‘Our Engagement… Has Been Productive’: CarMax (KMX) Stock Slides on Starboard Push

CarMax’s KMX -0.36% ▼ shares edged lower on Wednesday afternoon as the American used-car retailer said its “engagement with [activist investor] Starboard to date has been productive.” The comment follows news that CarMax is being pressured for change by the hedge fund, with Starboard taking a $350 million stake in the retailer and nominating two directors to its board.

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Starboard Moves as CarMax Faces Falling Sales

The push from Starboard comes at a time when the Virginia-based company is battling a decline in its retail sales volume and has stated plans to prioritize sales over profits. To that end, Starboard sent a letter to the company’s board on ways to improve its market share by tapping the company’s hybrid model of online sales and patronage via physical dealership locations.

The activist investor contended that improving the digital customer experience, doubling down on cost reduction, and introducing changes to vehicle pricing methods can help CarMax deliver a turnaround. One of the directors nominated by Starboard is its own CEO, Jeffrey Smith.

CarMax Harps on ‘Constructive Conversations’

Reacting to the move, CarMax confirmed receiving a notice from Starboard and pointed to the board’s efforts to improve the business’s fortune, including by appointing David McCreight as interim president and CEO and Thomas Folliard as interim executive chair.

“We are pleased that Starboard agrees with our board that [incoming CEO] Keith [Barr] is the right leader to deliver on the potential of this business,” CarMax said in a statement, noting that the retailer remains focused on “continued constructive conversations.”

CarMax also said its board will give its recommendation on Starboard’s proposed nominees in due course.

Keith Barr, who played a key role in pushing for digital transformation at the InterContinental Hotels Group IHG +0.58% ▲ , is expected to kick off his role as CarMax CEO on March 16. He was appointed the next chief executive on February 12.

** Is CarMax Stock a Good Buy?**

On Wall Street, analysts remain highly cautious of CarMax’s shares and continue to maintain their Hold consensus rating on the stock. This breaks down to one Buy, 10 Holds, and three Sells issued by 14 analysts over the past three months.

Moreover, the average KMX price target of $35.70 implies about 15% downside risk from current trading levels.

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