CarMax, Inc. (NYSE:KMX) is the nation's largest retailer of used vehicles, operating in two reportable segments: CarMax Sales Operations and CarMax Auto Finance (CAF). The CarMax Sales Operations segment encompasses all aspects of KMX's auto merchandising and service operations, excluding financing provided by CAF. CAF consists solely of KMX's in-house finance operation that provides financing to customers buying retail vehicles from CarMax.

Business Overview

CarMax (NYSE:KMX) has established itself as a leader in the used car industry by delivering an unparalleled customer experience. KMX offers a broad selection of quality used vehicles and related products and services at competitive, no-haggle prices using a customer-friendly sales process. CarMax's omni-channel platform, which gives it the largest addressable market in the used car industry, empowers its retail customers to buy a car on their terms – online, in-store or through an integrated combination of both.

Financials

In the fiscal year ended February 29, 2024, CarMax (NYSE:KMX) generated annual revenue of $26.54 billion and net income of $479.20 million. KMX's annual operating cash flow was $458.62 million, while its annual free cash flow was negative $6.69 million. These financial results demonstrate CarMax's ability to generate substantial revenue and profitability, despite the challenges faced in the used car industry.

During the first quarter of fiscal 2025, CarMax (NYSE:KMX) reported total sales of $7.11 billion, down 7.5% from the same period in the prior year. KMX's net earnings for the quarter were $152.44 million, a decrease of 33.2% compared to the first quarter of fiscal 2024. The decline in net earnings was primarily driven by a 3.1% decrease in used unit sales and a 2.7% decrease in average retail selling price, which was partially offset by strong per unit margins in both the used and wholesale vehicle segments.

Omni-Channel Performance

CarMax's (NYSE:KMX) omni-channel platform continues to be a key driver of its success, with online retail sales accounting for 14% of total used unit sales in the first quarter of fiscal 2025, consistent with the prior year period. Additionally, KMX's omni-sales, which include sales where customers complete at least one, but not all, of the four key activities online, represented 57% of total used unit sales, up from 54% in the prior year quarter.

Vehicle Sourcing Capabilities

To further strengthen its competitive position, CarMax (NYSE:KMX) has been focused on enhancing its vehicle sourcing capabilities. KMX achieved record volume from dealer purchases in the first quarter, with approximately 35,000 vehicles sourced from dealers, up 70.8% from the prior year period. This strategic initiative has allowed CarMax to diversify its vehicle acquisition channels and access a higher percentage of retail-ready vehicles.

Cost Management Initiatives

In addition to its focus on vehicle sourcing, CarMax (NYSE:KMX) has also been actively managing its cost structure. KMX is pursuing incremental efficiency opportunities across its logistics network and reconditioning operations, which it expects will drive savings of approximately $200 per retail unit over the next year or two. These initiatives include the implementation of a transportation management system to optimize logistics, as well as opportunities to reduce costs through parts acquisition, bringing sublet work in-house, and optimizing production workflow in the reconditioning process.

CarMax Auto Finance (CAF) Performance

CarMax's (NYSE:KMX) CAF segment continues to be a key contributor to the company's overall performance. In the first quarter of fiscal 2025, CAF income increased 7.0% to $147.0 million, driven by an increase in the total interest margin percentage. KMX has been expanding its current asset-backed securitization program to incorporate CAF's receivables across distinct prime and non-prime segments, which it believes will enable it to efficiently fund incremental originations and support future CAF growth across the credit spectrum.

Outlook

Looking ahead, CarMax (NYSE:KMX) remains focused on driving profitable market share gains and creating long-term shareholder value. KMX has set a goal to sell more than 2 million combined retail and wholesale units annually, although it has extended the timeframe to between fiscal 2026 and fiscal 2030 due to uncertainty in the timing of market recovery. Additionally, CarMax expects to achieve its $33 billion annual revenue target sooner than its unit sales goal, given the higher average selling prices in the current environment.

Growth Strategy

CarMax's (NYSE:KMX) strategy to increase its market share includes delivering a customer-driven, omni-channel buying and selling experience, utilizing advertising to drive customer growth and differentiate its brand, and leveraging data and advanced analytics to continuously improve the customer experience and internal processes. KMX is also focused on becoming the leading retailer of used electric vehicles (EVs) in the market, supported by the launch of several EV research and buying tools through its Edmunds business.

Conclusion

Despite the challenges faced in the used car industry, CarMax's (NYSE:KMX) diversified business model, national scale, and unparalleled omni-channel experience position the company well to navigate the current environment and drive profitable growth over the long term. By leveraging its cost optimization initiatives, enhancing its vehicle sourcing capabilities, and expanding its financing offerings, CarMax is poised to strengthen its competitive advantage and create value for its shareholders.