Shares of CarMax, Inc. (NYSE: KMX) jumps 6.36% in the pre-market trading Friday after a well-known seller of used cars posted better-than-expected earnings for the first quarter, despite operating in a challenging economic environment.
For the three-month period ending in May, CarMax reported adjusted earnings of $1.44 per share, which was a 7.7% decline compared to the previous year. However, this figure surpassed analysts’ predictions of 79 cents per share.
Although the company’s group revenues declined by 17.4% to $7.7 billion, they still exceeded the estimated amount of $7.53 billion. The decrease in revenue was primarily driven by an 11.3% decline in combined wholesale vehicle sales, amounting to 378,972 units. On the other hand, retail sales accounted for a larger portion of the overall revenue, contributing 14%. CarMax also managed to reduce expenses by 15% to $560 million.
May Inflation Report
Recent data from the Commerce Department’s May inflation report revealed a 4.4% increase in used car prices, matching the previous month’s rise. This follows a nine-month period of falling prices.
Federal Reserve’s Interest Rate Hikes Impact New Car Prices
The Federal Reserve’s continuous interest rate hikes over the past year have contributed to higher borrowing costs, making new cars more expensive for consumers. Consequently, the demand for pre-owned vehicles has surged.
Carvana Co. Expects $50 Million Profits in Q2
Carvana Co. (NYSE: CVNA), a smaller competitor of CarMax, also expressed optimism about its near-term prospects. The company expects to generate approximately $50 million in profits for the second quarter, benefiting from cost-cutting measures and a strengthening secondary car market.
Kevin Putnam is a financial journalist and editor based in New York. He specializes in editing news and analysis related to U.S. stock market.
