Morningstar

Buybacks and Tax Reform Are Good News for CarMax

The quality of the fiscal first-quarter earnings isn't extraordinary.

Securities In This Article
CarMax Inc
(KMX)

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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About the Author

David Whiston, CFA, CPA, CFE

Strategist
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David Whiston, CFA, CPA, CFE, is a strategist, AM Industrials, for Morningstar*. He covers stocks in the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007. He writes stock reports, ad hoc reports, stock analyst notes, and builds discounted cash flow models for each company covered. He also assesses their economic moat and makes frequent television and print media appearances in local, national, and international news outlets. Key stocks covered include GM, Ford, CarMax, and all six publicly traded franchise auto dealers, such as AutoNation and Penske Automotive Group.

Before joining Morningstar in 2007, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence, gaining experience around assessing an asset’s cash flow.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond’s Robins School of Business. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner.

In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011 .

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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