CarMax profit and sales rise amid atypical used-vehicle prices
CarMax posted a 22 percent rise in net income to $220.9 million in its second fiscal quarter, attributing the increased profits primarily to 2017's corporate tax cut, the nation’s largest used-car retailersaid in a statement Wednesday.
CarMax said the effective tax rate’s decrease to 23.7 percent from 37.5 percent helped boost its bottom line during the quarter ending Aug. 31. The tax cuts were the main driver of higher profits in CarMax’s first quarter, too.
The retailer’s gross profit increased 8 percent in the most recent quarter to $650.6 million, and total revenue climbed 9 percent to $4.77 billion. Same-store used-vehicle sales were up 2 percent, which CarMax said reflected improved lead conversion; that was offset by lower store traffic. The company opened three stores during the second quarter in the Albuquerque, N.M.; Oklahoma City, Okla.; and Macon, Ga., markets.
This year, CarMax will bring a new digital buying experience to one of its major markets, CEO Bill Nash said Wednesday in a conference call with analysts. In the meantime, CarMax continues to test aspects of what it calls its “full omnichannel experience,” a phrase typically used to describe a seamless buying experience whether consumers are shopping from their computer, mobile device or in the store.
CarMax’s approach includes online pricing estimates for customers, online appraisals, home delivery and expedited pickups at stores. Nash declined to identify the market where it will initially roll out the new experience. He said the company would provide more details later this year.
CarMax has been testing home delivery, in which customers needn’t step foot in a brick-and-mortar store, in Charlotte, N.C., since fall 2016. Home delivery is also now available in three stores in the Raleigh, N.C., market. Asked about the metrics of customers choosing that option in Charlotte, Nash said, “The majority of customers by far still want to interact with our sales consultants and still want to come into the store at some point.”
The retailer began testing an online trade-in estimator at 10 stores in August. The tool asks customers a series of simple questions before giving a possible price for their vehicle. In some markets, it’s also doing appraisals, which include prices the company will honor in the store, assuming the customer didn’t overlook something on the vehicle that would hurt its value.
During the second quarter, atypically high used vehicle prices have caused CarMax’s vehicle acquisition costs to also be higher than a year ago, the retailer said. This was partially offset by a shift to older vehicles in its product mix.
'Very unusual market'
“I’ve been here a long time -- it’s a very unusual market right now,” Nash said of used car and truck values. He wondered aloud on the call whether tariff threats for new vehicles have led speculators to buy used. New vehicle prices otherwise continue to rise, and off-lease vehicles are expected to return to dealers, so the company expects value trends to normalize.
The company is opening four stores during the current quarter, including one in Wilmington, N.C. That location in the Florence-hit area opened Wednesday, after a delay caused by the storm. Other third-quarter openings are planned for Lafayette, La.; Corpus Christi, Texas; and Shreveport, La.
During its fourth quarter, CarMax is planning new stores in Amherst, N.Y.; Melbourne, Fla.; Montgomery, Ala.; Vancouver, Wash.; and Kenner, La.
Beyond that, new stores are planned in Memphis; Killeen, Texas; Pharr, Texas; Pleasant Hill, Calif.; Lubbock, Texas; and Scottsdale, Ariz.
CarMax, with 192 stores in 41 states, tops Automotive News' list of the top 100 dealership groups based in the U.S. ranked by used-vehicle retail sales, with 671,294 sales in 2017.
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