Turnaround Gains Traction, Several Key Risks Remain

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Turnaround Gains Traction, Several Key Risks Remain

glide path toward crimp the industry outlook/ constrain the stock,

more normal used units sold in the 2-3% range. Price reductions in our view for now.

of 10-20% in certain markets should encourage the consumer to

2. Alternative profit streams are a long term

try CarMax. Other highlights include enhanced focus on affordable

cars and 2) seamless omnichannel prowess enhancements. opportunity: peer to peer, logistics, recon & ads

(Edmunds) could drive margin & ROIC higher.

2. Is KMX better positioned vs prior years? Yes, better customer 3. Share stabilization resumes: If CarMax begins to

experience, sourcing capability and tighter pricing/enhanced stack positive retail used unit growth quarters at

digital are a few key positives. CarMax’s multichannel prowess or above the industry their multiple would rise.

is dramatically enhanced with the nationwide roll out of curbside,

home delivery and remote appraisal. CECs ramping along with Risks

digital advertising should drive share gain. Educating the customer 1. GPU pressures margin 20% not just 10%. CarMax

of there offering is critical. intensifies its rollout of sharper pricing as it just

takes more than expected to turn share.

3. Is KMX share slip secular or cyclical? We see the issue as more

2. Credit trends deteriorate, as delinquencies re- company specific than cyclical with the industry posting above

historic trend demand growth for several of the past three to five accelerate

years. CarMax is viewed as the trade up of used car dealers and 3. Recession risk for a pro-cyclical business – KMX

faced an abnormal depreciation. The good news is that as CarMax included

reinvested back into pricing it is making progress in stabilizing