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How Badly Did COVID-19 Crash CarMax's Q1?

By Daniel Miller – Jun 19, 2020 at 12:07PM

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Investors knew the first quarter would be painful, but here are some bright spots in the data.

The broader automotive industry was hard hit during the spread of COVID-19 as manufacturers halted production, suppliers scrambled to adjust, dealerships turned into ghost towns, and sales dropped off a cliff. CarMax (KMX 1.32%), the nation's largest retailer of used cars, just reported its first-quarter results ended on May 31, 2020. These results can offer investors valuable insight into just how devastating the pandemic was to business, and whether or not trends are improving.

Roughly 80% of days in CarMax's first quarter were negatively affected by store closures and limited operations and capacity, due to COVID-19. Net sales and operating revenues plunged 40% to $3.23 billion, still topping analysts' estimates of $2.7 billion. CarMax's first-quarter net earnings dropped a staggering amount from the prior year's $1.59 per share, down to $0.03 per share. Comparable-store used unit sales declined 42% during the first quarter, but sales have improved consistently since early April. In fact, comparable store used unit sales for the two weeks ended June 14, 2020 were within 10% of prior year levels.

A man gives vehicle keys to another man while shaking hands

Image source: Getty Images.

President and CEO Bill Nash commented in a press release about just how much the company had accomplished during the pandemic: "We continued our omni-channel rollout and launched new initiatives, such as contactless curbside pickup, a temporary extension of our 90-day warranty and CAF payment assistance to meet the near-term needs of our customers; we introduced social distancing and enhanced sanitation procedures; and we shifted our entire wholesale business from in-person to online auctions."

Investors knew there would be financial pain during the first-quarter results, but the consistently improving sales trends during May and June, as well as web traffic reaching new highs, bode well for CarMax ending 2020 on a stronger note. Expect the company to continue pushing its omni-channel business model and to try to reverse the first-quarter declines in gross profit per unit. Headwinds remain for the automotive industry, but CarMax's first quarter suggests the worst may be in the rear view mirror.

Daniel Miller has no position in any of the stocks mentioned. The Motley Fool recommends CarMax. The Motley Fool has a disclosure policy.

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