CarMax will stop buying back stock until business, economy improves

CarMax Inc. said Thursday it has decided to stop buying back its shares as it takes a conservative approach to its finances until the used-car market and economic backdrop improve.

The pause in buybacks came as the used-car seller reported fiscal third-quarter profit and sales well below expectations, citing “challenges with auto affordability.”

In addition to suspending buybacks, CarMax lowered its capital spending forecast for the current fiscal year to $450 million from $500 million.

“[I]In this environment, it’s important that we maintain a conservative balance sheet,” Chief Financial Officer Enrique Mayor-Mora said on a post-earnings call with analysts.

Stock KMX,
It was down 7.1% in midday trade, on track for its lowest close since April 2020.

The company said it spent $2.6 million to repurchase 30,000 common shares during the quarter ended Nov. 10, 2018. 30, before suspending the repo. This compares with a charge of $320.6 million to repurchase 3.37 million shares in the previous two quarters.

CarMax reported before the opening bell on Thursday that fiscal third-quarter net income fell 86% to $37.6 million, or 24 cents a share, well below the 65 cents a share FactSet expected. The company said it was hurt by “broad-based inflationary pressures, rising interest rates and subdued consumer confidence.”

“I think before the business improves, and just as importantly, the macro backdrop improves, I would expect us to suspend share buybacks,” Mayor-Mora said on the call. “That being said … we’re still Fully committed to the share repurchase program, and … we will re-engage at the appropriate time when conditions and prospects improve.”

Chief Executive Bill Nash chimed in to say the decision to suspend buybacks was not because market conditions were about to get worse. “It’s more of an uncertainty,” Nash said.

Nash noted on the call that the $2.45 billion share repurchase authorization remains in place.

Shares of CarMax have fallen 30.9% over the past three months, while the S&P 500 SPX,
It fell 20.3%.

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