Tuesday, used vehicles retailer CarMax Inc. (KMX) posted a sharp growth in second-quarter profit, bolstered by favorable adjustments related to CarMax Auto Finance. Moreover, quarterly sales grew 13% on improving customer traffic trends.
Q2 Results
The company's second-quarter net income was $103.0 million or $0.46 per share, compared with $14.0 million or $0.06 per share in the prior-year quarter.
On average, 13 analysts polled by Thomson Reuters expected the company to post earnings of $0.18 per share. Analysts' estimates typically exclude special items.
CarMax, a Fortune 500 company, noted that the latest quarter's net earnings were increased by $0.10 per share for CarMax Auto Finance or CAF favorable adjustments, primarily related to an increase in the fair value of retained subordinated bonds. In the year-ago period, net income was reduced by $0.08 per share for CAF unfavorable items, including increases in cumulative net loss assumptions, a reduction in the fair value of retained subordinated bonds and an increase in the discount rate.
Quarterly net sales and operating revenues advanced 13% to $2.08 billion from the previous year's $1.84 billion, with comparable store used unit sales growth of 8%. Eight Wall Street analysts had a consensus revenue estimate of $1.77 billion for the quarter. Total used unit sales rose 10% in the second quarter.
Tom Folliard, president and chief executive officer, said, "We are pleased to report healthy increases in both used and wholesale vehicle unit sales. In part, the sales growth was the result of easier year-over-year comparisons; however, it also reflected improving customer traffic trends and an improvement in sales execution."
During the recent quarter, used vehicle sales amounted to $1.71 billion, up 15.6% from $1.48 billion a year ago, while new vehicle sales fell 18.8% to $63.2 million from $77.8 million reported in the previous year. Wholesale vehicle sales for the quarter totaled $237.0 million, an increase of 6.1%, compared to $223.3 million in the year-earlier quarter.
Total other sales and revenues grew 13.3% to $69.9 million from $61.7 million in the three months ended August 31, 2009. Extended service plan revenues rose 25.7%, and service department sales edged up 1.2% from last year.
Folliard added, "While customer traffic in the second quarter remained slightly below the prior year level, it has steadily strengthened throughout the first half of the current fiscal year. The government's CARS, or "cash for clunkers," program resulted in a spike in traffic in late July and August."
CarMax Auto Finance
The Richmond, Virginia-based auto retailer's CarMax Auto Finance reported income of $72.1 million, compared to a loss of $7.1 million incurred in the same quarter of last year, helped by the adjustments related to loans originated in previous fiscal periods. In the second quarter of fiscal 2010, the adjustments increased CAF income by $36.2 million, while it reduced CAF income by $28.2 million in the last year.
Excluding the adjustments from both periods, CAF income increased to $36.0 million from $21.0 million in the second quarter of last year.
Year-To-Date Highlights
For the six-month ended August 31, 2008, net income totaled $131.7 million or $0.59 per share, compared with $43.6 million or $0.20 per share in the year-earlier period.
Net sales and operating revenues amounted to $3.91 billion, a jump from $4.05 billion reported in the comparable period of the previous year.
Peer Performance
Among CarMax's rivals, AutoNation Inc. (AN) witnessed a downswing in second-quarter profit that totaled $36.7 million or $0.21 per share, compared to $51.8 million or $0.29 per share in the prior-year quarter, reflecting lower vehicle sales as consumers bought fewer cars amid the recession. Quarterly total revenues decreased to $2.61 billion from the previous year's revenue of $3.66 billion.
Another competitor, Penske Automotive Group Inc. (PAG) posted second-quarter net income of $14.08 million or $0.15 per share, down from $37.83 million or $0.40 per share in the previous year, impacted by weak revenues across all segments. Total revenues for the period declined to $2.32 billion from $3.33 billion in the previous year
Stock Quotes
CarMax shares, which have been trading between $5.76 and $20.01 in the past 52 weeks, closed Monday's trading session at $19.33. In the pre-market session, the stock is currently trading at $20.73, up $1.40 or 7.24%.
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