CarMax Investing In Digital And Adding Stores As Finance Unit Soars

CarMax, the country’s largest chain of over 200 used car dealerships, said Thursday (April 1) it planned to return capital investment to pre-pandemic levels with plans to open 10 additional stores, grow its digital efforts and fund the $400 million full acquisition of auto-industry data provider Edmunds.

In announcing its fourth quarter and fiscal 2021 annual results, the Virginia-based wholesale and retail auto buyer and seller said calendar shifts, delayed tax refunds and severe weather crimped sales for the three months ended Feb. 28, with revenue rising 4 percent to $5.1 billion and net earnings slipping 2 percent to about $210 million — 90 percent of which came from its lending operations.

Specifically, CarMax Auto Finance income increased 68 percent to $188 million, driven by an exponential decline in its loan loss reserves, which fell to just $4.6 million in Q4 from $53 million in the prior year.

As far as the number of vehicles sold, CarMax said its same-store retail unit sales and its wholesale unit sales both fell about one percent to roughly 204,000 and 105,000 respectively.

While average retail selling prices rose 3 percent to $20,980 the wholesale selling price jumped almost 30 percent to $6,200 from $4,900 a year ago.

“We have the technology, data, talent, physical assets and scale to unlock opportunities across the used auto ecosystem. We’re excited about the future as we expect robust top line, bottom line and market share growth for the upcoming year,” CarMax CEO Bill Nash said.

The Edmunds Acquisition

Nash told analysts and investors on the company’s earnings call that customers’ increased comfort with buying cars online was driving further investment in its omnichannel selling initiatives. Notably, the company’s “instant online appraisal” service has enabled it to become the biggest online buyer of used autos from consumers.

CarMax’s scale and ongoing consumer digital shift combined with the pricing data and expertise of Edmunds are projected to benefit both businesses, which will continue to operate separately, following an initial $50 million minority stake it took last January.

By buying Edmunds outright, CarMax said it will enhance its digital capabilities and further strengthen its role and reach across the used auto ecosystem while also adding exceptional technology, creative talent and a trusted brand within the industry.

“Our partnership to date has proven to be an outstanding combination as we’ve developed innovative products, including an online instant appraisal offer on both edmunds.com and carmax.com. We look forward to collaborating on new products and initiatives leveraging Edmunds’ industry-leading content and technology expertise to serve both CarMax and Edmunds’ customers,” Nash said.

Moving Forward

CarMax said three-quarters of its customers already advanced some portion of their car-buying transaction digitally, with one-third of them eligible to buy a vehicle entirely online if they preferred to do a touchless transaction, a trend the company said it will continue to embrace.

As far as the year ahead is concerned, the company said it planned to more than double its capital expenditures this year to $350 million. That’s up from a pandemic era low of $165 million, and almost 10 percent ahead of pre-crisis levels.

The increase in planned capital spending in fiscal 2022 reflects several factors, the company’s press release said, including continued spending on technology and the opening of 10 new locations.

“We are extremely proud of what we have accomplished this year and how the strategic changes we have made to our business position us for accelerated growth across retail, wholesale and CarMax Auto Finance,” Nash said.

CarMax shares have risen 130 percent over the past 12 months, leaving it with a market value of more than $20 billion.