CarMax Stock Falls 20% on Earnings. Why It’s a Warning for the Auto Sector.

CarMax reported weaker-than-expected quarterly earnings. (Justin Sullivan/Getty Images)

Key Points

About This Summary

• CarMax’s fiscal second-quarter earnings of 64 cents a share miss the $1.04 consensus forecast.
• Same-store unit sales decrease by 6.3%, contrasting with analysts’ expectations for 1.1% growth.
• The average retail selling price for CarMax vehicles declines by 1% to $25,993.

Shares of CarMax plummeted on Thursday after the used-car retailer shocked investors, reporting weaker-than-expected quarterly earnings.

It’s a warning for investors that car markets might be weakening after a period of unexpected strength.

The company, one of the largest used-car dealers in the U.S., posted earnings of 64 cents a share for its fiscal second quarter, well below Wall Street’s consensus call for $1.04. Same-store unit sales fell 6.3% from the year prior, short of analysts’ forecast for 1.1% growth. The average retail selling price fell 1% to $25,993 from $26,245.

Shares of CarMax lost 20%, closing at $45.60, while the Dow Jones Industrial Average and the S&P 500 fell 0.4% and 0.5%, respectively. The stock was the worst performer in the S&P 500 on Thursday.

“While this was a challenging quarter, we remain confident in our long-term strategy and the strength of the earnings model that we have built,” said CEO Bill Nash in a statement.

The surprising quarter impacted shares of other dealers. AutoNation shares dropped 2% to $216.04. Carvana shares fell 0.9% to 371.38.

Shares of auto makers General Motors and Ford Motor fell into the red before recovering. GM stock added 1.1% on the day. Ford shares traded as low as $11.37, but closed at $11.62, down 0.1%. Through August, Americans purchased some 11.2 million new vehicles this year, up 4% year over year. Sales have held up better than expected, with Wall Street initially fearing that tariff-induced price hikes would leave buyers on the sidelines.

The average price of a new car is about $49,100, up almost 3% year over year, according to data provider Kelly Blue Book. Used-car price gains have lagged the new car market. The average used-car price in the U.S. is about $25,500, up about 1% year over year.

Thursday’s losses left CarMax shares down 44% this year. Coming into Thursday trading, other dealers had performed better. AutoNation shares were up 30%. Carvana stock climbed 84%.

Higher prices haven’t impacted sales significantly, yet. But CarMax’s quarterly results give investors a reason to look more closely at the sector.

Write to Nate Wolf at nate.wolf@barrons.com and Al Root at allen.root@dowjones.com