CarMax reported record revenue and profit in its fiscal first quarter — and the results might have been even stronger if the used-vehicle giant had more sale-ready cars and trucks.
The retailer's level of sellable inventory is about 40 percent lower than where CarMax leaders would like it, CEO Bill Nash said last week. But overall vehicle supply is not the issue, Nash said. What will help most is speeding up the reconditioning process for the vehicles CarMax has in hand.
To boost speed, CarMax, the largest used-vehicle retailer in the U.S., is adding capacity at its reconditioning facilities and reworking processes to gain efficiency, he said.
"It's absolutely fair to say that the inventory was a headwind for us," Nash said after CarMax reported earnings last week. "And it's not the supply side; it's more of the production side" of reconditioning.
Nash said that CarMax's operations team has worked hard to keep up with demand.
CarMax bought 341,275 vehicles from consumers for inventory during its first quarter ended May 31. That was more than triple what it bought from consumers during the pandemic-hit quarter a year earlier and up 77 percent compared with the same period two years earlier.
The company said in an earnings release that it believes it became the industry's largest online buyer of used vehicles in the quarter. CarMax credited its nationwide online instant appraisal and instant cash-offer tool, which it jointly developed with vehicle listings site Edmunds. CarMax completed its acquisition of Edmunds on June 1. The tool helped CarMax purchase some 163,000 cars and trucks from consumers during the quarter, the company said. That online tool, combined with the pipeline of customers who trade in their vehicles at CarMax stores, "just diminishes our need for external supply" coming from other sources, Nash said.
While CarMax leaders may not feel a crimp in supply, it has been an issue for most U.S. auto retailers. With demand high even as overall levels of new vehicles are slim, many buyers have turned to used vehicles. New-vehicle supply had been recovering from production disruptions related to the pandemic when a global shortage of semiconductor microchips made things worse.
The resulting lower number of vehicles being produced, coupled with the high consumer demand, has created an extraordinary pricing environment in which used vehicles have generally risen in value in recent months. Nash called the situation unprecedented.
"If you think about from January until now, the $5,000 to $6,000 worth of appreciation that we've seen, it's truly remarkable," he said. He added that the market appears to be "reaching an inflection point."
CarMax's average retail selling price was up by more than $2,000 in its first quarter. But it had to pay more to obtain cars and trucks, too, Nash noted.
The retailer's total vehicle sales in the quarter more than doubled to 452,188. That compared with a year-earlier quarter during which many CarMax stores were shuttered or had limited operations in the early months of the pandemic. Against its more-normal fiscal first quarter two years earlier, CarMax's vehicle sales rose 31 percent.
Retail vehicle sales for the just-completed quarter doubled to 270,799 vs. the year-earlier period. On a same-store basis, retail vehicle sales rose 99 percent from the year-earlier quarter and increased 16 percent from the fiscal first quarter two years earlier.
The retailer's gross profit per retail vehicle was $2,205, up $268. Net revenue hit a record $7.7 billion in the quarter, well more than double what it was in the hard-hit year-earlier period. Net earnings totaled a record $437 million, compared with just $5.0 million a year earlier.