CarMax, the largest used car dealership chain in the U.S., is seeing a bright future, reporting record quarterly results amid the company’s push to expand its digital presence and a supply chain shortage for new cars that is pushing buyers into the secondhand vehicle market.
The Virginia-based company reported Friday (June 25) that its revenue hit $7.7 billion in the three months ending May 31, up 138 percent over last year and 43 percent over 2019. Both its retail and wholesale channels contributed to this growth, with a combined 452,000 cars sold — up 128 percent year-over-year and up 31 percent over a previous record quarter in 2019.
Retail sales alone accounted for nearly 271,000 cars sold in the first quarter of its fiscal year, double the number sold during the same time last year — when practically everyone was stuck at home — and a 21 percent increase compared to two years ago. Wholesale unit sales, where dealers buy and sell inventory in bulk, increased 187 percent year-over-year to just over 181,000, a 50 percent increase versus 2019.
CarMax is aiming to have $33 billion in revenue and 2 million cars sold per year through its retail and wholesale channels by 2026. If the company’s first-quarter results hold for the rest of the fiscal year — which is by no means a sure thing as automakers scramble to get new cars off the production line again — CarMax would be on track to sell just over 1.8 million cars.
Reaching those goals requires having enough cars to sell, and while some have struggled to find enough inventory, CarMax said it bought over 341,000 vehicles from consumers in its first quarter — a 236 percent increase over last year and a 77 percent increase versus two years ago.
CarMax also completed its $400 million acquisition of Edmunds earlier this month, a purchase it hopes will enhance its digital capabilities and expand its reach across the used car ecosystem. Edmunds will continue operating as an independent business within CarMax, President and CEO Bill Nash said, but the two will work together to develop and enhance new products, such as CarMax’s online instant appraisal tool, which drove approximately 163,000 of the vehicles purchased by the company last quarter.
The company said it believes it is now the largest online buyer of used vehicles from consumers, though Carvana, the fastest-growing seller of used cars in the country and whose primary focus is online, has been narrowing the gap.
Amid the push for increased digital sales, though, CarMax isn’t taking its eyes off the traditional used car lot. The company opened two new locations in the past quarter — both in Florida — and plans to open a total of 10 new stores this fiscal year.
Investors seemed pleased with the used car company’s report, with its stock rising nearly 5 percent following the earnings announcement.
The Road Ahead
It’s not much of a surprise that the last few months have been good to CarMax — demand for used cars has skyrocketed as car manufacturers struggle with a shortage of semiconductor chips and car rental companies buy up stock after selling off their fleets during the pandemic.
It remains to be seen whether this good fortune can continue, as Nash and other executives hope. After all, there are a finite number of people in need of a new (used) car and likely a limited number of people still holding onto used car worth selling (and that they’re willing to part with). Additionally, analysts say the worst of carmakers’ chip woes may be in the rearview mirror — though it will take time for those new cars to appear at dealerships.
Used car prices may also have hit their peak and be ready to drop in the coming weeks. Zo Rahim, an industry analyst at Cox Automotive, told Bloomberg that the wholesale market, a bellwether of the used car industry, has already topped out and retail prices are likely to fall, too. This is good news for economists worried about inflation but may be disappointing for used car sellers who have been enjoying the increased revenue.
Nevertheless, Nash told investors he’s confident in his company’s ability to meet its long-term growth targets.
“We are really excited about our future,” he said.