2. CarMax, Inc. (NYSE:KMX)
Number of Hedge Fund Holders: 42
CarMax, Inc. (NYSE:KMK) is a retailer of used vehicles and related products in the United States. The company operates through Sales Operations and Auto Finance. The Sales Operations segment offers a wide range of used vehicles from domestic to premium luxury vehicles, and vehicle repair services. The Auto Finance segment engages in alternative financing for retail customers. CarMax, Inc. (NYSE:KMX) was held by 42 hedge funds during Q1 2024, and their total stake was $1.55 billion.
One of the competitive advantages of the company lies in its robust supply chain and inventory management capabilities. During the fiscal first quarter of 2025, the company achieved record vehicle sourcing and was able to acquire around 35,000 cars from dealers, up 70% year-over-year. A strong inventory dictates the company’s ability to manage its inventory and maintain prices competitively for its customers. Moreover, the Auto Finance segment also contributed greatly to overall profitability by growing 7% year-over-year regardless of the challenging lending market.
CarMax, Inc. (NYSE:KMX) faced some challenges during the quarter. Its total sales were down 7% and amounted to $7.1 billion. The decline in sales was primarily due to a 3.1% decrease in retail unit sales and a dip in the average selling price of vehicles, which as per management declined by around $700. There were a series of challenges by the overall market as well arising from consumer affordability challenges, high inflation, and interest rates. However, regardless of these challenges, the company was able to maintain its Gross Profit per Unit (GPUs). Wholesale GPUs were recorded to be at $1,064, a slight increase from $1,042 in the same period last year. Looking ahead, the company is focusing on enhancing its omni-channel platform, expanding its vehicle sourcing, and implementing cost-saving measures.
If you look at the company’s 10-year history, you will find that CarMax, Inc. (NYSE:KMX) has done well to grow its revenue by 8% and levered free cash flow by 11% over the past decade. That’s decent growth.
Giverny Capital Asset Management stated the following regarding CarMax, Inc. (NYSE:KMX) in its Q2 2024 investor letter:
Our holding CarMax, Inc. (NYSE:KMX) continues to scuffle along in what is a very challenging market for used cars, because of both high interest rates and a lack of supply of late model used cars after supply chain issues slowed production in the COVID-19 years. A typical monthly payment on a good used car is more than $100 per month higher today than pre-pandemic, with about two-thirds of that attributable to higher auto prices and one-third to higher interest rates on loans. The company noted in a recent meeting with investors that annual sales of used cars aged 0-6 years have fallen from about 15 million to 12.3 million, down 18%, over the past couple of years. Lately, it appears that sales of late model used cars have begun to improve. If the trend holds, CarMax ought to see much better results.
