CarMax says vehicle affordability remains a challenge, cost cuts help profit
Reuters
Published Jun 23, 2023 07:42AM ET
Updated Jun 23, 2023 10:41AM ET
By Kannaki Deka
(Reuters) -CarMax Inc said on Friday that vehicle affordability remains a challenge due to high interest rates and low consumer confidence, but cost cuts helped the used-car retailer post a quarterly profit beat.
Shares of the company jumped 8.8% to $85.25 in early trade, as it also reported a better-than-expected first-quarter revenue.
Although used-car prices have cooled of late, retailers have been hit hard as inflationary pressures and improving new vehicle supply have put off consumers from purchases of pre-owned automobiles.
"The overall used market obviously is still depressed," CEO William Nash said on a call with analysts.
The industry has also been struggling to offload cars that were purchased at higher prices, forcing companies such as CarMax (NYSE:KMX) and Carvana to take a profit hit by offering them at lower prices, as well as paring back costs.
"In the current environment, we expect this year's second-quarter and full-year margins will be similar to last year," Nash added.
CarMax has cut expenses by pausing some hiring, halting share buybacks in December last year to battle a "used-vehicle recession".
Excluding a one-time benefit, CarMax cut selling, general and administrative expenses by 5.7% in the first quarter.
Unit sales of used vehicles, however, fell 9.6% with average selling prices dropping 5.5% year-on-year.
"While KMX exceeded low investor expectations, we think pricing and volume trends are likely to remain difficult under a "higher for longer" interest rate scenario," CFRA Research analyst Garrett Nelson said.
CarMax reported an adjusted profit of $1.16 per share for the quarter ended May 31, compared with average analysts' expectation of 79 cents per share, as per Refinitiv data.
Net revenue came in at $7.69 billion, compared with estimates of $7.53 billion.
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Written By: Reuters
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