Earnings Miss Dents CarMax

Investors sold the shares Thrusday after the used-car retailer's profit growth missed Street estimates

CarMax (KMX) managed to grow its profits during recent months, but disappointed investors sold the used car retailer's stock on Mar. 29 nonetheless.

The Richmond, Va.-based company said its net earnings increased 15% year over year to $42.1 million, or 19 cents per share, during the quarter ended February 28. The results include items like an asset impairment charge of 1 cent per share related to a new car franchise. The mean estimate from Wall Street analysts was for profit of 21 cents a share, according to I/B/E/S.

"Similar to the first nine months of the year, we benefited from strong store and Internet traffic and continued excellent execution by our store teams," CEO Tom Folliard said in a press release March 29.

But when gasoline prices spiked during recent months, customers looked for more fuel efficient cars and CarMax's SUV and truck sales took hits. Compared with earlier quarters of this year, CarMax's average used vehicle selling price moderated slightly in the fourth quarter, the company says. The company's sales increased 16% year over year to $1.88 billion during the Feb. quarter. Meanwhile comparable store used unit sales increased 12%.

Goldman Sachs analyst Matthew Fassler kept a neutral rating on the stock, explaining that the early pressure on the company's shares today should abate as investors consider that results were hit by a one-time factor.

Some market players might not have agreed. CarMax's stock fell nearly 8% to $24.91 per share in afternoon trading on the New York Stock Exchange March 29.

CEO Folliard is pushing ahead nonetheless. CarMax opened four stores during the fourth quarter: a standard superstore in Fresno, satellite superstores in Austin and East Haven, and a satellite superstore in Charlottesville, Va. CarMax also adjusted its inventory and staffing in Charlottesville to accommodate for smaller than expected sales potential in the market. For the fiscal year 2007 ended in February, CarMax opened a total of ten superstores, including five standard and five satellite superstores, expanding its store base by 15%. During fiscal 2008, the company plans to expand its used car superstore base by around 17% in fiscal 2008, opening 13 used car superstores, including 5 standard and 8 satellite superstores.

Folliard is expecting to have $1.03 to $1.14 earnings per share in fiscal 2008, representing 12% to 24% growth. "We expect modest improvement in both used vehicle and wholesale gross profits per unit in fiscal 2008, as we continue to refine and improve our car-buying processes," Folliard said in the release.