CarMax, the No. 1 used-car retailer in the United States, posted higher quarterly earnings and sales Wednesday, but cut its full-year outlook due to the tough automotive retail market, sending its shares down more than 12 percent.
"Our sales and profits for the first half of the fiscal year fell short of our original expectations," Chief Executive Tom Folliard said in a statement. "We believe this is largely the result of the current market environment and the industry-wide slowdown in auto sales.
"Our revisions assume that the current trends will continue for the remainder of the fiscal year," he added.
CarMax said net income in the second quarter rose about 20 percent to $65 million, or 29 cents a share, from $54.3 million, or 25 cents a share, a year ago. Analysts on average expected 29 cents, according to Reuters Estimates.
Sales in the quarter ended Aug. 31 rose 10 percent to $2.12 billion, short of the $2.19 billion Wall Street had expected. However, sales of used vehicles at stores open at least a year, a key retail measure, increased 3 percent for the quarter. That was slower than the 6 percent growth rate in the first quarter.
Used-vehicle unit sales were up 11 percent in the quarter, while new-vehicle unit sales fell 15 percent due to the tough sales environment and the August sale of a new-car dealer in Orlando, Florida. Wholesale unit sales rose 15 percent.
The average selling price for its used vehicles was $17,388, off slightly from the $17,399 in the year-earlier quarter.
For the year ending Feb. 29, 2008, the Richmond, Virginia-based company now expects earnings in the range of 92 cents to 98 cents a share, down from its prior forecast range of $1.03 to $1.14 a share. Analysts were expecting $1.06.
It also cut its outlook for growth in used vehicle sales at stores open at least a year to a range of 1 to 3 percent. It previously had forecast growth in the range of 3 to 9 percent.
In the 2007 fiscal year, CarMax had growth of 9 percent.
CarMax said its new outlook reflects the weaker-than-expected financial results in the first half of the year, expected slower growth in used-vehicle sales, continued spending on operational and Internet initiatives, and higher credit spreads that will hurt third-quarter funding costs by about $4 million.
The company also said it plans to open nine used-car stores in the second half of the fiscal year, bringing the total for the year to 13, an increase of 17 percent. For the first half of fiscal 2009, it plans to open eight more used-car stores. CarMax's shares fell $3.06 to $22 in early trading on the New York Stock Exchange.