Carvana (CVNA) Stock Falls 6% as CarMax Results Raise Margin Red Flags

TLDR

• Carvana stock fell around 6% Wednesday after CarMax dropped 7% following its Q1 earnings report
• CarMax beat EPS estimates ($1.31 vs $0.96) and revenue estimates ($8B vs $7.39B) but flagged margin pressure
• CarMax’s used retail gross profit per unit fell $230 year-over-year to $2,177
• Styrax Capital LP cut its Carvana stake by 26.6%, selling 81,729 shares; insiders sold $29M worth of stock last quarter
• Analysts still rate CVNA a Moderate Buy with an average price target of $93.14

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Carvana stock opened at $69.96 on Wednesday before sliding roughly 6%, pulled down by a sharp drop in CarMax stock after the used-car retailer posted Q1 results.

Carvana Co., CVNA

CarMax beat on both earnings and revenue. EPS came in at $1.31 against an estimate of $0.96, and revenue hit $8 billion versus the $7.39 billion consensus. Strong numbers on paper — but the details told a different story.

The issue was margins. CarMax’s used retail gross profit per unit dropped to $2,177, down $230 from the same quarter a year ago. CFO Enrique Mayor was direct about it, saying the company’s near-term strategy “requires some margin concession to support sales growth.”

Average selling prices rose $1,168 per unit to $27,288, driven by higher acquisition costs. Used unit comparable store sales were down 0.8% for the quarter.

CEO Keith Barr flagged operational drag too, pointing out that CarMax moves over 2 million cars a year via transfers but currently has “too many unproductive transfers.”

Consumer Credit Pressure Adds to Concerns

On the financing side, CarMax Auto Finance SVP Jon Daniels said the consumer is “continuing to be pressured by overall inflation.” He noted that delinquency rates across credit cards and auto loans are running higher industry-wide.

CarMax expanded its Tier 2 credit penetration from 10% to 25% of volume and set aside a $96 million loan loss provision for the quarter — a number that caught attention.

That combination of tighter margins, rising acquisition costs, and growing credit risk is what dragged Carvana into the selloff. Investors are pricing in the possibility that similar pressures could show up in CVNA’s results.

Institutional and Insider Activity

Away from Wednesday’s move, there’s been some selling activity worth noting. Styrax Capital LP cut its Carvana stake by 26.6% in Q4, offloading 81,729 units and leaving it with 225,272 units valued at around $95.1 million.

Insiders have also been active. VP Stephen R. Palmer sold 5,000 units at $70.42 on June 1st. Director J. Danforth Quayle sold 14,525 units at $70.00 on June 10th. In total, insiders sold 415,812 units worth roughly $29.1 million over the last quarter. Both transactions were executed under pre-arranged Rule 10b5-1 plans.

Despite the selling pressure, Carvana’s last earnings report was strong. The company posted EPS of $1.69 against an estimate of $0.32, with revenue of $6.43 billion topping the $6.12 billion estimate.

Analyst coverage remains largely positive. Needham reiterated a Buy with a $120 price target on June 5th. JPMorgan raised its target from $91 to $93 with an Overweight rating.

The average analyst target sits at $93.14, with 17 Buy ratings, 2 Strong Buys, and 5 Holds currently on the stock.

CVNA’s one-year range runs from $54.46 to $97.38, and the stock is currently trading below both its 50-day moving average of $71.47 and its 200-day moving average of $75.25.

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