CarMax (KMX, Financial) is experiencing deflation in the used car sector, with average selling prices for its used and wholesale vehicles declining for the fourth consecutive quarter, leading to a second straight revenue miss. Despite lower prices, sales volumes haven't significantly increased, contributing to KMX's first earnings shortfall since the third quarter of 2023.
The company's revenue dipped 1.7% year-over-year in the fourth quarter to $5.63 billion, failing to meet analysts' expectations for growth. This decline was despite a slight 1.3% increase in used vehicle sales to over 172,000 units. However, wholesale volumes decreased by 4% to 115,000 units, even as average selling prices dropped by 2.3% and 3.2% for used and wholesale units, respectively. High capital costs and stricter lending standards within KMX's financing division have exacerbated affordability issues for customers.
Contrastingly, AutoNation (AN, Financial) has seen an improvement in new vehicle inventory levels, offering customers more options and making new autos more attractive due to lower net transaction prices and subsidized lending rates. This shift has put additional pressure on KMX, which also reported a significant earnings miss with a 27% year-over-year decrease in EPS to $0.32, well below the expected positive growth.
Looking ahead, KMX faces a challenging environment with high interest rates and market volatility. The company remains optimistic about its long-term goals, including selling over 2 million units annually and achieving $33 billion in annual revenue. However, the path to these targets appears more uncertain amid the current conditions.
