CarMax Inc. Beats Profit Expectations, Despite Sales Decline

Shares of CarMax Inc. (KMX) soared 5.2% in premarket trading on Thursday, reaching a three-month high. The surge followed the company's announcement of fiscal third-quarter profit that exceeded expectations, even though there was a decline in sales due to lower vehicle prices and units sold.

Impressive Profit Growth

CarMax reported a significant increase in net income for the quarter ending on November 30th. Net income rose to $82.0 million, or 52 cents per share, compared to $37.6 million, or 24 cents per share, in the same period last year. This surpassed analysts' expectations for earnings per share, which were projected at 42 cents.

Sales Downturn

Despite the positive earning results, CarMax faced a decline in sales during the third quarter. Sales dropped by 5.5% to $6.15 billion, falling below the expected $6.29 billion. Same-store sales also experienced a decline of 4.1%, instead of meeting the projected 0.4% increase. This decrease can be attributed to a 2.9% drop in used vehicles unit sales (174,766 vehicles in total) and a 4.6% decrease in average selling prices ($27,228).

Challenges Ahead

CarMax mentioned several challenges affecting their sales performance during the third quarter. The company attributed these challenges to issues such as rising inflationary pressures, higher interest rates, stricter lending standards, and low consumer confidence. Despite these headwinds, CarMax managed to deliver impressive profit growth.

Market Performance

Despite the decline in sales, CarMax's stock has demonstrated resilience throughout the year. It has rallied by an impressive 22.7% year-to-date as of Wednesday. Comparatively, the S&P 500 (SPX) has seen a 22.4% increase over the same period.

CarMax has successfully surpassed profit expectations for the third quarter, highlighting its ability to adapt and perform well in a challenging market.