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Why CarMax Stock Gained 37% in April

What happened

CarMax (NYSE: KMX) stock outperformed a strong market last month by rising 37% compared to a 13% increase in the S&P 500, according to data provided by S&P Global Market Intelligence.

The rally didn't erase wider shareholder losses, though, as the stock remains lower by 19% so far in 2020.

Image source: Getty Images.

So what

In early April, CarMax announced robust sales growth for the first quarter, with revenue rising 15% thanks to an 11% boost comparable-store sales. Yet that selling period only ran through late February and didn't include any of the lot closures that began impacting the business in mid-March.

Executives subsequently outlined a plan for dramatic cost cutting that was celebrated by Wall Street.

Now what

Investors won't have a good idea of the full scale of COVID-19's impact on CarMax's business until it releases its second-quarter report in a few months. The good news is that the company had already rolled out its online shopping process to most of its selling footprint by the time the crisis hit. E-commerce sales should have offset some of the pressure from store closures and reduced customer traffic.

Yet there are major questions about the timing and scale of the economic rebound -- or stubborn recession -- that might follow the COVID-19 threat.

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Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool recommends CarMax. The Motley Fool has a disclosure policy.


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