No-frills car retailer CarMax (NYSE:KMX) reported mixed fiscal second-quarter results, as its net sales increased while same store sales decreased. Net income increased slightly. Despite the profit increase, the economic slowdown and lack of consumer confidence made for overall disappointing results. (For more on consumer confidence, see Consumer Confidence: A Killer Statistic.)

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

A Wheel-Spinning Quarter
Net income was $111.9 million, or 49 cents a share, compared to $107.9 million, or 48 cents a share, in last year's second quarter. Net sales and operating revenue increased to $2.59 billion from $2.34 billion, an 11% increase for the quarter. The wholesale and finance units offset the lesser performance in used vehicle sales. Same store sales decreased 2%, however, while total units sales decreased 1% for the quarter. Although the average selling price per unit continued to climb, acquisition costs increased also. CEO Tom Folliard said he felt their prices were "higher than I'd like them to be," reflecting the lack of used vehicle supply as well as the sometimes difficulty of consumers getting loans.

Wholesale unit sales increased 23%, with this segment's gross profit $78.8 million compared to $59.3 million in the year ago quarter, an increase of 33%. Gross profit per unit was up to $928 from $858 in the prior year's quarter. Used vehicle gross profit was down a bit to $224 million from $228.1 million in Q2 last year. Gross profit per unit was down to $2,178 from $2,205 in the prior year's quarter. (If you are interested in buying a vehicle, check out 5 Ways To Buy A Used Car.)

Retail Auto Chain Business Varies
How are the other auto chains doing? Sonic Automotive (NYSE:SAH) reported results at the end of July, with earnings up to $21.4 million for its quarter, compared to $8.4 million in the same prior year period. A $7.3 million pre-tax charge affected earnings in the prior year's quarter. Sonic's management attributed its good performance to changing over its business base from leasing properties to owned properties, while reducing debt.

Although Auto Nation (NYSE:AN) achieved an 18% increase in profits, excluding charges, for its second quarter of 2011; its subsequent July sales saw new vehicle unit sales fall by 4%. Both new and used vehicle selling prices increased during its reported quarter, which helped boost revenue and results. Smaller Lithia Motors (NYSE:LAD), by contrast, had a 30% jump in revenue in its second quarter and a 16% surge in same store sales of used vehicles. The company also raised guidance, which underscores its terrific performance even in the face of a very challenging economy.

Group 1 Automotive (NYSE:GPI) nearly doubled its income in the second quarter, to $24.7 million from $12.8 million in the year ago quarter, on a 3.9% revenue increase. This was achieved despite shortages in Japanese brands which comprise a large segment of the company's business.

The Bottom Line
CarMax's performance wasn't bad in such an unfavorable economy, and there's no assurance that the somewhat better results from other retail auto chains will continue. The economy, or at least the outlook, has been worsening, if the stock market behavior and the headlines are at all accurate. But a couple of things weigh against the business; the increased cost of acquisition and vehicle pricing in the used car area isn't a good trend and neither is the credit situation.

While a report indicated that there was some easing in lending for new autos for consumers with weak credit, this may not be as relevant as unemployment worries loom and talk of a new recession continues. Likewise, although consumers will perhaps find the purchase of and perhaps credit for a used vehicle more realistic, jobs and pricing are a looming factor. We see difficult quarters ahead for CarMax and this sector as economics continues to squeeze an already squeezed consumer. (If a used car is in your future, please read Used Car Shopping: How To Avoid A Lemon.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  2. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  3. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  4. Mutual Funds & ETFs

    ETF Analysis: WisdomTree SmallCap Earnings

    Discover the WisdomTree Small Cap Earnings ETF, a fund with a special focus on small-cap and micro-cap stocks with positive earnings.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares US Regional Banks

    Obtain information and analysis of the iShares US Regional Banks ETF for investors seeking particular exposure to regional bank stocks.
  6. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  7. Technical Indicators

    Key Financial Ratios to Analyze the Mining Industry

    Discover some the most important financial ratios used by investors and analysts to evaluate companies in the metals and mining industry.
  8. Technical Indicators

    Key Financial Ratios to Analyze Retail Banks

    Learn about key financial metrics that investors use to evaluate retail banks, and how the industry is fundamentally different from most other industries.
  9. Technical Indicators

    Key Financial Ratios to Analyze Airline Companies

    Examine some of the most important financial ratios and performance metrics investors use to evaluate companies in the airline industry.
  10. Stock Analysis

    The 5 Biggest Canadian Oil Companies

    Obtain information about some of the largest and most successful major integrated oil corporations that are headquartered in Canada.
RELATED TERMS
  1. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  2. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  3. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  4. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
  5. Net Present Value - NPV

    The difference between the present values of cash inflows and ...
  6. Long-Term Debt

    Long-term debt consists of loans and financial obligations lasting ...
RELATED FAQS
  1. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>
  6. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!