Shares of CarMax (NYSE: KMX) were rising on Thursday after the nation’s leading used car dealer posted strong fiscal third quarter 2025 results that blew away analysts’ estimates.The firm reported net sales of $6.2 billion, which was up 1.1% from the same quarter a year ago. That may not sound like much, but it is the first time in more than two years, since the fiscal third quarter of 2023 that CarMax had a year-over-year net sales increase.The $6.2 billion in sales topped estimates of $6.0 billion.Further, CarMax generated net earnings of $125 million, a 53% year-over-year increase. CarMax posted earnings of 81 cents per share, which crushed consensus estimates of 61 cents per share.Investors were pleased with the results as the stock price rose 6% in early trading on Thursday to around $86 per share. It has been a volatile year for CarMax, but the increase boosts its year-to-date return to 11%.
Used car prices are dropping
Sales of used cars in the U.S. have sputtered the past two years as dealers have brought down prices on new cars to spur their sales. It has worked, but at the expense of used cars, but that has negatively impacted CarMax.But the used car sales market seems to be turning a corner, and that’s due to prices coming down. The November Consumer Price Index showed that the prices of used cars and trucks dropped 3.4% over the past 12 months, while new car prices fell just 0.7%.That correlates to what CarMax saw in the fiscal third quarter. The average selling price for one of its cars was $26,153 in Q3, down 3.9% year-over-year. The average wholesale price was $8,177, down 5.9% from the same quarter a year ago.That translated into a 5.4% increase in unit sales in the quarter to 184,243, and a 1.2% rise in revenue from used car sales to $4.9 billion. Also, gross profit rose 11% to $678 million, with used vehicle gross profit up 7% and wholesale vehicle gross profit rising 12%.Further, expenses were 85% of gross profit, down from 91.4% in the same quarter a year ago, which helped boost earnings. The improvement in this metric was due to both growth in gross profit along with the success of ongoing cost management efforts in the stores and customer experience centers.“Our solid execution and a more stable environment for vehicle valuations enabled us to deliver robust EPS growth driven by increases in unit sales and buys, solid margins, growth in CAF income, and ongoing management of SG&A,” Bill Nash, president and CEO. said.
Better days ahead?
CarMax did not provide any official guidance or outlook for future quarters, but the general outlook for used car sales appears to be improving.Cox Automotive recently posited that 2025 could be the best year for used car sales since 2021 as prices remain stable with interest rates expected to fall.CarMax has been seeing improving inventories, as it purchased 270,000 vehicles from consumers and dealers, an increase of 7.9%. The number of vehicles purchased from consumers rose 4.1% in Q3, while the number purchased through dealers jumped 46.7%.Analysts are mixed on CarMax, as it has a median price target of $85 per share, which is basically where it is now.CarMax stock is not all that cheap in relation to its earnings, with a P/E ratio of 30. The company should see improvements in 2025, but investors shouldn’t expect too much. Although for those who own CarMax stock already, it’s a solid hold.More By This Author:Drone Stock Red Cat Holdings Keeps Flying, Up 938% YTD
The Top 5 S&P 500 Stocks Of 2024
Potential Shift To AI Sends Bitcoin Miner’s Stock Up 10%
