CarMax Inc (NYSE:KMX) shares fell more than 6% in early trade on Wednesday as investors looked past a better-than-expected first quarter earnings report and focused on margin pressure, credit risks and concerns about the company's profitability strategy.
The used-vehicle retailer reported adjusted earnings per share of $1.31 for the quarter, well above analyst estimates of $0.95.
Revenue increased 6.2% year over year to $8.01 billion, topping consensus expectations of about $7.4 billion.
Combined retail and wholesale vehicle sales rose 3.3% to 392,357 units. Wholesale unit sales increased 8.4%, while retail used-vehicle sales were up slightly. Comparable-store used-vehicle sales declined 0.8%.
Investors, however, focused on declining retail vehicle profitability. Gross profit per retail used vehicle fell $230 year over year to $2,177 as CarMax continued pricing actions aimed at supporting sales growth. The company has now experienced several consecutive quarters of margin compression as it prioritizes volume.
Concerns also centered on credit quality within CarMax Auto Finance (CAF). While CAF penetration increased to 43.3% from 41.8% a year earlier, investors remain cautious about rising loan delinquency risks and the company's increased exposure to lower-tier borrowers. CAF income declined 1% to $140.2 million during the quarter.
The company purchased approximately 322,000 vehicles from consumers and dealers, down 4.4% from a year earlier.
The report was the first under new CarMax CEO Keith Barr, who said in a statement that the company has adopted a four-pillar strategic framework aimed at driving unit sales and earnings growth while improving shareholder returns.
“We are entering this fiscal year with a clear strategy that is driving early results,” he said. “Our goal is clear: deliver strong unit sales and earnings growth that enables us to consistently reward our shareholders.”