Is CarMax’s tough Q2 a sign of softening used-car market?

CarMax Inc.’s soft fiscal second-quarter financial results paint a grim picture: High vehicle prices, inflation throughout the economy and climbing interest rates are prompting consumers to put off buying used cars and trucks. The challenges have the used-car giant cutting costs to better match sales levels.

The retailer’s volume and profit drop reported last week stoked fears of a more prolonged demand deterioration in the used-car market. CarMax’s share price dropped 25 percent on Thursday, Sept. 29, the day it reported earnings, and stock prices for competitor Carvana Co. and other public retailers also tumbled. It marks a significant reversal from just one year ago, when retailers were reporting sustained high demand and robust profits for used vehicles and enjoying high share prices.

CarMax retailed 457,889 used vehicles in the six months ended Aug. 31, down 8.9 percent from the year-earlier period. Company leaders said vehicle affordability pressure that bubbled up at the start of 2022 appeared to strengthen and sustain throughout the summer.

CarMax reported net income dropped 56 percent to $125.9 million.

Industry sales have been hurt by “a shift in consumer spending prioritization from large purchases to smaller discretionary items,” CarMax CEO Bill Nash said after the company reported results.

CarMax’s same-store vehicle sales fell 8.3 percent year over year during the summer months, dropping at a low single-digit rate in June but accelerating in July to sharper drops that underperformed expectations.

The demand drop occurred “almost solely because of the affordability issues,” said Daniel Imbro, a Stephens Inc. managing director covering CarMax and other auto retailers.

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