CarMax (KMX) saw its KMX stock drop pre-market after revenue failed to meet analyst expectations in the most recent earnings report.
The earnings report looked to be good news for KMX stock from a wide-angle lens: CarMax saw its Q3 profit up to $106.5 million (47 cents a share) from $94.7 million (41 cents a share) a year earlier. And overall revenue had increased to $2.9 billion, from $2.6 billion a year earlier.
But analysts had expected better — and KMX stock is suffering for their high hopes.
Most pointed to earnings of 48 cents a share on revenue of $2.9 billion.
In pre-market trading, shares were down some 4%.
KMX is trying to put a good spin on what, in reality, is still good news. The company reported that total used-vehicle unit sales had increased 15% and comparable store used-vehicle units grew 10%.
CarMax — which focuses more on the used-car market, which helps it to outperform the industry — has had a fine year.
KMX focused on aggressive store growth and a tough capital deployment strategy meant to boost earnings (via Zacks).
During the first half of fiscal 2014, CarMax opened 5 stores, bringing its used car superstore count to 123 as of Aug 31, 2013. The company intends to open 13 stores in fiscal 2014 and 10-15 superstores in both fiscal 2015 and 2016.
However, the used-car market in the U.S. is highly fragmented and competitive. Moreover, incentives on new cars have encouraged consumers to trade in their old cars for new, which has lowered used-car sales and increased the used-car inventory. This is forcing CarMax to lower the prices of vehicles, thereby shrinking margins.
KMX stock chugged along the past few months with “higher inventory and decline in accounts receivables and auto loans receivables” — resulting in high cash outflow from operating activities.
As the country emerges from a long-lasting economic slumber, auto sales should continue to climb — but at what rate?
Clearly, analysts had hoped for better, when in reality it’s still a slow march forward.
KMX stock is up 41% year to date.