Carmax (NYSE:KMX) is a well-known company that operates as a retailer of used vehicles in the United States. I lifted my sell rating back in April and the stock has moved higher since then. For those that are unfamiliar, the name sells used cars, but not just to consumers. It sells vehicles that do not meet its retail standards to licensed dealers through on-site wholesale auctions as well as sells new vehicles under franchise agreements. What is more, the company also provides customers financing alternatives through its finance operations while offering a range of other related products and services, including the appraisal and purchase of vehicles directly from consumers, vehicle repair services and extended warranties. The business has been quite profitable, but I had a sell rating on the name up until April. I lifted that call at $55 and the stock has begun to rally. However, does performance justify this rally? To answer this, let us check in on the name.
The company just reported its Q1 earnings and it was another very profitable quarter with growth. Further, unlike several quarters in the past, the company managed to surpass estimates on the top and bottom lines. In the past few quarters it had been missing on both lines. In terms of underlying performance, the company saw total used vehicle unit sales grow 14.1% and comparable store used unit sales grow 82% versus the prior year's first quarter. This growth is getting a bit back on track with the growth displayed in the last few years. In recent quarters sales had slowed, but thus far calendar year 2017 has been strong. This same store sales performance reflects an improvement in conversion and a moderate improvement in store traffic. I was disappointed to see that wholesale vehicle unit sales were flat, but in quarter's past they had been falling, so I will take this. The flat wholesale numbers come from weakness in appraisal traffic.
