CarMax 2Q profit soars

RICHMOND, Va. — Car dealership chain CarMax Inc. said Tuesday its fiscal second-quarter profit surged on higher sales and a one-time gain related to its auto financing business.

The results topped Wall Street estimates and its shares jumped nearly 10 percent, briefly rising to a 52-week high.

The Richmond, Va.-based company that predominantly sells used vehicles said it earned $103 million, or 46 cents per share, for the three months ended Aug. 31, compared with $14 million, or 6 cents per share, a year ago.

The results included a net gain of 10 cents per share related to its financing division.

Sales rose 13 percent to $2.08 billion from $1.84 billion in the same period last year. Sales at stores open at least a year rose 8 percent during the quarter.

Analysts surveyed by Thomson Reuters, on average, expected a profit of 18 cents per share on $1.77 billion in revenue.

Its shares rose $1.87, or 9.7 percent, to close at $21.20 Tuesday after rising to a 52-week high of $21.46.

“We are pleased to report a record level of quarterly income, despite what is still a very challenging economic environment,” CEO Tom Folliard said in a conference call with investors. “We are especially pleased that the strength was broad-based with contributions from all major areas of our business.”

While used cars didn’t qualify under the federal Cash for Clunkers program that gave rebates for junking older cars and buying more fuel-efficient vehicles, Folliard said the summer program resulted in a spike in traffic in late July and August.

CL King & Associates analyst William Armstrong said sales were driven in part by the halo effect of the Clunkers program, but said he expects some of the volume was pulled forward and could likely hurt third-quarter results.

Folliard said the company, which operates 100 stores, is encouraged by its strong sales execution, solid gross profit and an improved performance from its financing arm. He also said while Clunkers program had a positive effect on driving traffic and improving consumer mindset, it was “only one of many elements that drove our success.”

Used vehicle sales rose 9.6 percent, while new vehicle sales fell 18.5 percent, the company said. The average selling price of its used vehicles increased 5.6 percent, while gross profit per vehicle increased 13.4 percent to $2,120.

The company’s auto financing arm reported income of $72.1 million compared with a loss of $7.1 million in the year-ago period, due in part to an increase in the value of bonds the company holds. In the year-ago period, CarMax saw adjustments related to loans that originated in prior fiscal years, mainly due to projected losses on defaulted loans.

Expenses for the second quarter fell 3.1 percent to $218.1 million compared with the year-ago period due to lower advertising spending and efforts to curb store and corporate overhead costs, the company said.

CarMax has focused on eliminating waste and improving execution to weather the weak automotive market and better position it for future growth. For the first half of the year, the company has lowered its expenses by 9.4 percent, or $43.8 million, compared with the year-ago period.

Over the past year, the company has curtailed its store growth in response to the current economic environment, but has said it is committed to resuming its long-term plan of growing its store base at annual rate of about 15 percent.

In a conference call with executives, Rochdale Securities analyst Jaison Blair asked when CarMax would resume store growth.

“We’re not going to get too excited over one quarter in this environment and we’re going to let some time pass,” Folliard said.

On the Net:

www.carmax.com