MICHAEL FELBERBAUMRICHMOND, Va. (AP) â¿¿ Used car dealership chain CarMax Inc. said Tuesday its fiscal third-quarter net income rose more than 10 percent as an uncertain economy continued to boost sales of previously owned vehicles. The Richmond, Va.-based company said it earned $82.4 million, or 36 cents per share, in the three months that ended Nov. 30. That's up from $74.6 million, or 33 cents per share, a year ago. CarMax, which runs more than 100 stores that mainly sell used cars and trucks, said overall revenue rose 23 percent to $2.12 billion on strong used car sales and higher prices. Sales at stores open at least one year increased 16 percent during the quarter. Thomson Reuters said analysts expected a profit of 34 cents per share on revenue of $1.97 billion. Despite the beat, shares of CarMax slid $3.46, or 9.6 percent, to $32.44 in morning trading Tuesday. CarMax's shares are still up about 50 percent from last year and recently hit an all-time high of $36 per share. Investors may be "profit-taking," or cashing in shares purchased at a lower price, as the stock grows, said David Whiston, an auto equity analyst with Morningstar Inc. "The story for CarMax going forward looks excellent," Whiston said. "It's a great car story, the business model is outstanding and volumes are coming back, credit availability is coming back." Used car sales have been strong all year as buyers look to cut costs out of job security fears, and the demand has pushed prices to record levels. CarMax has seen its performance improve as a result of stronger sales, cost-cutting efforts and gains from its financing division. But continued low consumer confidence, tighter lending standards and high unemployment still have hindered the industry's recovery. CEO Tom Folliard said that CarMax dealerships have seen an increase in traffic and its sales force was able to convince more of those people to buy. Increased credit availability also helped drive higher sales.
"We've seen a nice trend here over the last few quarters of increased traffic and increased sales," Folliard said in a conference call with investors. "This quarter's results showed sustained strength in many of our key areas."Used vehicle sales rose about 20 percent as the company's average selling price rose about 2 percent. CarMax said its gross profit per used vehicle sold remained relatively unchanged at $2,103 and total gross profit increased 23 percent primarily because it sold more cars. CarMax's auto financing arm reported income of $55.7 million compared with $65.8 million a year ago. In the year-ago period, it saw favorable adjustments from an increase in the value of bonds the company holds. Expenses for the third quarter rose 14 percent to $219.7 million as the company increased sales commissions and advertising, as well as costs related to selling more cars. CarMax has been focused on lowering expenses, and improving traffic, execution and gross margins to weather the weak automotive market and better position it for future growth. For example, the company has improved its sale and appraisal rates and lowered the costs for reconditioning vehicles.