Summary
- An extraordinary year is marred by the economic impacts of the Coronavirus.
- We compare CarMax liquidity with estimated cash expenses to see if the firm can survive the shutdown.
- Our updated estimate of value indicates shares are substantially undervalued.
- This article was highlighted for PRO subscribers, Seeking Alpha's service for professional investors. Find out how you can get the best content on Seeking Alpha here.
CarMax (KMX) concluded an extraordinary Fiscal Year 2020 and entered Fiscal Year 2021 firing on all cylinders. Total revenue and EPS were at record levels:
(Source: Bloomberg)
However, the results already seem old, as the Coronavirus pandemic has rapidly progressed since the beginning of March. Currently, about half of CarMax stores are closed or running with limited operations, and the rest are impacted by social distancing guidelines. On the recent earnings call CEO Bill Nash explained that "most of the stores that had been open during that time, so for the last 2 weeks, are selling 50% or less of what they sold last year". CarMax responded by drawing down $700M from its revolver.
The Long-Term Thesis Is Intact
CarMax had an extraordinary year and the long-term thesis of growing by capturing used car market share is intact. We will highlight this below in several charts.
Increase in Used Units Sales
For the year used units sales were up 11.2%, the biggest increase since 2015:
This was partially driven by 7.7% increase in comp store unit sales, the highest comp store growth in the last six years:
