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CarMax Q2 earnings fall short, says inflation is shrinking car demand

CarMax saw its stock plummet after an announcement that it missed second-quarter earnings expectations. Shares dropped nearly 25%, marking a new 52-week low. CarMax shares are now down almost 50% year to date, while sales saw only a 2% increase.

The company fell short of its 2023 fiscal second-quarter earnings estimates by 43%. The company cited macroeconomic issues as the cause, including inflation and increasing interest rates.

When speaking on the drop, CarMax CEO Bill Nash said, ” I think consumers are prioritizing their spending a little differently. I think it’s just a continuation of the deterioration of the overall consumer.”

Jim Cramer of CNBC’s Mad Money said the news of an earning’s shortfall from the company is evidence that the Federal Reserve’s strategy to curb inflation by raising interest rates is working.

“When you look at this quarter from CarMax, it tells you the Fed’s been incredibly successful at eroding consumer confidence,” Cramer said. “[Fed Chair] Jay Powell doesn’t want people to spend their money on big-ticket items.”

Cramer said lower vehicle prices are one factor bringing stock values down. According to the Manheim Used Vehicle Value Index, which tracks pricing trends, prices have steadily declined since the beginning of the year. Monthly readings showed improvement over the previous year, but that’s because prices spiked last year. Cramer said it’s likely that prices will show a year-over-year decline next month.

“That represents real progress in the war against inflation,” Cramer added. He also said investors looking for opportunities in the space should have known better, considering the current economic environment.

“The used car stocks looked cheap, but that was a trap because they simply can’t meet Wall Street’s earnings estimates in this environment,” he said.

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