CarMax results get clunkers' boost; shares jump
* Clunkers program drives more traffic into stores
* Quarterly sales up 13 pct, comp sales up 8 pct
* Q2 EPS $0.46 vs $0.06 year ago
* Shares jump 11 pct
CarMax Inc (KMX.N), the largest U.S. retailer of used cars, posted strong quarterly results as the company received an unexpected boost from the cash-for-clunkers program and its finance unit recorded a one-time gain.
Shares of the company rose as much as 11 percent, making them one of the top percentage gainers Tuesday on the New York Stock Exchange.
CarMax, which saw traffic spike in late July and August, has been an indirect beneficiary of the clunkers program, which the government introduced earlier this year to boost new car sales.
The $3 billion program offered payments of up to $4,500 to people who traded in old gas guzzlers for more fuel-efficient vehicles, helping companies reduce a glut of unsold cars and trucks.
Though used cars were not included in the program, it seemed like they (CarMax) benefited from a situation where people went to new car dealers and found out they didn't qualify for the government program, said BGB Securities analyst Sam Yake.
So they probably went to CarMax and maybe looked at used cars, Yake, who has a buy rating on the stock, said.
Pali Capital upgraded the stock to neutral from sell following the quarterly results.
New car incentives drove traffic to used car lots as well, wrote analyst Stacey Widlitz. We underestimated the spill-over effect for CarMax.
On a conference call with analysts, Chief Executive Tom Folliard noted that customer traffic has trended higher since late last winter.
Comparable store used-unit sales rose 8 percent during the quarter, a sequential improvement from the first-quarter decline of 17 percent.
However, the company said it still did not plan to open any new stores. It had temporarily suspended store openings in late 2008 as the U.S. auto business took a hit from the slowing economy and tight credit.
The light at the end of the tunnel is still dim, Folliard said.
WILL THE CLUNKERS EFFECT LAST?
With the government's incentive program coming to end, concerns remain over how the company will maintain customer interest.
Oppenheimer & Co analyst Brian Nagel said CarMax's blowout results were due to a sharp uptick in consumer traffic toward the end of the quarter, fueling better trends throughout the company.
Nagel, who has a perform rating on the stock, said the retailer was a major indirect beneficiary of cash for clunkers.
However, he was concerned with the sustainability of these sales trends now that the clunkers program has come to an end.
According to his analysis, sales at the chain have slowed early in the third quarter.
CarMax has about a 2 percent market share in the highly fragmented $300 billion used-car market.
It began as a subsidiary of the now-bankrupt Circuit City Stores and has over 100 superstores in 46 markets.
It faces competition from about 20,000 franchised automotive dealerships, 39,000 independent dealers and, recently, internet-based dealers.
FINANCE ARM BOOSTS PROFIT
CarMax Auto Finance posted income of $72.1 million compared with a loss of $7.1 million, helped by certain adjustments that increased income by $36.2 million.
CAF's gain on loans originated and sold was 4.2 percent, versus 1.8 percent in the prior year quarter.
The company's total income rose more than seven-fold to $103.0 million, or 46 cents a share. Sales rose 13 percent to $2.08 billion.
Total used-unit sales rose 10 percent in the second quarter, while wholesale unit sales increased 5 percent.
Shares of the Richmond, Virginia-based company were up $1.81 at $21.14. They touched a high of $21.44 earlier in the day. (Editing by Vinu Pilakkott and Maju Samuel)