Shares of CarMax are plummeting on Thursday after the used car dealer posted one of its biggest earnings ever. CEO Bill Nash was very clear in the company’s earnings release when he blamed it: “We believe a number of macroeconomic factors impacted our second-quarter unit sales performance.” such as vehicle affordability challenges stemming from widespread inflationary pressures, as well as rising interest rates, low consumer confidence and rates.” Earnings per share 43% lower than estimated – 60% short. The shortfall was only a quarter behind during the 2008 financial crisis and then at the start of the Covid pandemic. Shares are down about 23% after setting a 52-week low of $155.98. Shares have fallen more than 48% since the start of the year. In the second fiscal quarter ending August 31, demand was lower. Sales at similar stores fell 8.3%, a much larger drop than the 3.6% drop Wall Street expected. “Vehicle affordability challenges.” That’s the phrase that makes all the headlines, but it’s not the first time CarMax has used that line. It also said that in its June earnings report – when the company posted earnings of 7 cents. At the time, CarMax spoke of a challenging, but still quite optimistic, environment. Obviously, the worst is yet to come. During Thursday’s earnings call, Nash said sales have waned over the past three months. The drop became more pronounced in July and culminated in a drop among teenagers in August. So what is causing all the struggle? Is that why used car prices suddenly skyrocketed, making buying and selling difficult? Or is it a shift in consumer psychology – with customers becoming more selective in their purchases? It doesn’t seem to be a sudden matter of price. Yes, car prices are much higher than they were in pre-pandemic times, but prices have been increasing for about a year. Look at the average selling price of CarMax. It has been around $28,000 to $29,000 for about four quarters now. Nothing has changed significantly in the most recent period. CarMax’s acquisition costs don’t seem out of place either. Gross profit per unit was $2,282 – slightly higher than StreetAccount’s estimate of $2,268 and also slightly higher than a year ago. CarMax’s big miss in earnings appears to have come from lackluster demand. That means it could be a tighter consumer function as rising gas prices and food inflation, not to mention higher interest rates, are driving up borrowing costs. It is possible that many people are resorting to repairing their cars and spending money to buy a replacement car. Recall that auto parts retailer and repair shop operator AutoZone reported strong Q4 financial results last week thanks to steady demand. Look at the change in tone from CarMax’s two most recent earnings calls. Three months ago, executives said “consumers are a bit more lenient,” but management stressed that “there’s still some demand there.” Fast forward to Thursday’s call. “Consumers are having to make decisions. Groceries are higher than ever. I think we’ve seen more rate hikes. … So I’m going,” said executives. just think consumers are prioritizing their spending a little bit differently.” Unfortunately for CarMax, things didn’t look so good at the start of the current quarter either. As revealed during the earnings call, executives said, September saw “the same softness we saw in August”. And they added, “And I’ll tell you even more recently, just with the storm, as you can imagine, that also contributes to the additional softness” with 20-22 store closures. at this moment.