KMX earnings coming up on 6/24. A little background on KMX they are a used car only superstore known as Carmax to most. They were the originators of used car superstores before CVNA or VROOM. Their business model has been establishing storefronts in large markets and willingness to for a fee get cars from any of their stores in the country.
Now some similarities from KMX and CVNA. Both are singularly used car dealers no new car franchise stores. This plays a key role into both of their profitability. KMX is much more established and well run over CVNA however both typically over pay for inventory without regard to wheter you trade it or just sell it to them. Here lies the problem. A majority of the time these guys put too much money in their acquisitions. Meaning slimmer GPU. In current market conditions with low inventory levels. The GPU plays a major factor in earnings. Over the course of the last couple years new cars have astronomically surpassed used cars in GPU.
This spells signs of trouble to used car conglomerates that are over paying to buy a car. Typically what I see is KMX values of buying cars is overtly high. And they will give that no matter if you buy a car from them or not. Now a normal brick and mortar dealer would push on a trade to move a unit currently on the ground not KMX they give you the number whether you buy something or not. With used car values already approaching record highs a dealer willing to pay whatever they can to get that piece of inventory is an unsustainable business practice. When GPU is slimming already in used car market.
On to their earnings they have missed or been right at their EPS the last 3 reporting periods. That’s not good in current automotive space. Especially prior to the last few months.
They key number we need to watch for here is the units if units of volume stayed relatively the same which is projected. And their GPU falls they could once again miss their target. I am personally bearish on KMX purchased units average substantially less gross profit than trades
If units and GPU fall KMX could be in for a hurting as the expected decline in automotive wil hit them hard.
I am bearish on the upcoming ER not because the market has slowed but because of their acquisition cost of their inventory. Over paying leads to lower GPU and this is not optimistic for them.
Going to look for any kind of a bounce here next week and try to enter July 85p. This is risky as they are already trading near their 52 week low. But the last year has been the most profitable in Auto segment in decades.
I do however think any bad earnings or guidance and this could fall back to reality like so many companies we have seen The last quarter. Plus longer expiry give time to not get crushed and undoubtedly we will see a downturn at some point over the next month either way to give exit opportuntiies.
Tried to get filled on July puts today 75p seems to be hot spot as it was up today while the underlying was up on the day. Had an order in that didn’t get filled will probably up my bid tomorrow and see if I can get a fill. Just keep thinking that new car GPU has been the lifeblood of dealers profitability and used car GPU is actually down at pre supply chain levels hence why I think we will see new car dealers such as AN be profitable still in Q2 but used car only groups such as KMX and CVNA could be feeling some hurt especially with over paying for inventory in a declining asset market.
Filled 5 KMX July 75p @ 1.80 there on that rip
Took a couple of the same.
Put in some bids for the same @ 1.80 lets see if they fill - might be too late
The ask for the July 75p is sitting @ 1.70 . I am in for 1, I haven’t played an earnings in a while.
I am now up to 8 had fill set at 1.75 that triggered. Just disclaimer here. I have no idea how this will go just basing my decision off of info above. I am sure there were several that seen Conq took some and I was instantly green after that. I don’t really condone holding through earnings ever. However these are July 15 expiry but have no idea what their actual numbers are or what they most importantly say or do on call and I’m A okay if the ones I took end up worthless. Hope this plays out like I’d expect.
Averaging this one down here, I’m at 1.65 cost basis right now for the 75p’s.
I would say Conq - getting into this one definitely gave it more attention for me - the reason I decided to get in, was the write-up above my general thought that the market is shaky and I expect it to get worse as summer continues on.
I also took into account information like
Earnings are always a Gamble -
In with July 75p at 1.56 average. Have a little bit of room to average down if tomorrow is a green day.
Decided to join you guys and took 2 puts @ 1.55 average
Since everyone’s announcing they are in, I am in as well with just one July 75p at 1.60.
In with (3) July 75p @ $1.73
Like it. In with the same at 1.55 cost basis July 75p
I bought 5 of the Jan. 2023 70p. Cost average of $5.506. I like this play. Also holding a couple of CNVA puts for the same reason.
Just know if I see green on these any point in the morning I will prob sell either way but gl all.