CarMax 2Q Earnings Plunge on Weak Vehicle Sales

RICHMOND, Va. - Auto retailer CarMax Inc. said Monday its second-quarter earnings plunged 78 percent as a weak economy and high gasoline prices hurt its sales. The results were worse than expected and its shares fell about 3 percent in morning trading.

The Richmond, Va.-based company said earnings for the quarter ended Aug. 31 fell to $14 million, or 6 cents per share, from $65 million, or 29 cents per share in the same quarter last year.

Total sales fell 13 percent to $1.84 billion from $2.12 billion a year ago. CarMax said same-store sales, or sales at stores open at least a year, tumbled 17 percent during the quarter.

Shares of CarMax fell 50 cents to $16 in morning trading Monday after falling as low as $15.09 earlier in the session. They have traded in a 52-week range of $10.53 to $24.10.

The results fell short of Wall Street estimates. Analysts polled by Thomson Reuters were predicting earnings of 8 cents per share on sales of $1.93 billion.

"Like many U.S. retailers and financial institutions, we had a very challenging summer," Chief Executive Tom Folliard said on a conference call with investors. "We remain confident that our reduced earnings primarily reflected the impact of the volatile financial marketplace and the weak environment for consumer spending."

The company said the average selling price of its used vehicles declined 6 percent due to industrywide decreases in used car prices. Wholesale unit sales declined 9 percent. New vehicle sales fell to $77.8 million from $104.8 million.

As gas prices have climbed, people have been abandoning once-popular trucks and sport utility vehicles in favor of fuel-efficient small cars. That has driven used truck and SUV values lower.

Folliard said CarMax is taking the necessary and appropriate steps to navigate through the difficult financial environment.

The company has reduced its used vehicle inventory by more than 13,300 units during the quarter compared with levels of stores open as of May 31, helping to increase its gross profit per unit compared with the first quarter. CarMax also said it continues to align overhead costs with current sales levels and are looking for other opportunities to shrink costs, including decreasing labor hours and a hiring freeze at its home office.

Folliard said on the conference call that the company's mix of vehicles during the quarter included about 30 percent traditional trucks and SUVs.

"Our mix didn't change very much through the quarter," he said. "What's all over the place is our ability to make a profit on it."

The company also continued the suspension of its earnings guidance for all of fiscal 2009.

"As a result of the unprecedented near-term declines in traffic and sales and the current volatility in the asset-backed credit markets, we are not yet able to make a meaningful projection of fiscal 2009 earnings," Folliard said.

CarMax also said it saw a 51 percent decline in its third-party finance fees, partially affected by a tightening in credit availability from some nonprime finance providers and a decline in credit profiles of its average customer.

Keith Browning, the company's chief financial officer, said CarMax continues to monitor the sales impact of the tightening of the credit market.

CarMax Auto Finance reported a pretax loss of $7.1 million compared with income of $33.4 million in the same period last year. Results were reduced by $28.2 million for adjustments related to loans that originated in prior fiscal years.