CarMax results hit by ‘used-vehicle recession’; buyback paused

Dec 22 (Reuters) – Used car retailer CarMax Inc (KMX.N) said Thursday it was suspending some hiring, halting stock buybacks and cutting spending after announcing an 86% drop in third-quarter profits as the industry scrambled to unload inventories amid decline in demand.

The company’s shares fell 12% to $52.10 and were more than two and a half years behind, dragging other auto retailers down with them.

The used car industry, which has hit cash during the pandemic, is now struggling to sell cars at or above the prices it bought them at, as steady rate hikes and a High inflation for decades is weighing on demand.

“CarMax is battling a used-vehicle recession,” Evercore ISI analyst Michael Montani said, adding that pressure on wholesale sales intensified from the second quarter.

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In response to tough industry conditions, CarMax said it slowed third-quarter car purchases and reduced marketing and capital expenditures.

CarMax is also reducing its workforce “on an attrition basis” and suspended hiring at its headquarters to cut costs, chief financial officer Enrique Mayor-Mora said on an investor call, adding that some stocks could fall. continue next year.

The company has also halted share buybacks, CarMax said, but added that it remains committed to returning capital to shareholders over time.

“Given the third quarter performance and the continued market uncertainties, we are taking a conservative approach to our capital structure,” CarMax said.

CarMax said retail and wholesale used vehicle sales were 298,807 in the quarter through November, down 28% from a year earlier. It also purchased about 40% fewer vehicles in the third quarter.

The company reported net income of 24 cents per share, against estimates of 70 cents, according to Refinitiv data.

CarMax revenue fell about 24% to $6.51 billion, below estimates of $7.29 billion.

Shares of other auto retailers such as AutoNation Inc (AN.N) and Carvana Co. (CVNA.N) fell between 1% and 2%.

Reporting by Priyamvada C and Kannaki Deka in Bengaluru; Editing by Shounak Dasgupta and Maju Samuel

Our standards: The Thomson Reuters Trust Principles.

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