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CarMax Idea Proposal (KMX)

CarMax Idea Proposal (KMX)

Will the rollout of an online car-buying option and expansion of physical store locations drive sales and loan originations for CarMax in 2019?


Report Available: May 1, 2019


Blueshift’s initial research found KMX, the nation’s largest used car dealer, recovering nicely in its Q4 from declining market share experienced in the first half of its fiscal year 2019 and a slow Q3 that saw reduced store traffic and soft sales growth.  KMX’s Q4 2019 results showed a return to sales growth which seems to have the company optimistic about the rest of 2019. KMX is also adjusting its sales model to address the new online auto buying trend while also expanding its physical presence with additional new store openings. However, used car sales are expected to be tepid in 2019, car prices are stagnant, and rising funding costs may hamper auto financing, bringing some challenges for KMX as the year progresses.



  1. KMX’s net earnings increased 58% in Q4 2019 and resulted in an impressive earnings beat. Revenue missed expectations but did increase 5.7% YY and 6.1% for the full year. KMX’s Q4 success was driven by a 2.8% comparable-store used vehicle sales increase and unit sales which climbed 5.6%. KMX’s auto finance segment also contributed to the strong Q4 performance with revenue increasing 2.6% YY.
  2. KMX’s new store openings are having a positive effect on growth. In Q4 the company opened five new stores, bringing its total to 203. Three were opened in new markets: Buffalo, NY, Montgomery, AL, and New Orleans, LA. In the current quarter, it plans to open three stores in existing markets, and a total of 13 new stores are planned for FY 2020 and another 13 in 2021.
  3. Car buying has become an entrenched part of ecommerce with the likes of AN, CVAN, CARG, TRUE, Roadster, Shift Technologies, and Vroom all offering online car buying and selling opportunities. In an effort to avoid being left behind, KMX has been investing in and testing ecommerce solutions in its Atlanta market for the past several years and it is now rolling it out When fully implemented this year, consumers will be able to buy and finance a car completely from home, in-store, or through a seamlessly integrated combination of online and in-store experiences. This sales model shift from KMX’s friendly no-pressure auto dealerships to an online or omni-channel auto store is expected to increase KMX sales.
  4. Auto industry analysts have predicted a tepid 2019 for used car sales. Edmunds and others are predicting flat sales for 2019. Rising interest rates, the threat of tariffs, and volatile auto prices have created uncertainty in the industry. Another concern for the used car market is related to tax reform which helped drive sales last year as consumers were able to keep more of their income. This year that lack of withholdings could temper demand due to smaller refunds. Used car dealers are also being challenged with acquiring the right inventory that is in good condition at the right price.
  5. Blueshift Research’s Jan. 23 subprime lending report found that subprime auto loans were likely to decline in 2019. Auto dealers said demand for subprime auto loans was falling. Over the past few years the subprime market segment has been largely satisfied with longer-term loans, which is tempering demand. In addition, some lenders—banks and non-banks alike—have pulled back from subprime auto lending. KMX could benefit from reduced availability of auto loans if they are aggressive in their loan marketing and terms.


Can KMX build on its strong Q4 comp sales results and sustain growth? How much effect will KMX’s omni-channel offering have on sales? Is KMX’s aggressive investment in additional physical store locations be a winner or loser in light of increased online buying? How will KMX’s auto finance segment perform with the shift to omni-channel sales?  What is the trend with the cost of funding and how is that affecting KMX’s auto financing segment? What is the effect of stagnant car prices on KMX? To answer these and other questions, Blueshift will gather data and issue a market research report from independent sources in the following areas: Used Car Dealers, Banks and Used Car Lenders, Online Competitors, and Industry Specialists.


Companies: AutoNation (AN), CarGurus Inc. (CARG), CarMax Inc. (KMX), Carvana (CVNA), TrueCar Inc. (TRUE), Bank of America (BAC), Credit Acceptance Corp (CACC), Capital One Financial (COF), Discover Financial Services (DFS), Santander (SC), U.S. Bancorp (USB), Wells Fargo (WFC)


Research Begins: April 15, 2019


Blueshift Research’s sister company, Intro-act, is launching its Intro-act Scorecard, the C-suite’s standard, ongoing measure of corporate investor engagement.


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