CarMax's Sales Rose To $8 Billion But Its Profit Fell 12%

CarMax just sold more cars than it did a year ago. It brought in more money, too. So why did profit drop almost 12%? Because the company chose to.

Cheaper Cars, More Buyers

CarMax has been cutting prices to get more people in the door. On sales, it's working.

The company sold 392,357 cars last quarter. That was up 3.3% from a year ago.

But selling for less shrinks the markup on each car. Profit per used car - the cash left after CarMax pays for the vehicle - fell $230 to $2,177.

Total sales still rose 6.2% to $8.0 billion, which topped Wall Street's estimate. Profit, though, slipped to $185.6 million from $210.4 million a year ago.

Total gross profit fell too, down 4.4% to $854 million. Thinner markups simply added up.

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A New CEO With A New Plan

Keith Barr took over as CEO about three months ago. He's already laid out a four-part plan to grow sales and profit over time.

The early read is clear. He wants to trade fatter markups now for more buyers, then build the profit back as the business grows.

It's a bet that getting people in the door today pays off later. Barr says he came to CarMax because he saw a strong base to build on.

The plan puts the customer first, the company says. The goal is steady growth, not a quick win.

Online rivals like Carvana are chasing the same buyers. Soft used car prices across the market give CarMax less room to charge more.

Wall Street still liked what it saw. Profit per share - the slice of profit tied to each share of stock - came in at $1.31, well above the $0.94 analysts had forecast.

Where The Growth Came From

The wholesale side helped a lot. CarMax also sells cars to dealers, and those sales rose 8.4%.

Its used-car shops were flatter. Sales at stores open at least a year slipped 0.8%.

On the wholesale side, profit per car held steady near $1,046. That part of the business stayed solid.

That comparable-sales number shows how the older stores do on their own. A small dip there is the trade-off for lower prices.

So the volume story is real, but it's uneven. Price cuts are doing the heavy lifting.

What To Watch

The real question is whether cheaper prices keep pulling in buyers without shrinking what CarMax makes on each car for good. That balance is the whole plan.

The stock has had a rough stretch, so investors want proof the plan works. A few strong quarters would go a long way.

Barr is betting the volume comes first and the profit follows. Join the readers getting Market Briefs for a five-minute morning rundown of the market, and grab a free 45-minute investing course on the way in.