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CarMax Skids on Third-Quarter Earnings Miss

CarMax is falling after the used vehicle retailer beat Wall Street's sales forecasts but missed earnings expectations.

Shares of CarMax  (KMX) - Get CarMax, Inc. Report were falling 4.4% to $94.40 Friday after the used vehicle retailer beat Wall Street's sales forecasts but missed earnings expectations.

The Richmond, Virginia-based company reported third-quarter earnings of $173.2 million, or $1.04 a share, down from $190.3 million, or $1.09 a share, and missed analysts' expectations of $1.14.

Bill Nash, president and CEO, said in a statement that the earnings drop was largely the result of a higher stock-based compensation expense, reflecting an increasing share price and a planned increase in third-quarter advertising expense related to the company’s omni-channel rollout and the launch of a new national advertising campaign.

The company said that advertising expenses increased $14.5 million due to both a new national advertising campaign launched in October and incremental marketing to support the omni-channel rollout.

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CarMax said it expects fiscal 2020 expense per retail unit to be slightly higher than fiscal 2019.

Revenue in the third quarter increased 11.5% to $4.79 billion, beating Wall Street's call for $4.68 billion.

Same-store sales rose 7.5%, beating analysts' forecast for 6.2% growth, driven by strong conversion, which was aided by continued support from third-party lending partners, web traffic growth, and a favorable response to consumer initiatives.

Used vehicle sales climbed 13.6% to $4.03 billion, beating the consensus figure of $3.97 billion, while wholesale vehicle sales grew 1.2%, missing expectations of $625.5 million.

“Our retail sales strength was a direct result of our ability to execute well, with solid performance in operations, financing, customer progression, and marketing all contributing to our growth," Nash said. "In addition, we benefited from a favorable underlying used car sales environment.”