CarMax Keeps Rolling Along
We’re raising our fair value estimate of the narrow-moat firm.
Hurricane Harvey in Houston cost CarMax about $1 million after insurance deductibles, mostly from 1,000 lost vehicles, but overall company comparable-store used-vehicle unit sales still rose 5.3% year over year and all six stores affected by the storm have reopened. Management did not give much detail on Hurricane Irma’s impact beyond saying it closed 28 stores, mostly in Georgia and Florida; it will give more detail Dec. 21 when it reports the fiscal third quarter. Management indicated it is not worried about being able to meet a surge in demand after the storms and its IT systems are more sophisticated than after Hurricane Katrina 12 years ago. Buyers are also trained to look for flood damage during the appraisal process; CarMax will sell vehicles with flood damage into salvage auctions to protect itself from liability.
The online appraisal process program is now expanding from Charlotte to the Midwest. We think anything that makes the buying experience easier for consumers and more like buying anything else online is the right strategy. Some states restrict retailers from delivering a vehicle to a customer, as opposed to in-store pickup, so management over time will seek to provide more improvements in delivery for however the customer wants it within the laws of each state. Home delivery is in Charlotte for now but should expand over time.
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