In the wake of a quarter in which CarMax kept per-vehicle profits steady despite widespread affordability and economic concerns, the used-vehicle giant is pledging to focus on improving both its efficiency and customers’ and employees’ experiences.
CarMax executives said this week that the retailer continued trimming costs in its fiscal fourth quarter that ended Feb. 28, a period in which persisting vehicle affordability challenges amid increased interest rates, tightened lending standards and shrunken consumer confidence dinged sales. But even though the company’s retail sales tumbled 13 percent to 169,884 vehicles compared with the same period a year earlier, CarMax took in gross profit of $2,277 per used vehicle it retailed, up $82 from the year-ago period.
The profit preservation came at the expense of volume. CarMax CEO Bill Nash noted that external title data showed market share gains the retailer made in the first half of its fiscal year were offset by share losses in the second half. But that trade-off was deliberate, and Nash said prioritizing per-vehicle profitability over near-term market share was the right play.
“On the retail side, we did expansive price elasticity testing and determined that we could have sold a few more cars, but we actually would have made less money,” Nash said during a call with analysts.
Daniel Imbro, an equity research analyst for Stephens Inc., said running price sensitivity tests helped CarMax conclude it was better to sell vehicles at a higher price than issue discounts in hopes of closing more sales.
“Taking an extra $100 off may not help sell more units, so they drive more gross profit dollars by capturing more margin on each unit they sell,” Imbro told Automotive News.
Still, CarMax’s fourth-quarter net income and revenue fell sharply from the year-earlier period amid prolonged macroeconomic headwinds.