What happened

Shares of CarMax (NYSE:KMX), the nation's largest retailer of used cars, dropped over 13% during early Thursday trading despite the auto retailer delivering second-quarter 2021 results that topped analysts' estimates on the top and bottom lines.

So what

After the initial automotive sales downturn caused by the spread of COVID-19 and social distancing, CarMax's second quarter showed strong momentum during the summer months. Net sales and operating revenue increased 3.3% to $5.37 billion versus the prior year, which topped analysts' estimates of $5.22 billion. The top line was driven by a solid 3.9% increase in total unit sales, and a 1.2% rise in comparable-store unit sales.

Second-quarter earnings per share jumped nearly 28% to $1.79, easily topping analysts' estimates calling for $1.10 per share.

Row of vehicles at a dealership lot.

Image source: Getty Images.

"We are very pleased to report record revenues and profitability this quarter," CEO Bill Nash said in a press release. "The talent and commitment of our associates as well as the diversity of our business model allowed us to capitalize on the improved market environment to deliver a record quarter."

Now what

There were additional highlights beyond the top- and bottom-line beats. What's interesting for investors is that CarMax's second quarter demonstrated continual improvement in demand: Positive comps growth during July and August more than offset the high-single-digit negative comps during June. That suggests the company could take sales momentum into the third quarter.

And the company resumed store openings with between eight to 10 new stores planned during fiscal year 2022. Ultimately, this was a solid quarter, and investors can take today's price decline with a grain of salt. Used-car sales have been robust and continue to offer a compelling substitute for increasingly expensive new cars, and CarMax is executing well with improvements to comps and gross profit per unit, and an increased online presence.