With all the questions surrounding auto finance and the wholesale market, CarMax Inc. executives reassured analysts they’re prepared to meet any challenges that arise.
The used-car superstore chain recently announced results for the quarter ended Feb. 28 that beat many expectations.
“We realize there’s a lot of noise in the market,” said CarMax CEO Bill Nash. “We’re confident about the track that we’re on.”
Total used vehicle unit sales grew 13.4 percent and comparable store used unit sales rose 8.7 percent versus the prior year’s same quarter. The comparable store sales performance resulted from a strong increase in conversion, together with a modest increase in store traffic.
Wholesale vehicle unit sales declined 1.2 percent versus the same period a year ago, as contributions from the growth in CarMax store base and an improved appraisal buy rate were more than offset by a reduction in appraisal traffic. In particular, age 7-to 9-year old wholesale vehicles continued to be in shorter supply.
Nash said some of that decline came from the delay in tax refunds.
Other sales and revenues increased 19.2 percent, primarily reflecting improvements in extended protection plan (EPP) revenues and net third-party finance fees. EPP revenues increased 19.3 percent, largely due to the growth in used unit sales and favorable adjustments to the reserve for cancellations. Net third-party finance fees improved by 44.4 percent as a result of more sales to consumers with higher credit scores.
Total gross profit increased 14.9 percent to $562.2 million. Used vehicle gross profit rose 14.7 percent, driven by the 13.4 percent increase in total used unit sales.
Used vehicle gross profit per unit was largely consistent at $2,134 versus $2,109 in the prior year period. Wholesale vehicle gross profit declined 7.8 percent versus the prior year’s quarter, reflecting the 1.2 percent decline in wholesale unit sales and a decrease in wholesale vehicle gross profit per unit to $938 from $1,005.
Other gross profit increased 46.1 percent, primarily reflecting the improvement in EPP revenues and net third-party finance fees, as well as some favorable payroll-related cost experience in CarMax’s service operations.
One of the biggest concerns going forward is the Increasing supply of used vehicles. Nash said this is a good situation for CarMax’s business.
“We believe lower prices will be beneficial to sales as cars become affordable for our customers,” Nash said.
He said the company has managed periods of sudden declines in wholesale values and high off-lease volumes in the past.