(Reuters) – CarMax reported a 33% drop in first-quarter profit on Friday, as lower profit margins on cars sold continued to weigh on the used car industry.
Used car retailers have had a bumpy ride with profitability deteriorating over the past few years as new vehicle availability improves.
Better offers and trade-in deals on new cars also deter potential buyers from considering used cars.
Used car dealers have been forced to sell cars at deeply discounted prices, a stark difference from the pricing power they controlled during the pandemic, when the supply of new cars skewed.
CarMax (NYSE:) reported net income of $152.4 million, or 97 cents per share, in the quarter ended May 31, down from $228.3 million, or $1.44 per share, a year ago.
Analysts expected earnings of 94 cents per share, according to LSEG data.
For the reported quarter, revenues totaled $7.11 billion, falling short of analyst estimates of $7.21 billion.
Used vehicle revenues fell 5.4% to $5.68 billion.
“Vehicle affordability challenges continued to impact unit sales performance in the first quarter (retail), with continued headwinds from broad-based inflationary pressures, rising interest rates, and tightening lending standards,” the company said in a statement.
Analysts and industry experts said concerns about affordability among consumers remain, exacerbated by a limited supply of affordable vehicles.
CarMax has used a combination of cost cuts, including cutting marketing and capital expenditures, over the past few years to help avoid impacting margins.
Retail sales of used cars improved in May from the previous month, rising to the highest level so far this year, according to data from Cox Automotive.
Retail used car prices were consistently lower during the first five months of 2024 than the previous year, Cox said.
Shares of CarMax stock fell in and out of positive territory in pre-market trading.