Please ensure Javascript is enabled for purposes of website accessibility

Why CarMax Stock Fell 14% in September

By Jon Quast – Oct 2, 2020 at 9:51AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company reported a record quarter, but investors are worried about near-term uncertainties.

What happened

Shares of CarMax (KMX 1.48%) fell 14% in September, according to data provided by S&P Global Market Intelligence. The stock was trending a little lower early in the month but its fall accelerated after the company reported earnings for the second quarter of its fiscal 2021 on Sept. 24. 

So what

In Q2, CarMax had record sales. Not only were quarterly vehicle sales up 3.9% year over year, but the average gross profit per unit was also up. Used vehicle gross profit was up to $2,214, an increase of a little more than 1% from last year. Gross profit for wholesale vehicles hit a record at $1,086 per unit. These gains resulted in net earnings of $297 million, handily beating analyst expectations.

A fearful businessman places his hands on his head while looking at a large, down stock chart in the background.

Image source: Getty Images.

CarMax was also able to repair its finances after a brutal first quarter. Q1 sales plummeted 40% year over year with locations closed because of the coronavirus pandemic, causing the company to withdraw some of its credit as a precaution. After Q2 ended, it paid off the outstanding $576 million balance on its revolving credit facility with cash on hand.

This all sounds positive, but CarMax stock probably fell because management declined to give guidance for the upcoming third quarter. In the conference call to discuss Q2 results, CEO Bill Nash mentioned high unemployment, new coronavirus cases, the presidential election, and social unrest as issues clouding the near-term outlook. "We feel good about where we are, given all those uncertainties," Nash said. But it appears Nash is more comfortable with these uncertainties than Wall Street is.

KMX Chart

Despite falling in September, CarMax stock is up in 2020. KMX data by YCharts

Now what

Two things are worth noting for CarMax shareholders. First, the company had paused opening new locations because of the coronavirus. Those are now back on track, and it expects to open between eight and 10 new stores in fiscal 2021.

Second, CarMax didn't buy back any stock in Q2. It still has $1.5 billion in authorization, but hasn't officially reinstated the repurchase program. However, many public companies are starting to resume this activity. Given the company's strong Q2, it wouldn't be surprising if this automotive retail stock soon announced it buying back shares again.

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

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

CarMax Inc. Stock Quote
CarMax Inc.
$68.74 (1.48%) $1.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.