By Nathan Gomes
(Reuters) -Pre-owned vehicles retailer CarMax (NYSE:) missed analysts’ estimates for fourth-quarter results on Thursday and said it might not meet its long-term vehicle sales target, signaling a slower recovery in the used car market.
CarMax shares closed 9% lower.
While prices declined, higher interest rates are pressuring consumers on everything else they are buying, such as food and housing, CarMax’s CEO Bill Nash said on a post-earnings call.
The total supply of unsold used vehicles on dealer lots across the United States rose 9%, to 2.27 million units in March from a year ago, according to Cox Automotive.
CarMax delayed its goal to sell over 2 million combined retail and wholesale units annually to between 2026 and 2030, from its prior target of 2026.
“Today’s results suggest that the recovery ramp is likely to be a lot lower than what some others have underwritten,” Truist Securities analyst Scot Ciccarelli said.
CFRA Research analyst Garrett Nelson called CarMax’s release “disappointing”, adding that “higher-for-longer” interest rates were likely to continue weighing on car sales volumes.
Used-car retailers boosted vehicle inventories, anticipating strong demand during the pandemic, amid lower new-car supply.
However, easing semiconductor constraints over the past few years have led to better supply of new vehicles, in turn impacting used-car sales.
Last December, CarMax warned of a hit to fourth-quarter profit-sharing revenue due to inflationary pressures its partners experienced.
Fourth-quarter net income fell to $50.3 million, or 32 cents per share, compared with $69 million, or 44 cents per share a year ago. Analysts expected the company to post a net income of 49 cents per share, according to LSEG data.
Sales of used vehicles fell marginally to about $4.49 billion, from $4.53 billion a year ago.
The firm’s overall fourth-quarter net revenue fell 1.7%, to $5.6 billion, below analysts’ estimate of $5.8 billion.
It reported cash and cash equivalents for the quarter ended Feb. 29 at $574.14 million, compared with $314.76 million a year earlier.
It is a sequential fall from cash and cash equivalents of $605.38 million for the quarter ended Nov. 30, 2023.
Carmax plans to raise $1.25 billion through a bond sale with an asset-backed securities offering that could be increased to $1.6 billion, according to a Bloomberg report.
The auto retailer declined to comment.