I’m a big fan of used car retailer CarMax (KMX) – which reported earnings Tuesday morning. The company did a good job managing the brutal macro environment – and investors sent shares up 10% yesterday – but there’s only so much they can do.
Used vehicle revenue comps were -22% compared to a year ago. KMX cut Selling, General & Administrative (SGA) expenses by 8% in the quarter compared to a year ago in a conscious attempt to shore up profitability at the expense of market share. This is the right decision. Nevertheless, EPS declined 55% compared to a year ago.
KMX is a great company and investors with a long term time horizon will do well in my opinion. But the business – and consequently shares – could continue to languish a while longer as we work our way through this economic muddle.