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CarMax Reports 33% Drop In First-Quarter Profit

CarMax (KMX) has reported a 33% decline in its first-quarter profit due to lower margins achieved on sales of its used vehicles.

Despite the year-over-year plunge in its profit, CarMax still managed to beat Wall Street’s target for its earnings, sending its stock up 2% in pre-market trading.

CarMax reported Q1 earnings per share (EPS) of $0.97 U.S. and revenue of $7.11 billion U.S.

Analysts had forecast earnings of $0.95 U.S. on revenue of $7.16 billion U.S.

Management said that sales and profitability of used vehicles is worsening as the available supply of new vehicles improves.

Incentives and lucrative trade-in deals on new vehicles are keeping consumers from buying used vehicles right now, said CarMax executives.

As such, used vehicles are being heavily discounted, pressuring profit margins.

CarMax has undertaken cost cuts, including reducing its marketing budget and capital expenditures in recent years.

On an earnings call with analysts and investors, CarMax’s management team said they’re optimistic that sales will pick-up during the summer months, which has traditionally been the strongest part of the year for vehicle purchases.

Prior to today (June 21), the stock of CarMax had declined 9% over the last 12 months to trade at $71.36 U.S. per share.