Wednesday, March 30, 2011

CarMax Inc. (NYSE: KMX): Q4 Earnings Preview 2011

CarMax Inc. (NYSE: KMX), the largest US retailer of used cars, is scheduled to release its fiscal fourth quarter earnings before the opening bell on Thursday, March 31, 2011. Analysts, on average, expect the company to report earnings of $0.38 on revenue of $2.17 billion. In the year ago quarter, the company reported earnings of $0.33 per share on revenue of $1.83 billion.

CarMax, Inc., through its subsidiaries, operates as a retailer of used vehicles in the United States. The company also sells new vehicles under various franchise agreements, as well as engages in wholesale vehicle sales. In addition, it provides related products and services, including the financing of vehicle purchases through its own finance operation, CarMax Auto Finance, as well as third-party lenders; the sale of extended service plans and accessories; the appraisal and purchase of vehicles directly from consumers; and vehicle repair service. CarMax currently operates 103 used car superstores in 49 markets.

In the preceding third quarter, the Richmond, Virginia-based company's net income was $82.36 million or $0.36 per share, up from $74.59 million or $0.33 per share in the prior-year quarter. Net sales and operating revenues for the third quarter increased 22.8% to $2.12 billion from $1.73 billion in the same period last year. Analysts, on average, expected the company to report earnings of $0.34 per share on revenue of $1.96 billion. Comparable store unit sales grew 16% in the third quarter, with comparable store used unit sales increasing 16% and comparable store new unit sales up 24%.

The company has benefited from a rebound in customer traffic and an improvement in sales conversion driven by better availability of consumer credit.

CarMax deals exclusively in used cars which is currently appealing to a population that is still pinching pennies. CarMax’s strong exposure to the used-car market has helped it improve the results through a favorable appraisal buy rate. The automotive retailer’s car-buying appraisal strategy helps provide an inventory of makes and models that reflects the tastes of each market.The company limited their expansion during the down economy, and focused instead on their core business strategies which have positioned them well now that the economy is recovering. At its last earnings call in December, CarMax said that it expects to open a total of five superstores in fiscal 2012.

The company's stock currently trades at a forward P/E (fye Feb 28, 2012) of 18.52 and PEG Ratio (5 yr expected) of 1.43. In terms of stock performance, CarMax shares have gained nearly 28% over the past year.

Full Disclosure: None.
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