CarMax says vehicle affordability remains a challenge, cost cuts help profit

(Reuters) -CarMax Inc said on Friday that vehicle affordability remains a challenge due to high interest rates and low consumer confidence, but cost cuts helped the used-car retailer post a quarterly profit beat.

Shares of the company jumped 6.8% before the bell, as it also reported a better-than-expected first-quarter revenue.

Although used-car prices have cooled of late, retailers have been hit hard as inflationary pressures and improving new vehicle supply have put off consumers from purchases of pre-owned automobiles.

The industry has also been struggling to offload cars that were purchased at higher prices, forcing companies such as CarMax (NYSE:) and Carvana to take a profit hit by offering them at lower prices, as well as paring back costs.

In December last year, CarMax said it was pausing some hiring, halting share buybacks and cutting expenses as it battled a “used-vehicle recession.”

“Our deliberate actions are driving improved trends in the business, despite the challenging macro environment,” CEO Bill Nash said in a statement on Friday.

Excluding a one-time benefit, CarMax cut selling, general and administrative expenses by 5.7% in the first quarter.

It reported an adjusted profit of $1.16 per share for the quarter ended May 31, compared with average analysts’ expectation of 79 cents per share, as per Refinitiv data.

Unit sales of used vehicles, however, fell 9.6% with average selling prices dropping 5.5% year-on-year.

Net revenue came in at $7.69 billion, compared with analysts’ estimates of $7.53 billion.