What happened
AutoNation (AN +0.46%) shareholders are trailing the market this year. Their stock dropped 23% compared to a 4% decline in the S&P 500 through the end of June, according to data provided by S&P Global Market Intelligence.
The new- and used-car retailer's stock had declined by nearly 60% at one point in the year, but its subsequent rally still left it well below peers like CarMax (KMX +1.05%), which rose slightly during the first half of 2020.
Image source: Getty Images.
So what
Like CarMax, AutoNation saw slumping customer traffic during the COVID-19 pandemic store closures. The chain also struggled with major inventory challenges as automobile pricing dove in March and April. These issues contributed to an operating loss of $219 million in the first quarter compared to a $191 million gain a year ago. CarMax, in contrast, managed a slight net profit through the worst months of the pandemic to date.
Now what
AutoNation's next earnings report in late July will cover the selling months of April, May, and June, and so it will show the most direct impact of store closures, along with rebounding customer traffic trends. The big question going forward is how well the auto retailer managed its inventory levels. Inefficiencies there would show up in more writedown charges and a potentially lower gross profit margin at least through the end of 2020.
