What Happened?

Shares of used automotive vehicle retailer Carmax (NYSE:KMX) jumped 7.3% in the afternoon session after the company reported third-quarter earnings results. CarMax exceeded analysts' revenue expectations this quarter, but same-store sales for used vehicles missed. EBITDA and EPS also missed, suggesting that while topline was solid, profitability underperformed.

The stock's reaction suggests the market is likely looking past some of the headwinds called out during the quarter, including auto loan pressures. The anticipated era of easier monetary conditions kickstarted by the first rate cut delivered by the Fed in September 2024 should set the tone for an easier lending environment. This could potentially cushion some of the downsides in KMX's auto financing business, which recorded wider loan losses (which management highlighted as industry-wide) during the quarter, as credit becomes more affordable for consumers. Overall, this was a mixed quarter. After the initial pop the shares cooled down to $77.93, up 4.6% from previous close.

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What The Market Is Telling Us

CarMax’s shares are somewhat volatile and have had 12 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The biggest move we wrote about over the last year was 6 months ago when the stock dropped 12.7% on the news that the company reported first quarter results with revenue and gross margin missing analysts' expectations, leading to an EPS miss. Furthermore, CarMax's management team pushed its goal of 2 million vehicles sold annually to 2026-2030, citing uncertainty in the recovery timing of the used car market. Overall, this was a mediocre quarter for CarMax.

CarMax is up 2.2% since the beginning of the year, but at $77.93 per share, it is still trading 10.5% below its 52-week high of $87.11 from March 2024. Investors who bought $1,000 worth of CarMax’s shares 5 years ago would now be looking at an investment worth $901.94.

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