- The Washington Times - Monday, June 19, 2006

CarMax Inc., the world’s largest used-car dealer, reported one of the largest stock price gains on Wall Street yesterday.

The Richmond-based company reported net earnings of 54 percent on greater-than-expected sales, sending its stock price up 7 percent.

Net income for the first quarter ended May 31 rose to $56.8 million (53 cents per diluted share) from $37 million (35 cents) a year ago.

Wall Street analysts were expecting 38 cents per share.

The company sales were higher than even they expected, and the quarter looked better when compared with a volatile quarter a year ago.

“The stronger traffic in our stores was complemented by increased traffic on Carmax.com,” said Austin Ligon, president and chief executive officer of CarMax, in a conference call with investors.

It was complemented by “the return to a less volatile, more normal sales pattern than we’ve seen in the first quarter the past two years.”

While used-car sales rose 21 percent during the quarter to $1.2 billion, new-car sales fell 11 percent to $134 million, with most of the drop in cars from U.S. automakers.

The company said it now expects its year-end income to be at the high end of its original forecast of $1.25 to $1.47 per share, but warned that it doesn’t know what the rest of the year holds.

The earnings announcement was enough for William Blair & Co. research analyst Sharon Zackfia to boost her estimate from $1.38 to $1.55.

Ms. Zackfia said the sales consistency during the quarter suggests that the bump could continue throughout the summer.

“Their comparisons get tougher in August,” she said.

“We expect some deceleration in sales, but on an absolute basis, [management said] their sales trends were consistent in the May quarter. It didn’t sound like anything was tapering off.”

Ms. Zackfia does not own stock in CarMax, but William Blair & Co. owns more than 1 percent of the company’s stock.

CarMax also got some help this quarter from the new-car market, which didn’t participate in the frenzied incentive pricing that it used previously, such as the “employee pricing” deals last summer, said William R. Armstrong, vice president and senior analyst at CL King & Associates in Albany, N.Y.

“Incentive activity was not as intense or unpredictable as a year ago, which made for a more orderly price market for used cars,” he said. “In that environment, they’re better able to handle the business.”

Neither he nor CL King & Associates owns stock or has an investment-banking relationship with CarMax.

The earnings news sent CarMax’s stock up $2.39 yesterday to close at $33.89 on the New York Stock Exchange.

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