CarMax, CVNA and AMZN Auto

Week# 02

UPDATED track record: https://www.unicusresearch.com/trackrecord.

Schedule intro. call: https://www.unicusresearch.com/schedule-a-consultation

Note: This was initially published to our clients in December 2024. Founding Members get a delayed yet actionable version of occasional insightful notes from our sources. Some critical insights are not reported here as they are available only to our clients. This is a newsletter, and the information we’ve included below is not financial advice to the readers; it is only for information purposes. We published a brand new short recommendation for our clients yesterday. If you would like to become our client, email laks@unicusresearch.com…

KMX could be at the apex of a turnaround in the used car market. We suggested our clients to avoid shorting the stock for the quarter until we get better visibility. Our years of research indicates that consumers who are in the market for a new car are finding prices much higher than they expected and are more willing to buy a used car, driving used car sales up in 2025 at the expense of new car sales. That's a momentum shift.

CarMax's fiscal Q3 showed good unit sales trends and resilient gross profit, already pushing great earnings momentum in the previously slow industry. Unit sales trends are also seen to have improved throughout December, but some uncertainty regarding interest rates and used car prices remain.

CarMax’s fiscal Q3 showed continued signs of improvement after especially weak consumer spending in prior quarters. Vehicle sales showed positive 1.2% growth, coming in at $6.22 billion. The revenues also beat Wall Street’s estimates by $175 million. Comparable store unit sales already grew at a great 4.3% pace, but used car prices have continued declining across the industry causing comparable store sales to only grow 0.5%. The comparable store sales also grew for the first time in several quarters, meanwhile units also grew at a consistent 4.3% pace in CarMax's fiscal Q2 as well.

CarMax’s improving performance and improving consumer confidence should position the company well to continue the financial recovery. In the Q3 earnings call, CarMax’s CEO Bill Nash also related to an even stronger month-to-date unit sales performance in December, and expects the unit sales performance to accelerate in Q4 from an already stronger Q3 - the industry may finally recovery into sustainably improving sales trends.

Despite stable gross margins and disciplined spending, potential credit losses and high valuation pose significant risks to CarMax's stock performance.

Our Analysis

With KMX 0.00%↑, the challenge lies in the provision for loan losses. Here is our breakdown on CarMax Auto Finance.