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1. Company Snapshot

1.a. Company Description

CarMax, Inc., together with its subsidiaries, operates as a retailer of used vehicles in the United States.The company operates through two segments, CarMax Sales Operations and CarMax Auto Finance.It offers customers a range of makes and models of used vehicles, including domestic, imported, and luxury vehicles, as well as hybrid and electric vehicles; and extended protection plans to customers at the time of sale, as well as sells vehicles that are approximately 10 years old and has more than 100,000 miles through wholesale auctions.


The company also provides reconditioning and vehicle repair services; and financing alternatives for retail customers across a range of credit spectrum through its CarMax Auto Finance and arrangements with various financial institutions.As of February 28, 2022, it operated approximately 230 used car stores.CarMax, Inc.


was founded in 1993 and is based in Richmond, Virginia.

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1.b. Last Insights on KMX

CarMax, Inc. has seen increased investment from several firms, including Atlantic Union Bankshares Corp, which raised its stake by 11,029.5%, and Cooke & Bieler LP, which grew its holdings by 29.1%. Additionally, the company has been recognized as one of TIME's America's Most Iconic Companies, reaffirming its commitment to providing a transparent and customer-centric experience. CarMax also accelerated share repurchases, with $1.36 billion in authorization, signaling management's confidence. Despite weak Q3 results, CarMax Finance delivered stable profits, supporting overall cash flow.

1.c. Company Highlights

2. CarMax's Q3 Earnings: A Challenging Quarter Amidst Leadership Changes

CarMax reported total sales of $5.8 billion for the quarter, down 6.9% year-over-year, with retail unit sales declining 8% and used unit comps down 9%. The average selling price was $26,400, up $230 per unit year-over-year. Net earnings per diluted share were $0.51, beating estimates of $0.3064. The company's earnings were impacted by a $0.08 restructuring expense related to the CEO change and workforce reductions.

Publication Date: Dec -20

📋 Highlights
  • Leadership & Restructuring: Interim executives lead amid leadership changes, with a $0.08/share restructuring expense and $150M SG&A reduction target by 2027.
  • Sales & Profitability Decline: Q3 revenue fell 6.9% YoY to $5.8B, with net earnings per share dropping from $0.81 to $0.43 due to 8% retail unit sales decline.
  • CAF Growth & Margin Strategy: Auto Finance income rose to $175M (+$15M YoY), with 11% weighted average loan rate and 42.6% sales penetration.
  • Digital & Operational Overhaul: Prioritizing digital platform simplification to mirror in-store experiences and streamline reconditioning centers to reduce COGS.
  • Market Position & Challenges: Faces 9% same-store sales declines, high competition, and wholesale depreciation >10%, prioritizing pricing agility and omnichannel integration.

Operational Challenges and Strategic Initiatives

The company's recent results have been "unacceptable" and do not reflect its potential, prompting leadership changes and a search for a permanent CEO. Key areas of focus for improvement include pricing, digital experience, and cost structure. The company aims to shrink the gap between its offering and the marketplace by lowering margins and supporting this action with marketing spend. Enrique Mayor-Mora noted that the company is on track to achieve at least $150 million in exit rate savings by the end of fiscal year 2027.

CarMax Auto Finance Performance

CarMax Auto Finance originated $1.8 billion in loans, with a sales penetration of 42.6%. The weighted average contract rate charged to new customers was 11%. CAF income for the quarter was $175 million, up $15 million from the same period last year. The company is focused on growing its full credit spectrum expansion and enhancing profitable growth drivers.

Valuation and Outlook

With a P/E Ratio of 12.52 and an EV/EBITDA of 16.01, the market seems to be pricing in some level of recovery. Analysts estimate next year's revenue growth at -3.6%. The company's ROE is 7.39%, indicating a relatively stable return profile. As CarMax navigates its operational challenges and implements strategic initiatives, the market will be watching closely for signs of improvement.

Digital Transformation and Cost Reduction

The company is reassessing its digital platform to drive a better selling experience, making it easier for customers to shop online. The company aims to streamline the digital experience, similar to in-store sales associates. The impact on the operating cost structure will be assessed as changes are made. Early indicators of progress are expected in the next month or two. The strategy to reduce COGS includes a focus on reconditioning centers, with five centers rolled out.

Management's Focus and Priorities

The board is searching for a new CEO, prioritizing someone who has led a complex business with a diverse set of assets and has experience with digital transformation. The company aims to find someone who understands its culture. The new CEO will review and position the campaign to align with the new strategy, focusing on driving sales and getting things moving in the other direction.

3. NewsRoom

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Atlantic Union Bankshares Corp Raises Stake in CarMax, Inc. $KMX

Feb -05

Source: defenseworld.net

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CarMax Named One of TIME's America's Most Iconic Companies

Feb -04

Source: globenewswire.com

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CarMax Stock Down 47% This Past Year, But One Fund Is Betting $6 Million on a Turnaround

Feb -03

Source: fool.com

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Wealth Enhancement Advisory Services LLC Sells 46,778 Shares of CarMax, Inc. $KMX

Jan -31

Source: defenseworld.net

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Cooke & Bieler LP Grows Stock Holdings in CarMax, Inc. $KMX

Jan -26

Source: defenseworld.net

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Campbell & CO Investment Adviser LLC Sells 34,839 Shares of CarMax, Inc. $KMX

Jan -25

Source: defenseworld.net

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$11.1 Million Exit After a 39% Slide Signals a Hard Reset on This Auto Retailer

Jan -24

Source: fool.com

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CarMax, Inc. (NYSE:KMX) Receives Average Recommendation of “Reduce” from Analysts

Jan -15

Source: defenseworld.net

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (9.03%)

6. Segments

CarMax Sales

Expected Growth: 9.03%

CarMax's 9.03% sales growth is driven by increasing consumer preference for used cars, expansion of online sales channels, and strategic store openings in underserved markets. Additionally, the company's focus on providing a hassle-free car buying experience, transparent pricing, and a wide selection of vehicles also contribute to its growth.

Other

Expected Growth: 8.5%

CarMax's 8.5% growth is driven by increasing used car sales, expansion of online retail platform, and growing demand for omnichannel car buying experience. Additionally, the company's focus on providing transparent and hassle-free car buying experience, along with its diversified revenue streams, contributes to its growth momentum.

7. Detailed Products

Used Vehicles

CarMax sells a wide range of used vehicles from various manufacturers, including cars, trucks, SUVs, and vans.

Certified Vehicles

CarMax offers certified pre-owned vehicles that have undergone rigorous inspections and come with warranties.

Extended Service Plans

CarMax offers extended service plans that provide additional warranty coverage beyond the manufacturer's warranty.

Financing and Insurance

CarMax provides financing options and insurance products to help customers purchase and protect their vehicles.

Appraisal and Trade-In Services

CarMax offers appraisal and trade-in services, allowing customers to sell their vehicles or trade them in for a new one.

Vehicle Inspection and Repair Services

CarMax provides vehicle inspection and repair services to ensure vehicles are in good condition.

8. CarMax, Inc.'s Porter Forces

Forces Ranking

Threat Of Substitutes

CarMax faces moderate threat from substitutes, as customers can opt for private-party sales, online marketplaces, or other used car retailers. However, CarMax's unique business model and customer experience help mitigate this threat.

Bargaining Power Of Customers

CarMax's customers have limited bargaining power due to the company's large market share and lack of price transparency in the used car market. Additionally, CarMax's no-haggle pricing policy reduces customers' ability to negotiate prices.

Bargaining Power Of Suppliers

CarMax's suppliers, primarily auto auctions and dealerships, have limited bargaining power due to the company's large scale and diversified supply chain. CarMax's ability to source vehicles from various channels also reduces supplier power.

Threat Of New Entrants

The threat of new entrants is low due to the significant capital requirements and regulatory hurdles involved in entering the used car retail market. CarMax's established brand and economies of scale also create barriers to entry.

Intensity Of Rivalry

The used car retail market is highly competitive, with many established players and online marketplaces. CarMax faces intense rivalry from companies like AutoNation, Penske Automotive, and online platforms like Cars.com and Autotrader.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 75.62%
Debt Cost 5.23%
Equity Weight 24.38%
Equity Cost 12.17%
WACC 6.92%
Leverage 310.11%

11. Quality Control: CarMax, Inc. passed 2 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Stock-Card
Penske Automotive Group

A-Score: 6.1/10

Value: 6.8

Growth: 7.0

Quality: 4.6

Yield: 5.0

Momentum: 5.0

Volatility: 8.3

1-Year Total Return ->

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Stock-Card
Group 1 Automotive

A-Score: 5.0/10

Value: 7.0

Growth: 7.8

Quality: 3.5

Yield: 0.0

Momentum: 5.0

Volatility: 6.7

1-Year Total Return ->

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Stock-Card
Asbury Automotive Group

A-Score: 4.7/10

Value: 7.7

Growth: 7.3

Quality: 3.7

Yield: 0.0

Momentum: 3.5

Volatility: 6.0

1-Year Total Return ->

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Stock-Card
Lithia Motors

A-Score: 4.4/10

Value: 6.3

Growth: 6.7

Quality: 3.4

Yield: 1.0

Momentum: 3.0

Volatility: 6.0

1-Year Total Return ->

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Stock-Card
CarMax

A-Score: 3.4/10

Value: 7.7

Growth: 5.6

Quality: 2.5

Yield: 0.0

Momentum: 0.5

Volatility: 4.0

1-Year Total Return ->

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Stock-Card
ACV Auctions

A-Score: 3.2/10

Value: 6.8

Growth: 5.4

Quality: 4.2

Yield: 0.0

Momentum: 0.5

Volatility: 2.3

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

45.83$

Current Price

45.83$

Potential

-0.00%

Expected Cash-Flows