Hence buying the stock in the $12-$14 range seemed to offer little upside... but much like trying to run any sort of valuation analysis on Palm (PALM) has had me out of the stock since noting it in January, this profit opportunity was also left strewn on the road. I've been alternating debating between buying this name or AutoNation (AN) for the better part of 3 months as part of the new landscape in American automotive, and sat on my hands on both due to valuation concerns, but in retrospect buying AN at 15-17-20x forward earnings is "cheap", and Carmax was "cheaper" than it appeared. If Carmax can repeat the magic of this quarter, the analysts estimates are going to be a moot point - with a whopping 22 cents (with 1x adjustments that in the US we pretend don't matter) versus analysts 4 cents this quarter alone, that 2009 estimate by analysts seems lousy.A quick look at Carmax's results
- Auto retailer CarMax Inc. said Friday its fiscal first-quarter profit fell 2.7 percent on a double-digit sales drop, a loss in its auto financing arm and charges related to loans, but still beat Wall Street expectations. Its shares climbed more than 14 percent in morning trading.
- The Richmond-based company, which operates 100 stores, said it earned $28.7 million, or 13 cents per share, in the three months ended May 31, down from $29.6 million, or 13 cents per share, a year ago. The latest results include a charge of 11 cents per share related to loans at its financing arm and a gain of 2 cents per share for a litigation settlement.
- That left adjusted earnings at 22 cents a share -- well above the 4 cents a share that analysts expected. The analyst estimates typically exclude one-time items.
- Sales fell 17 percent to $1.83 billion from $2.21 billion a year ago but still beat analysts' estimates of $1.72 billion. Same-store sales, or sales at stores open at least a year, fell 18 percent during the quarter. (CEO) Folliard said while it's difficult for him to call a decline in sales an improvement, he said it was "certainly a sequential step in the right direction" compared to the fourth quarter of 2009, when the company saw a 26 percent drop in same-store sales. An increase in traffic and better sales execution contributed to the results, Folliard said.
- Used vehicle sales dropped 13 percent, while new vehicle sales fell 42 percent, the company said. The average selling price of its used vehicles declined 2.2 percent, while gross profit per vehicle increased 13.5 percent to $2,911 for due to reduced reconditioning costs.
- The company's auto financing arm reported a loss of $21.6 million compared with a profit of $9.8 million in the year-ago period due in part to higher funding costs.
- Expenses for the first quarter fell 15.1 percent to $206.2 compared with the year-ago period due to efforts to curb store and corporate overhead costs.
- Based on conditions in the credit markets, the company said it expects the warehouse facility funding costs and credit enhancement levels to increase upon its renewal or replacement in July.
Now with Carmax's emphasis on used cars over new, I am wondering how this cars for clunker program will impact them. Many Americans now are not able to afford new cars so they are going with used, but it's a very big handout the government is giving. While it will help the smaller part of Carmax's business in new cars, the cash for clunker would help a company like Auto Nation more.
We have a nice gap now in the Carmax chart, so we'll see if it comes back to fill it in the weeks to come.
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