By Ananta Agarwal
(Reuters) – Used car retailer CarMax Inc 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 percent in afternoon trading.
Used car dealerships have had a rocky ride, with profitability deteriorating as new car availability improves after limited supply during the pandemic, sending used car prices soaring.
CarMax has implemented a range of cost-cutting measures over the past few years to protect its margins, including cutting marketing and capital expenditures.
The company reported a 2.9% increase in the number of vehicles sold in the second quarter. In the retail segment, unit sales rose 5.1% and revenues rose 1.5% compared to last year.
However, the improvement in unit sales was offset by a decline in CarMax’s lending income as the company had to increase provisions for loan losses.
Data showed that weaker consumer budgets were negatively impacting auto loan payments for some borrowers.
The company’s total quarterly revenue of $7.01 billion fell about 1% from a year ago. However, it was above analysts’ average estimate of $6.79 billion, according to LSEG data.
Despite the higher provisions, the main finding is that there is a “bigger uptick in retail sales,” said Sharon Zackfia, an analyst at William Blair.
“We believe momentum in future quarters could offset higher loan provisions,” Zackvia said.
The company’s average selling price per vehicle in the second quarter decreased by 4.6% and 12.9% in the used retail and wholesale units, respectively.
The company’s earnings per share were 85 cents in the second quarter, missing estimates of 86 cents but up 13.3% from 75 cents a year earlier.
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