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CarMax Profit Falls, but Still Tops Estimates

Auto retailer CarMax said Friday its fiscal first-quarter profit fell 2.7 percent on a double-digit sales drop, a loss in its auto financing arm and charges related to loans, but still beat Wall Street expectations.

Its shares climbed more than 14 percent in morning tradiung.

The Richmond-based company, which operates 100 stores, said it earned $28.7 million, or 13 cents per share, in the three months ended May 31, down from $29.6 million, or 13 cents per share, a year ago.

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The latest results include a charge of 11 cents per share related to loans at its financing arm and a gain of 2 cents per share for a litigation settlement.

That left adjusted earnings at 22 cents a share -- well above the 4 cents a share that analysts expected. The analyst estimates typically exclude one-time items.

Shares of CarMax rose $1.88, or about 14.4 percent, to $14.97 in early trading Friday. The stock has traded between $5.76 and $20.70 over the past 52 weeks.

Sales fell 17 percent to $1.83 billion from $2.21 billion a year ago but still beat analysts' estimates of $1.72 billion. Same-store sales, or sales at stores open at least a year, fell 18 percent during the quarter.

"Despite the difficult economic conditions, we are pleased to report some signs of improvement," Chief Executive Tom Folliard said in a conference call with investors.

Folliard said while it's difficult for him to call a decline in sales an improvement, he said it was "certainly a equential step in the right direction" compared to the fourth quarter of 2009, when the company saw a 26 percent drop in same-store sales.

An increase in traffic and better sales execution contributed to the results, Folliard said.

Used vehicle sales dropped 13 percent, while new vehicle sales fell 42 percent, the company said. The average selling price of its used vehicles declined 2.2 percent, while gross profit per vehicle increased 13.5 percent to $2,911 for due to reduced reconditioning costs.

The company's auto financing arm reported a loss of $21.6 million compared with a profit of $9.8 million in the year-ago period due in part to higher funding costs. Both periods also were impacted by adjustments related to loans that originated in previous periods, the company said. Adjustments for the first quarter totaled $40.4 million.

Volume of loans originated and sold by its financing arm dropped 27 percent from the year-ago period due to a decrease in sales and the company's decision to decrease the amount of in-house lending. Folliard said that decision did, however, contribute to a decline in sales.

CarMax also said it saw a 42 percent decline in its third-party finance fees, partially affected by a reduction in unit sales and a shift in providers.

Expenses for the first quarter fell 15.1 percent to $206.2 compared with the year-ago period due to efforts to curb store and corporate overhead costs.