$KMX declined 20% post earning

Investing Strategies Falling Knives
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The # of units sold has declined, the provisioning on CAF (auto loan financing division) is higher, and the stock declined 20% post earning. The unit sales miss is blamed on obliteration day pull forward during last quarter… but we know the provisioning is coming for sometime… how much more pain needs to be seen.

Need to listen to the conference call. Will update this after that…

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The company took charges on 2022-23 vintage loans, however, they took charges for the same vintage in Q1, and at that time they said they were reasonably confident that provisions are enough. During the call, the company also acknowledged, they have taken some actions to extend the loan payments in Q1 (which they didn’t disclose) and that didn’t help.

  • Clearly, the management had no handle on their loan performance, took questionable moves and that resulted in taking higher charges one quarter afterwards.
  • $KMX decided to expand into sub-prime at the most inappropriate time, where sub-prime is performing badly, having various challenges
  • Tricolor sub-prime auto-lender went bankrupt
  • There are reports that lot of illegal immigrants, a primary cohort of subprime auto buyers, with recent ICE actions, drove to Mexico, a car they bought on loan and used that cars to raise money at the border!!! I am sure KMX didn’t have that in their model.
  • At a time when they should be investing in SGA, ad, and trying to defend and expand their market share, the company is scaling back…

Nutshell, $KMX is suffering from lot of self-inflicted wounds, like delayed omni-channel, to under provisioning to adding to inventory hoping for tariff related bounce and subsequently taking higher depreciation on those vehicles to entering subprime market at the worst time…

What is common in the above??? These are due to management failure.. are they going to suddenly become smart? I doubt it… that lack of trust on management is reflected in their share price.

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