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Used-car dealership chain CarMax 2Q profit flat

Associated Press Modified: September 20, 2012 at 9:45 am •  Published: September 20, 2012

RICHMOND, Va. (AP) — Used-car dealership chain CarMax Inc. said Thursday that its net income was essentially flat in the second quarter as wholesale sales fell and costs rose.

The Richmond, Va.-based company, which runs more than 110 stores in 56 markets that mainly sell used cars and trucks, earned $111.6 million, or 48 cents per share, for the period ended Aug. 31, compared with $111.2 million, or 48 cents per share, a year ago.

The results fell short of the 52 cents per share that analysts surveyed by FactSet expected. Its shares fell $1.49, or 4.7 percent, to $30.48 in morning trading Thursday.

Revenue grew 7 percent to $2.76 billion from $2.59 billion. That was slightly above the $2.75 billion that analysts expected.

Sales at stores open at least one year rose 5 percent during the quarter. This is a closely watched indicator of a retailer's financial performance because it strips away the impact of recently opened or closed stores.

Used-vehicle unit sales rose 8 percent as the company's average selling price rose less than 1 percent to $19,494. Wholesale vehicle unit sales declined 2 percent during the quarter. New-vehicle unit sales, which make up a smaller part of CarMax's business, rose 31 percent. Other revenue, which includes fees it receives from third-party lenders its customers use, was nearly flat.

"The economy is still pretty sluggish," CEO Tom Folliard said in a conference call with investors. "With unemployment where it is and consumer confidence where it is, I still think that that's impacting our traffic, it's impacting the customer's willingness to go out and sign up for as long as a six-year loan."

While pleased with recent improvements, Folliard said the decrease in supply of used vehicles since 2008 has hurt the company's sales over the past couple of years.

As people have limited their spending in response to uncertain economic conditions and persistently high unemployment, many have forgone buying new vehicles in favor of used cars to save money. Used-car prices have remained high because of strong demand and short supplies, but the run-up in prices has been so dramatic that it almost doesn't make sense to buy them anymore with new-car financing and incentive programs.

On the new-car side, total U.S. auto sales increased 20 percent last month from a year earlier to an annual rate of 14.5 million, the best monthly sales pace since the government's "Cash for Clunkers" rebate program in August of 2009. Assuming those trends continue, Folliard said CarMax expects to see improving supply situations as buyers trade in their old vehicles.

Its total gross profit — its profit after reconditioning and other costs — grew nearly 4 percent during the quarter. Gross profit per used vehicle sold was flat at $2,172, while wholesale gross profit per vehicle fell more than 2 percent.

Income from CarMax's auto financing arm rose 19 percent to $75.7 million in the quarter compared with $63.8 million a year ago.

Expenses rose about 11 percent to $254.7 million as the company spent more to support its store growth. It opened three stores during the quarter and plans to open a total of 10 stores in both new and existing markets during the fiscal year ending Feb. 28, 2013, and 10 to 15 stores in fiscal 2014.

While initial costs to open new stores are high, Folliard said the company believes "it's the right decision long term and these stores make a terrific return over time."

CarMax has been focused on lowering expenses, and improving traffic, execution and gross margins to position it for future growth. For example, the company has improved its sale and appraisal rates and lowered the costs for reconditioning vehicles.


Michael Felberbaum can be reached at