CarMax 4Q profit up on higher used car sales

RICHMOND, Va. -Used car dealership chain CarMax Inc. said Thursday that its fourth-quarter profit rose 7 percent as improved customer financing helped boost sales.

The Richmond, Va.-based company runs more than 105 stores in 54 markets that mainly sell used cars and trucks.

Used car sales have been strong during the recession as buyers looked to cut costs out of job security fears, and the demand has pushed prices to record levels.

CarMax has seen its performance improve as a result of stronger sales, cost-cutting efforts and gains from its financing division. But low consumer confidence, tighter lending standards and high unemployment have hindered the industry's recovery. Improvements in the new car industry also help to bring customers in to have their cars appraised.

"New car sales, although they're up and everybody's happy about it, they're nowhere near where they used to be," CEO Tom Folliard said in a conference call with investors. "I still think the consumer is sitting back and waiting a little bit."

Carmax reported net income of $95 million, or 41 cents per share, for the three-month period ended Feb. 29, compared with 88.8 million, or 39 cents per share, a year ago.

Revenue grew 10 percent to $2.48 billion from $2.25 billion a year ago on strong sales of cars sold at wholesale auctions and higher overall prices.

Analysts polled by FactSet expected earnings of 40 cents a shares on sales of $2.42 billion.

Revenue at stores open at least one year increased 4 percent after surging 12 percent a year ago. That metric is a key indicator of a retailer's health because it excludes stores that recently opened or closed.

Its shares fell 71 cents, or 2 percent, to $34.21 in morning trading Thursday. Its shares peaked for the past year at $35.17 per share early last week. They are up 50 percent from their early October low of $22.77.

Wholesale vehicle unit sales increased 13 percent during the quarter. Used vehicle unit sales grew 6 percent as the company's average selling price rose 3.5 percent to $18,495.

Its total gross profit — its profit after reconditioning and other costs — increased 5 percent during the quarter, but fell slightly to 13.7 percent as an overall percentage of sales. Gross profit per used vehicle sold increased 2 percent to $2,135, while wholesale gross profit per vehicle grew 13 percent.

Income from CarMax's auto financing arm rose 22 percent to $66.1 million in the quarter compared with $54.1 million a year ago.

Expenses rose 7 percent to $243.5 million as the company paid out more in sales commissions and spent more to support its store growth.

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

For the year, the company said its earnings grew 10 percent to $413.8 million, or $1.79 per share, compared with $377.5 million, or $1.65 per share, a year ago. Revenue increased 11 percent to a record $10 billion as it sold more than 408,000 used vehicles and an additional 316,649 vehicles at wholesale auction. Sales at stores open at least one year grew 1 percent during the fiscal year after increasing 10 percent the year earlier.

CarMax also said it plans to open 10 stores during the fiscal year ending Feb. 28, 2013.—

Michael Felberbaum can be reached at http://www.twitter.com/MLFelberbaum.