Earnings Preview: CarMax reports 1Q results Friday

RICHMOND, Va. — Car dealership chain CarMax Inc. reports earnings for its fiscal first quarter on Friday. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: The Richmond, Va., company continues to cut costs amid the weak automotive market.

In April, CarMax said it couldn’t offer a financial forecast for this fiscal year, citing unprecedented declines in traffic and sales and volatility in the credit market. But it cautioned that if trends do not improve, it anticipates a double-digit decline this year in used car sales at stores open at least a year.

The company, which operates 100 stores, said its fourth-quarter profit jumped 72 percent as lower expenses and a profit in its financing arm offset the impact of falling sales.

CarMax earned $37.5 million, or 17 cents per share, for the three months ended Feb. 28, compared with $21.8 million, or 10 cents per share, a year ago. Total sales fell 28 percent to $1.47 billion from $2.04 billion a year ago.

Expenses for the fourth quarter fell 10.6 percent to $196.7 compared with the year-ago period due to efforts to curb store and corporate overhead costs.

CarMax also said its total number of associates declined to about 13,000 at of the end of fiscal 2009 from a peak of about 16,400 in May 2008.

BY THE NUMBERS: Analysts surveyed by Thomson Reuters, on average, expect a first-quarter profit of 5 cents per share on $1.72 billion in revenue.

ANALYST TAKE: Deutsche Bank’s Rod Lache told investors recently that CarMax’s financing division is looking healthier, and the stock is well-priced for buying.

Lower borrowing costs and improving liquidity for the company’s financing unit, CarMax Auto Finance, mean the division can once again help support the company’s sales and drive earnings, Lache said.

He also said that as consumers return to buying used cars that cost more than $12,000, which make up most of CarMax’s inventory, the auto retailer will regain lost market share.

WHAT’S AHEAD: Few on Wall Street predict that car sales will see a significant resurgence anytime soon, so investors will instead be watching how CarMax adjusts to the weakened market.

Investors also will be looking to see how used vehicles will fit into proposals in Congress to provide consumers with rebates of up to $4,500 to turn in their gas-guzzling cars and trucks for more fuel-efficient vehicles. The House bill does not include provisions for used cars, but a Senate version does.

STOCK PERFORMANCE: During the quarter ended May 31, shares of CarMax rose about 29 percent to end the period at $11.21. Over the last 52 weeks, the stock has fallen 29 percent and traded between $5.76 and $20.70.