(Bloomberg) -- CarMax Inc. fell short of Wall Street profit estimates for the quarter as lower sales and high interest rates for loans continue to weigh on the used car business. 

Adjusted earnings for the fiscal second quarter were 75 cents a share, according to a statement from the Richmond, Virginia-based company, below the 77-cent average of analysts’ estimates compiled by Bloomberg.

CarMax shares fell more than 11% to $70.51 at 9:52 a.m. in New York on Thursday, its biggest drop in 2023. Shares have risen 16% this year. 

Used car dealers like CarMax have been fighting off external pressures like increased new-vehicle inventories and a hawkish US Federal Reserve that’s suggested that interest rates could remain high for some time to come. 

The firm said the profit drop reflected lower sales, which it blamed on rising prices, interest rates, tightened lending standards and lower consumer confidence. Total retail used vehicle unit sales were 200,825, down 7.4% from a year earlier.

“CarMax continues to face significant affordability issues, given the still 35%+ increase in average vehicle prices and today’s higher interest rate environment, likely driving up monthly payments 40%-50% above pre-pandemic levels,” Truist Financial Corp. analyst Scot Ciccarelli said in a note to clients. 

On the earnings call, Chief Executive Officer Bill Nash said that some customers “are going down to a different level of car, just to make sure that they can afford the monthly payments.” 

Quarterly net revenue fell 13% from the same period last year to $7.1 billion. Wall Street analysts expected $7 billion in the most recent quarter, which ended Aug. 31. Gross profit per retail unit came to $2,251 in the quarter. The firm intends to resume share repurchases in the third quarter. 

The CarMax Auto Finance unit’s income dropped 26% in the quarter to $135.0 million on a decline in net interest margin percentage and an increase in provisions for loan losses. 

Prices of pre-owned vehicles were down 7.8% in the first half of August from the year before, according to Manheim, the largest used-vehicle auction. But August saw the first marginal month-on-month increase in average pricing since March — a trend that continued in September.

This story was produced with the assistance of Bloomberg Automation.

(Updates with shares, CEO comments from the third paragraph.)

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