CarMax slammed by inventory shortages

Used-car demand has skyrocketed amid the chip shortage

Inventory shortages are serving as a severe headwind for used-car dealers, according to CarMax CEO William Nash. 

The Richmond, Virginia-based dealer said inventory at the end of August was down 30% from normal levels due to COVID-19 and winter production disruptions. 

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KMX CARMAX, INC. 139.97 -3.46 -2.41%

"The fourth quarter typically is the time where we build our inventory up, we weren't able to do that," Nash said on CarMax's fiscal second-quarter conference call. "One of the main reasons people don't buy from us is because we don't have the vehicle that they're looking for, and that certainly is magnified when your inventory is down."

CarMax did not provide details about how many vehicles were in its portfolio. The company said during the quarter that it sold 419,895 units through its retail and wholesale channels and purchased 364,263 vehicles from customers. 

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Demand for used vehicles has skyrocketed during the pandemic as a shortage of semiconductor chips has caused automakers to slash new-car production. The increased demand for used cars sent prices soaring, which bolstered sales at CarMax.

CarMax reported quarterly net revenue spiked 49% year-over-year to a record $7.99 billion, easily exceeding the $6.9 billion that analysts surveyed by Refinitiv were expecting. 

Net earnings were down 3.9% to $285.3 million, or $1.72 per diluted share, mostly due to last year’s COVID-related cost savings. Analysts were anticipating a profit of $1.90 per share.

Still, Nash sees signs that inventory shortages are improving. 

Saleable inventory at CarMax grew sequentially in each month during the quarter despite strong retail demand, and the company is on track to grow its inventory over the remainder of the year. 

"We're making strides continuing to get our inventory up, so we feel good about that," Nash said.

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CarMax shares on Wednesday closed at a record high of $146.45 apiece and were up 55% year-to-date. The S&P 500, meanwhile, had gained 16%.