CarMax beats second-quarter revenue estimates on higher unit sales

By Ananta Agarwal

(Reuters) -Used car retailer CarMax beat Wall Street estimates for second-quarter revenue on Thursday as price cuts on used vehicles boosted unit sales, especially in the retail segment, sending its shares up 6.4% in afternoon trading.

Pre-owned vehicle retailers have had a bumpy ride, with profitability worsening as availability of new vehicles improved after tight supply during the pandemic, which had pushed up prices of used cars.

CarMax has employed a host of cost-cutting measures over the past few years to protect its margins, including slashing marketing and capital expenditures.

The company reported a 2.9% increase in the number of vehicles sold in the second quarter. In its retail segment, unit sales rose 5.1% and revenue was up 1.5% from a year ago.

However, the tailwinds in unit sales were offset by a decline in CarMax's income from lending as the company had to increase provisions for loan losses.

Weaker consumer budgets have negatively impacted car loan payments for some borrowers, data has shown.

The company's overall quarterly revenue of $7.01 billion was down about 1% from a year ago. However, it was above analysts' average estimate of $6.79 billion, according to LSEG data.

Despite higher provisions, the key takeaway is that there is a "bigger inflection in retail sales," said Sharon Zackfia, equity analyst at William Blair.

"We believe the momentum in future quarters can more than offset higher loan provisions," Zackfia said.

The company's second-quarter average selling price per vehicle was down 4.6% and 12.9% in used retail and wholesale units, respectively.

The company's earnings per share of 85 cents in the second quarter was below the estimates of 86 cents, but were 13.3% higher than 75 cents a year earlier.

(Reporting by Ananta Agarwal in Bengaluru; Editing by Shreya Biswas)