Carmax net income more than triples in 1st-quarter as its sells more used cars

CarMax 1st-quarter net income jumps

RICHMOND, Va. — Used car dealership chain CarMax Inc. said Wednesday its net income more than tripled in the fiscal first quarter because it sold more vehicles as the industry slowly recovers from the worst U.S. auto sales market in decades.

The results beat Wall Street expectations, and its shares rose $1.74, or 8.7 percent, to $21.74 in morning trading after climbing more than 10 percent earlier in the session.

CEO Tom Folliard said customer traffic is gradually improving but noted sales remain “well below” pre-recession levels.

The Richmond company, which will join the Standard & Poor’s 500 after the market closes Friday, said its net income climbed to $101.1 million, or 44 cents per share, in the three months ended May 31, up from $28.7 million, or 13 cents per share, a year ago.

Excluding a benefit related to lower-than-expected loan losses, its adjusted earnings totaled 41 cents per share, topping analysts’ estimates for earnings of 33 cents per share.

CarMax, which operates more than 100 stores, said its revenue rose 23 percent to $2.26 billion from $1.83 billion in the year-ago period, while revenue at stores open at least a year rose 9 percent. Analyst polled by Thomson Reuters on average expected revenue of $2.09 billion.

Used vehicle sales rose about 9 percent as the company’s average selling price rose about 9 percent. CarMax said its gross profit per used vehicle sold increased 10.5 percent to $2,212 and total gross profit increased 21 percent primarily because it sold more cars. It also has lowered its reconditioning costs.

CarMax’s auto financing arm reported income of $57.5 million compared with a loss of $21.6 million a year ago. In the year-ago period, it saw adjustments related to loans that originated in prior fiscal years, mainly projected losses on defaulted loans.

Expenses for the first quarter rose 10 percent to $226.7 million as the company increased sale commissions, advertising and costs related to resuming store growth.

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

So far this fiscal year, the company has opened three stores — one in Georgia and two in Ohio — that it had previously built and chose not to open until market conditions improved.

It expects to open between eight and 15 stores over fiscal 2012 and 2013.

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.