A favorable used-vehicle sales environment in the U.S. led to higher revenues and gross profits for CarMax Inc. in its third quarter, but stock compensation and advertising support for the company's omnichannel retail rollout dented net profits.
The nation's largest retailer of pre-owned cars and light trucks reported a 12 percent increase in net sales and operating revenues to $4.79 billion. The company's total used-vehicle sales increased 11 percent, while same-store sales grew 7.5 percent. CarMax opened four stores in the quarter, in Palm Springs, Calif.; Gulfport, Miss.; Dallas and Atlanta.
CEO Bill Nash said in a statement that he was pleased with the company's vehicle sales in the third quarter and acknowledged the "favorable underlying used car sales environment."
Net profit declined 9 percent to $173.2 million in the quarter. Nash said the year-over-year decrease was largely due to higher stock-based compensation expense, reflecting a rising share price in the quarter, as well as a planned advertising increase to support CarMax's omnichannel rollout.
Shares of CarMax finished Friday's trading down 6.1 percent to $92.71.
The company said its omnichannel retail experience should be available to a majority of its customers by the end of fiscal 2020, on Feb. 29, and it will be completely rolled out by the end of its 2021 fiscal year.
"We remain excited about the unique and powerful experience we are providing through omni-channel, which is empowering customers to shop on their terms, whenever and wherever it is most convenient for them," Nash said. "Our ability to seamlessly integrate our physical and digital experiences while continuing to drive comparable store sales growth, maintain an attractive used vehicle gross profit per unit, and deliver our exceptional customer service is a key differentiator."
The company's gross profit was up 7.8 percent to $613.6 million, with used-vehicle gross profit up 12 percent. Gross profit per unit rose to $2,145, vs. $2,133 in the year-ago quarter.
The increase in gross profit was partially offset by an $11 million decline in service department profits. CarMax said service profits were hit by a recent increase in its post-sale warranty period from 30 to 90 days, as well as near-term inefficiencies due to a hiring ramp-up of technicians and a higher stock-based compensation expense for service operations associates.
The company's auto finance income increased 3.9 percent to $114 million.