A poor quarterly result from CarMax, Inc (NYSE:KMX) lead to a 9.49% drop in its share price closing at $47.80. It was not only the company but several other auto retailers lost share prices including Lentuo International Inc (NYSE: LAS), Lithia Motors Inc (NYSE: LAD), and Asbury Automotive Group, Inc. (NYSE: ABG) losing after investor feared a similar fate for the sector.
CarMax, Inc (NYSE:KMX) released its quarterly earnings for the second quarter 2014 with net sales and operating revenues of $3.60 billion with 10.9% increase and net income for the quarter at $92.6 million with a 9.7% increase from the previous year quarter.
Tom Folliard, CEO of CarMax, Inc (NYSE:KMX), said,
“The continued growth in our store base and improvements across our used, wholesale and CAF operations, as well as our share repurchase program, all contributed to our record second quarter earnings per share.”
CarMax, Inc (NYSE:KMX) witnessed 0.2% decline in comparable store unit sales along with 6.3% increase in total used unit sales. The company had net earnings of $154.5 million for the quarter with net earnings per diluted share at $0.70. At the same time, total gross profit was $463.3 million with 6.6% increase and the company opened four new stores including Madison, Wisconsin; Portland, Oregon; Dallas, Texas; and Lynchburg, Virginia.
According to Scot Ciccarelli, RBC Capital Markets Analyst,
“Significant increases of subprime sales have been a major driver of same-store sales growth for the company over the last few years. As the growth from this customer base ebbs, it should have a negative impact on (comparable sales).”
Tight credit terms have dented car sales to subprime customers with CarMax, Inc (NYSE:KMX) selling 5,200 vehicles lower for the quarter. CEO added that even after a higher traffic in the stores, sales were lower because of “less compelling offers” from subprime lenders.
This article has been written by Prakash Pandey.