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.)

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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.)

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Tickers in this Article: KMX, SAH, AN, LAD, GPI

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