KMX - Embedded Expectations Analysis - 2020 08 07
CarMax, Inc. (KMX:USA) currently trades near historical highs relative to UAFRS-based (Uniform) earnings, with a 41.5x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management may be concerned about loan losses, their inventory management, and profitabilitySpecifically, management is confident they are pausing additional spend on store expansion activities in FY2021. Additionally, they may lack confidence in their ability to grow gross profit per unit, improve sales from alternative delivery channels, and sustain SG&A expense reductions. Furthermore, they may have concerns about lower CarMax Auto Finance loan originations and penetration rates, rising receivable losses, and their customers' ability to pay off their loans. Moreover, management may be exaggerating satisfaction with their margin and inventory management, the progress of their omnichannel rollout, and their ability to improve their liquidity position. Also, they may lack confidence in their ability to capitalize on their efficiency opportunities through automation, execute near-term strategic priorities, and have the right inventory appropriate for sales
CarMax is a holding company. Through its subsidiaries, the company is engaged as a retailer of used vehicles. The company operates in two segments: CarMax Sales Operations, which sells used vehicles, purchases used vehicles from customers and other sources, sells related products and services, and arranges financing options for customers; and CarMax Auto Finance, which consists of finance operation that provides vehicle financing to customer buying retail vehicles from the company The company's products and services include retail merchandising, wholesale auctions, extended protection plans, reconditioning and service, and customer credit.
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