Revenue rose 19.5% to $7.9 billion and comparable-store unit sales climbed 13%. The stock fell about 5% on Wednesday, the session after the report, ahead of a Nov. 3 strategic update.
CarMax is selling a lot more cars. It is keeping less on each one.
The used-car retailer reported revenue of $7.9 billion for its fiscal second quarter ended Aug. 31, up 19.5% from a year earlier. Retail used-unit sales rose 13.8%, and used units at comparable stores rose 13.0%. Earnings were $1.16 a share, up from 64 cents a year earlier.
Retail gross profit per used unit fell $111 to $2,105.
The shares fell about 5% on Wednesday, the session after the results.
The math
A $111 drop from $2,216 is a decline of about 5%. Combined with 13.8% more units sold, that puts retail used-vehicle gross profit up roughly 8%, well under the pace of revenue growth. Volume is doing the work, while profit per car moves the other way.
Capital and strategy
CarMax said it plans to resume modest share repurchases in the third quarter. It has scheduled a strategic update for Nov. 3.
Two readings
One reading is that CarMax is trading margin for volume and coming out ahead. Giving up about 5% of gross profit per car to sell nearly 14% more cars still grew retail gross profit, and the company plans to restart buybacks.
The other reading is that growth this lopsided is fragile. Gross profit rising at less than half the rate of revenue means the business depends on volume staying strong. If unit growth cools, the lower profit per car will show up directly in earnings. Wednesday's decline suggests investors are weighing that risk.
What to watch
The Nov. 3 update is the next event and will be the company's chance to explain how it plans to balance volume and margin. Third-quarter gross profit per unit will show whether $2,105 is a floor or part of a trend.