CarMax 4Q profit doubles as lower prices and better incentives make buyers bite

CarMax 4Q profit doubles, revenue up

RICHMOND, Va. — Used car dealership chain CarMax Inc. said Thursday its fourth-quarter earnings doubled as higher prices and increased customer traffic drove sales. It also plans to resume store growth, a sign of recovery from the worst U.S. auto sales market in decades.

Its shares climbed 55 cents, or 2.2 percent, to $25.67 in morning trading after trading at a 52-week high of $26.35 earlier in the session.

Stronger sales and profits as well as increasing stability in the credit markets will allow the Richmond company to open between eight and 15 stores over fiscal 2012 and 2013, said CEO Tom Folliard. It also will open three previously built stores this fiscal year, which it had announced last quarter.

Over the past year, CarMax 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, which had been growing at annual rate of about 15 percent.

“While sales are not back to pre-recession levels, the positive trends that we’ve seen in our strong profitability have convinced us that moving forward with a measured plan for store growth over the next few years is the appropriate strategy,” Folliard said in a conference call with investors.

CarMax, which operates 100 stores, said it earned $75.4 million, or 33 cents per share, in the three months ended Feb. 28, up from $37.5 million, or 17 cents per share, a year ago. The latest results included a net gain of 7 cents per share related to its financing division.

The company said revenue rose about 25 percent to $1.83 billion from $1.47 billion a year ago, while sales at stores open at least a year rose 12 percent.

Thomson Reuters says analysts were expecting a lower adjusted profit of 25 cents per share on lower revenue of $1.76 billion.

Used vehicle sales rose 13 percent as the company’s average selling price rose 10 percent. CarMax said its gross profit per used vehicle sold increased 1.3 percent to $2,067 and total gross profit increased 15 percent primarily because it sold more cars. It also lowered its reconditioning costs by $200 per car over the year.

The company’s auto financing arm reported income of $58.9 million compared with $28 million a year ago.

To weather the weak automotive market and better position it for future growth, CarMax has been focused on lowering expenses, and improving traffic, execution and gross margins. It had lowered its advertising spending and efforts to curb store and corporate overhead costs.

Expenses for the fourth quarter increased 3 percent to $202.2 million versus a year ago.

For the year, the company earned $281.7 million, or $1.26 per share, compared with $59.2 million, or 27 cents per share, in the previous year. Revenue for the year increased 7 percent to $7.47 billion from $6.97 billion.