Buybacks and Tax Reform Are Good News for CarMax
The quality of the fiscal first-quarter earnings isn't extraordinary.
Used unit comparable store sales fell by 2.3% year over year but did improve from fiscal 2018 fourth quarter's horrible minus 8% figure. According to our data, CarMax had not posted consecutive quarterly negative comparable unit store sales since fiscal second and third quarter of 2012. Management for first quarter cited continued macro pricing factors weighing on comps, which we interpret to mean store traffic fell because of attractive incentives in the new vehicle market. Used vehicle pricing however remains high due to tailwinds from low supply following last fall's hurricanes. CEO Bill Nash told us that he expects the continued higher supply of used vehicles (we assume he meant due to higher off-lease volume) to eventually drive used pricing down, which we are also expecting. This change may help reverse the negative comparable sales as more shoppers may choose a used vehicle over new as pricing falls. CarMax's ASPs rose by 3% to $20,067 while total unit sales rose by 1.6% thanks to 18 new stores, or a 10% rise in the store base, since the start of the prior year's quarter.
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