CarMax posts 3Q profit on stronger sales

AP News
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Posted: Dec 18, 2009 5:52 PM

CarMax Inc. posted a profit Friday for its fiscal third quarter and the car dealership chain said it will open three previously built stores in the next fiscal year, but doesn't plan any further store growth until the automotive market improves.

The company, which predominantly sells used vehicles, said its results benefited from stronger sales, cost-cutting efforts and gains from its financing division.

CarMax operates 100 stores and said sales rose about 19 percent to $1.73 billion in the quarter, while sales at stores open at least a year rose 8 percent.

Traffic and sales execution improved during the quarter despite low consumer confidence, tighter lending standards and double-digit unemployment, CEO Tom Folliard said in a conference call with investors.

But Folliard reminded investors that the company's sales still remain about 16 percent below levels seen just two years ago.

"Although we're optimistic that there's a recovery on the horizon, when that happens and the steepness of the recovery is a big, big, big unknown," Folliard said.

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

CarMax said that during the first half next fiscal year, it plans to open three stores _ one in Georgia and two in Ohio _ that it had previously built and chose not to open until market conditions improved.

"We feel comfortable from a balance sheet and financial perspective that we can go ahead and open those stores, but again, it doesn't mean we're going to start building other stores because sales still aren't where they need to be," Folliard said.

CarMax earned $74.6 million, or 33 cents per share, for the three months ended Nov. 30. That contrasts with a loss of $21.9 million, or 10 cents per share, a year ago.

The latest results included a net gain of 9 cents per share related to its financing division.

Analysts were looking for a lower profit of 16 cents per share excluding unusual items on lower revenue of $1.66 billion in revenue.

Shares of CarMax rose $1.53, or 7 percent, to close at $23.35 Friday after rising to a 52-week high of $23.40 earlier in the session.

The company said its used vehicle sales rose 9.3 percent as the their average selling price rose 10.3 percent. It said its gross profit per used vehicle sold increased 13.3 percent to $2,100. New vehicle sales fell 33.4 percent.

The company's auto financing arm reported income of $65.8 million compared with a loss of $15.4 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 projected losses on defaulted loans.

CarMax has been focused on eliminating waste and improving execution to weather the weak automotive market and better position it for future growth.

Expenses for the third quarter fell 11.7 percent to $192.1 compared with the year-ago period due to lower advertising spending and efforts to curb store and corporate overhead costs, the company said.