CarMax CEO Tom Folliard talks about balancing expenses like advertising with increased sales

On the Call: CarMax CEO Tom Folliard

In an effort to weather the weak automotive market and better position it for future growth, used car dealership chain CarMax Inc. has focused on improving execution and cutting expenses like advertising spending and store and corporate overhead cost.

For the first half the year, its expenses have grown by 6.5 percent to $51.9 million, while the ratio of expenses to its sales has fallen from 10.9 percent to 9.8 percent. Meanwhile, its revenue increased nearly 18 percent compared with the same period last year.

As sales improve, certain costs — like advertising to help drive more traffic and sales commissions — grow.

In a conference call with investors on CarMax Inc.’s second-quarter results Wednesday, CEO Tom Folliard discussed balancing expenses like advertising with increased sales.

QUESTION: The company has been looking to spend more — and has spent more — on advertising, but most of the sales gain was driven by the sales force’s ability to convince more people to buy, rather than traffic. Is there something that you’re seeing that convinces you that a little more advertising will drive traffic?

RESPONSE: We cut our advertising pretty significantly through the recession and even spending some money back, you could argue a lot of that spend is just to continue to get our brand name out there and build awareness, as well as drive traffic. Toward the end of the … recession, we talked about wanting to get back and spending more ad dollars, and you’re seeing us start to do that.

(This corrects 5th paragraph to read “ability” instead of “able.”)