CarMax’s results were affected by the “used car slump”; Repurchase is paused

Dec. 22 (Reuters) – Used car retailer CarMax Inc (KMX.N) On Thursday, it said it was pausing some hiring, stopping share buybacks and cutting expenses after reporting an 86% drop in third-quarter profit as the industry struggles to offload inventory amid slumping demand.

Shares of the company fell as much as 12% to $52.10, their lowest in more than two-and-a-half years, dragging other auto retailers.

The used car industry, which minted money during the pandemic, is now struggling to sell cars at or above the prices they were bought at, as constant price increases and decades-high inflation weigh on demand.

“CarMax is battling a recession in used cars,” said Evercore ISI analyst Michael Montagne, adding that pressure on wholesale sales intensified from the second quarter.

In response to challenging industry conditions, CarMax said it slowed vehicle purchases in the third quarter and cut marketing and capital expenditures.

CarMax is cutting staff “from attrition base” and has paused hiring in the corporate office to cut costs, CFO Enrique Mayor Mora said during a call with investors, adding that some measures could continue into next year.

Carmax said the company has also halted stock buybacks, but added that it remains committed to returning capital to shareholders over time.

“Given the performance in the third quarter and the continued uncertainty in the market, we are taking a conservative approach to our capital structure,” Carmax said.

CarMax reported retail and wholesale used car unit sales of 298,807 in the quarter ended in November, down 28% from a year earlier. It also bought 40% fewer cars in the third quarter.

The company reported net profit of 24 cents per share, compared with estimates of 70 cents, according to Refinitiv data.

CarMax revenue fell about 24% to $6.51 billion, below estimates of $7.29 billion.

Stocks of other auto retailers such as AutoNation Inc (AN.N.) and Carvana Corporation (CVNA.N) decreased by between 1% and 2%.

Additional reporting by Priamvada C and Kannaki Deka in Bengaluru; Edited by Chunak Dasgupta and Magu Samuel

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