Why CarMax Shares Dipped

Why CarMax Shares Dipped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of CarMax were getting taken to the shop today, falling as much as 10% on a disappointing earnings report.

So what: Sales were actually strong for the used-car dealership chain as overall revenues increased 13%, to $2.94 billion, topping estimates of $2.87 billion, as same-store sales improved by a brisk 10%. Perhaps the strong sales growth is not such a surprise in a year that has seen domestic auto sales jump across the board. Despite the revenue gains, earnings per share missed estimates by $0.01, coming in at $0.47, as CarMax lost out in the lucrative auto-financing market. The market seemed to be especially disappointed that the jump in sales did lead to a stronger bottom-line performance.

Now what: The customers' shift to outside financing is certainly a curious development in this business, and will continue to threaten CarMax if it proves to be structural. CarMax also said third-party lenders were becoming stricter about handing out debt. As a result, the company is planning to test its own subprime lending originations, which could reverse the misfortune. With a well-known brand, and an auto market that's continuing to recover, CarMax does seem like it's poised for long-term success. I wouldn't count them out after one bad report.

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The article Why CarMax Shares Dipped originally appeared on Fool.com.

Fool contributor Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends CarMax. The Motley Fool owns shares of CarMax. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Originally published