CarMax Inc. (KMX) delivered better-than-expected earnings on Thursday, but Wall Street's reaction suggests beating estimates isn't always enough when the underlying story looks shaky.
The used-car retail giant reported earnings per share of 43 cents, topping the analyst consensus of 39 cents. Adjusted EPS came in at 51 cents after excluding 8 cents per share in restructuring charges. Quarterly sales hit $5.794 billion, beating the Street's $5.678 billion estimate, though the figure represented a 6.9% decline from the prior year.
Here's where things get interesting. Interim President and CEO David McCreight offered a remarkably candid assessment of the situation: "Our unmatched physical and digital infrastructure, beloved national brand, and award-winning culture provide us with incredible advantages. Despite these advantages, based on recent results, it is clear CarMax needs change." He added that he and Tom are "committed to positioning CarMax for success while the Board identifies the right permanent CEO to lead CarMax."
Translation: We've got great assets, but something's not working. The stock dipped 1.6% to $38.71 on Friday, suggesting investors heard the message loud and clear.
Following the earnings announcement, analysts across Wall Street moved quickly to adjust their outlooks on CarMax:
- Mizuho analyst David Bellinger maintained a Neutral rating but slashed the price target from $46 to $36.
- Wedbush analyst Scott Devitt kept a Neutral rating and reduced the price target from $40 to $36.
- Stephens & Co. analyst Jeff Lick maintained an Equal-Weight rating and lowered the price target from $39 to $36.
- JP Morgan analyst Rajat Gupta stuck with an Underweight rating and cut the price target from $30 to $28.
- RBC Capital analyst Steven Shemesh maintained a Sector Perform rating but actually raised the price target from $34 to $37, making him the outlier in the group.
The pattern is striking. Four analysts converged on essentially the same conclusion, with three landing on an identical $36 target. When analysts from different firms reach similar numbers independently, it usually means the math is telling a clear story about where the business is headed.
