Karooooo demonstrated solid performance in the second quarter, yet investors may harbor concerns regarding the sustainability of the company’s results throughout the remainder of fiscal 2026.
Here’s our initial analysis of Karooooo‘s (KARO -12.09%) second-quarter financial report.
Key Metrics
| Metric | Q2 2025 | Q2 2026 | Change | vs. Expectations |
|---|---|---|---|---|
| Revenue | ZAR1.11 billion | ZAR1.34 billion | +21% | Beat |
| Earnings per share (adjusted) | ZAR7.35 | ZAR8.28 | +13% | Beat |
| Cartrack subscribers | 2.14 million | 2.46 million | +15% | n/a |
| Gross margin | 70% | 68% | -2 pp | n/a |
Subscription Revenue Growth Accelerates
Karooooo’s overall revenue surged by 21% year over year in the second quarter, slightly outpacing the 18% growth rate reported in the first quarter. Subscription revenue from its Cartrack vehicle tracking service rose by 20%, marking an acceleration compared to the previous quarter. Notably, Cartrack subscription revenue constitutes approximately 90% of Karooooo’s total revenue.
The total number of Cartrack subscribers increased by 15% year over year, reaching 2.46 million. The company added 70,740 net new Cartrack subscribers during the second quarter, a decline from the 89,168 additions in the same period last year. Meanwhile, Karooooo Logistics, which is 74.8% owned by Karooooo, saw its delivery-as-a-service offering revenue soar by 38% year over year to ZAR139 million.
Despite a slight dip in overall gross margin during the second quarter, adjusted earnings per share grew by 13%. The operating margin was recorded at 26%, down from 27% in the prior-year period, although Cartrack’s operating margin remained stable at 29%. The company is actively investing in sales and marketing to attract new customers, resulting in a 34% increase in sales and marketing expenses during the second quarter, which is exerting some pressure on profitability.
Immediate Market Reaction
By late Wednesday morning, shares of Karooooo had declined by approximately 12%. The stock has more than doubled since the beginning of 2024, so while the financial results were generally positive, concerns about valuation may have contributed to the drop. Earlier this year, Karooooo’s forward price-to-earnings ratio exceeded 30, but it now hovers around 25 following the recent slump.
What to Watch
Karooooo has maintained its previous guidance for fiscal 2026, adjusting for the impact of a secondary public offering in June. The company anticipates Cartrack subscription revenue growth between 16% and 21% for the full year, with an operating margin projected between 26% and 31%. Additionally, adjusted earnings per share are expected to fall within the range of ZAR32.50 to ZAR35.50.
The absence of an increase in guidance or a narrowing of ranges, despite the acceleration in Cartrack subscription revenue, could be a factor in the stock’s decline on Wednesday. Given the current macroeconomic landscape, a cautious approach may be warranted. While Karooooo performed admirably in the second quarter, investors might be apprehensive about the company’s ability to sustain this momentum throughout fiscal 2026.
Helpful Resources
Timothy Green has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Karooooo. The Motley Fool has a disclosure policy.
