 million vehicles.
Revenues are forecast to be in the range of $33 billion and $45 billion by fiscal 2026, versus the previous guided estimate of $33 billion.
Furthermore, the company reaffirmed the growth of its nationwide share of the used vehicle market between ages 0 and 10, to cross 5% by the end of calendar 2025.
In fiscal 2023, the company plans to open 10 stores, including the expected entry into the New York metro market.
CEO Comments
CarMax CEO, Bill Nash, commented, “The roll out and rapid adoption of our online instant appraisal offer has solidified our position as the nation’s largest buyer of vehicles from consumers, nearly doubling our fiscal 2022 inventory self sufficiency and propelling our wholesale business to new heights.”
He further added, “We continue to expand the availability of our end-to-end, unaided online experience, and we expect to have this capability available to 100% of customers by the end of our first quarter. We also continue to enhance our finance-based shopping experience, further positioning our business for growth.”
Analysts’ Take
Overall, the stock commands a Moderate Buy consensus rating based on six Buys and four Holds. The average CarMax price target of $130.56 implies 26.55% upside potential to current levels.
Bloggers Weigh In
TipRanks data shows that financial blogger opinions are 100% Bullish on KMX stock, compared to a sector average of 68%.
Conclusion
Though the fourth quarter’s mixed results were affected by ongoing macro factors, which weighed on the stock, the optimistic long-term targets set by the company put confidence back in the growth story of CarMax.
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