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Why CarMax Inc. Jumped 12.9% in September

By Joe Tenebruso - Oct 12, 2017 at 10:33AM

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The used-car seller's "no-haggle" approach continues to resonate with car shoppers.

What happened

Shares of CarMax (KMX 2.42%) jumped nearly 13% last month, according to data provided by S&P Global Market Intelligence, following the used-car retailer's strong second-quarter results.

So what

CarMax's revenue rose 9.7% year over year to $4.39 billion. Net income leapt 11.7% to $181.4 million. And earnings per share, boosted by stock buybacks, jumped 16.7% to $0.98.  Those figures came in well above Wall Street's expectations of $4.27 billion in revenue and $0.95 in EPS.

CarMax used car lot

Image source: CarMax.  

CarMax sold 5.3% more cars on a comparable-store basis and 11.1% more on an overall basis. Used-vehicle gross profit per unit increased to $2,178, compared to $2,160 in the year-ago quarter. More cars sold and higher profit per vehicle -- that's a powerful combination that's helping to fuel CarMax's results.

Now what 

CarMax has a unique value proposition in the used-car industry. The company takes something that's dreaded by many car shoppers -- the intense negotiating that's often required as part of the typical used-car buying experience -- and eliminates it. The "no-haggle" price for a CarMax vehicle is the same online as it is on the lot. All of its cars are quality certified and come with a five-day money-back guarantee. Together, these features make shopping at a CarMax a much less stressful, and even enjoyable, experience for many used car buyers.

In turn, CarMax should continue to take share in the used-car industry. The company plans to open 15 new stores over the next 12 months. The company's national expansion strategy, combined with growing comp sales at its existing 180-strong store base, should drive steady increases in revenue and earnings for many years to come.

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