CarMax (KMX 0.83%) is growing again. That was one of the key takeaways from the used car retailer's recent fiscal second-quarter report that showed a return to comparable-store sales gains after six months of declines.
There was a lot more to that announcement than just the headline revenue figure, though, as management gave investors updates on the health of the industry and their aggressive efforts to drive more of the used car buying process online. CEO Bill Nash and his team discussed those trends, and more, in their conference call with investors. Below are a few highlights from that presentation.
Image source: Getty Images.
Better store results
"In the second quarter, we were pleased to return to positive [comparable-store sales]. Used unit comps grew by 2.1% compared to 5.3% in the prior-year quarter and were driven by better conversion, partially offset by lower traffic." -- Nash
Executives have been saying for months now that CarMax's sluggish sales growth was a temporary challenge, mainly brought on by an imbalance between the pricing of used and new vehicles. The latest operating figures support that optimistic view as sales at existing locations returned to growth following two consecutive quarters of declines. Comps rose 2% this quarter, compared to a 2% decline in the first quarter and an 8% slump at the end of fiscal year 2017.
CarMax didn't solve its customer traffic challenges, as shopper volume fell yet again. However, the company converted more of those browsers into buyers and so overall unit sales marched higher.
Steady profits
"Our industry continues to experience an unusual depreciation environment. In this quarter, our vehicle acquisition costs remained high, and were only somewhat lower than we experienced in the first quarter. This contrasts with the prior-year second quarter, when our mix-adjusted vehicle acquisition costs were significantly lower year over year." – Nash
Executives noted that used car cost trends were volatile even as new car prices rose steadily. Nash and his team weren't clear on the main reasons behind those trends, but they speculated that it could have something to do with tariff risks spurring unusual demand for new vehicles.
Importantly, CarMax has been able to maintain its profitability through the pricing challenges, and gross profit per vehicle stuck at roughly $2,200, just as it has for years.
The online opportunity
"We are building a full omnichannel experience that enables customers to seamlessly move across the online and in-store experience with ease. Customers want the flexibility and independence to do much of their shopping and buying online. Given the complexity of a vehicle purchase, they also often want the help and assistance of our expert store associates at various points along the journey." – Nash
Demand for online shopping has crept its way into many industries, including home furnishings, apparel, and home improvement, that originally seemed mismatched for the e-commerce experience. The used car market seems to be joining that list, as CarMax's website traffic growth accelerated to 19% from 16% in the previous quarter. The company is now up to over 20 million visitors per month online, up from 19 million last year.
Image source: Getty Images.
Executives are aiming to satisfy those shoppers by shifting more of the car buying process online, and that strategy matches perfectly with its no-haggle sales approach. So far, trade-in appraisals are available at a few locations and CarMax is gearing up to offer store pickup or home delivery in a few smaller markets, with the aim to bring this omnichannel experience to at least one major market later this year.
From there, the company plans to take what it learned from the experiment and scale up its online presence nationally. "We believe we will have a clear competitive advantage to lead the industry in delivering this experience to our customers," Nash predicted.
