Earnings Preview: CarMax reports 3Q results Fri.

AP News
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Posted: Dec 16, 2009 8:15 AM

Car dealership chain CarMax Inc. is scheduled to report earnings for its fiscal third quarter on Friday. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: The company based in Richmond, Va., said in September that its profit surged more than six-fold to $103 million for its second quarter ended Aug. 31 on a 13 percent rise in sales and a one-time gain related to its auto financing business.

The company predominantly sells used vehicles. 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, CEO Tom Folliard said the program resulted in a spike in traffic in late July and August. But analysts said some of the sales volume was pulled forward and could likely hurt third-quarter results.

Folliard said he was encouraged by the company's sales execution, solid gross profit and an improved performance from its financing arm. He also said the Clunkers program had a positive effect on improving consumer mindset about the auto industry.

CarMax, which operates 100 stores, also has been 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.

Last year, CarMax said it swung to a $21.9 million loss in the third quarter due to slumping sales and store traffic, and loan loss write-downs in its auto finance arm. Sales fell 23 percent to $1.46 billion in the quarter.

BY THE NUMBERS: Analysts surveyed by Thomson Reuters, on average, expect a third-quarter profit of 16 cents per share on $1.65 billion in revenue.

ANALYST TAKE: Following its second-quarter results, Goldman Sachs analyst Matthew J. Fassler upgraded shares of CarMax, citing increasingly easy credit plus robust margins.

"Through a stellar August quarter, CarMax, virtually uniquely among cyclical retailers, is running margins above 'normal' levels," he wrote in a client note.

He cited strong selling prices that reflect a shortage of trade-ins. He said the company's strong cost controls will keep boosting profits.

William Blair analyst Sharon Zackfia said increasingly easy monthly sales comparisons to year-earlier figures also should also help the stock.

WHAT'S AHEAD: Wall Street will be looking to see when CarMax will resume its long-term plan of growing its store base at annual rate of about 15 percent. Over the past year, the company has curtailed its store growth in response to the weak ecconomic environment.

STOCK PERFORMANCE: During the quarter ended Nov. 30, shares of CarMax rose about 18 percent to end the period at $19.88. Over the past 52 weeks, the stock has traded between $6.92 and $23.07.

(This version CORRECTS earnings estimate to 16 cents a share from 15 cents a share)