CarMax misses profit estimates; monitoring strikes at Detroit Three

By Nathan Gomes

(Reuters) -CarMax on Thursday posted a lower-than-expected quarterly profit, hurt by weakening demand for preowned vehicles, sending the used-car retailer’s shares down nearly 10%.

Preowned vehicles’ demand, which was strong during the pandemic, has fallen, as consumers opt for newer models with attractive financing deals and safety technology.

However, an ongoing labor strike by the United Auto Workers (UAW) union against Ford, General Motors and Stellantis, targeting some U.S. facilities at each company, has threatened newer vehicle supply.

“I think it’s a little too early to know exactly what the precise impact of those strikes are going to be,” CarMax Chief Executive Bill Nash said on a post-earnings call.

Shares of other auto retailers such as Carvana, Autonation and Lithia Motors were also down between 2% and 5%.

Some analysts, however, believe that a prolonged coordinated strike against the Detroit Three automakers could potentially push used vehicle prices up.

“The UAW strike is likely going to be inflationary for the used car market, it’s going to drive up used car pricing,” said Stephens analyst Daniel Imbro.

The cooling used vehicle demand, coupled with inflationary headwinds, has caused car retailers to take a dent to their profit by selling cars for lower prices than what they acquired them for.

CarMax last year implemented several measures to trim costs including slowing down on car purchases for its inventory, pausing some hiring and halting share buybacks.

The company also said on Thursday that it planned to resume share repurchases in the third quarter this year.

On an adjusted basis, the company earned 75 cents per share for the second quarter ended Aug. 31, 3 cents below analysts’ expectation, according to LSEG data.

Overall revenue plunged about 13% to $7.07 billion, beating estimates of $7.03 billion.

(Reporting by Nathan Gomes in Bengaluru; Editing by Maju Samuel)