Used-vehicle retailer CarMax (KMX) releases its Q3 earnings report later this week. Should investors buy into the stock ahead of the release or give it a swerve?
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What Wall Street Expects
Wall Street expects CarMax to post quarterly earnings of $0.32 per share in its upcoming Q3 report, which indicates a year-over-year decline of 60.5%. Revenues are expected to come in at $5.79 billion, down 7% from the year-ago quarter. Will KMX beat these expectations? As can be seen below, it has a mixed track record of doing so in recent quarters.
Key Issues Ahead of Earnings
In Q2, CarMax reported total sales of $6.6 billion, a 6% decline from the previous year, with retail unit sales down by 5.4%. The average selling price was $26,000, showing a year-over-year decrease of $250 per unit.
Despite these challenges, CarMax said it is committed to gaining market share and expects high teen EPS growth with mid-single-digit retail unit growth in the future.
CEO Bill Nash cited changing market conditions, a pull-ahead in sales earlier in the year due to tariff fears and depreciation in its inventory fleet as some reasons for the company’s performance.
In November, the company stalled further after it announced the unexpected departure of Nash, who had led the used car retailer since 2016.
It also gave a lackluster Q3 outlook declaring that it expects used unit sales to drop between 8% and 12%. Also, KMX projects EPS to land in the range of $0.18 to $0.36, including non-recurring costs tied to the leadership change and workforce reductions.
The company disclosed several factors that are expected to drag down its Q3 results, including falling retail sales, depreciation in its wholesale business, and rising marketing costs as CarMax launches a new brand campaign.
The company has also been hit by a class action lawsuit from its shareholders. CarMax and two of its senior officers are accused of deceiving investors by lying and withholding important information about its business practices and prospects.
In particular, they are accused of omitting truthful information about the company’s growth prospects from SEC filings and related material.
Is KMX a Good Stock to Buy Now?
On TipRanks, KMX has a Hold consensus based on 2 Buy, 12 Hold and 3 Sell ratings. Its highest price target is $60. KMX stock’s consensus price target is $39.91, implying a 2.26% downside.
