RICHMOND, VA – For the fourth quarter ending February 28, CarMax, Inc. raised comparable store used unit sales expectations to growth of 11 or 12 percent, and raised earnings per share expectations to 26 or 27 cents.
On February 3, CarMax raised fourth-quarter expectations of comparable store used unit sales growth to a range of 7% to 9%, from earlier expectations in a range of 2% to 7%, and earnings per share to a range of 23 cents to 25 cents, from earlier expectations in a range of 19 cents to 23 cents.
"At the end of January, we began to experience a dramatic increase in sales financed by our subprime lender DRIVE," said Austin Ligon, president and chief executive officer. "Based on industry patterns, we understand that subprime transactions can see a two-to-threefold increase during tax refund season, and we have seen such an increase since the end of last month. We now believe that DRIVE-financed sales will contribute approximately 5 percentage points incrementally to our fourth-quarter used-unit comp sales. We had been reluctant to forecast such an increase in our subprime business based solely on the few superstores that were testing DRIVE in last year's fourth quarter."
CarMax rolled out subprime lending to its full superstore base in August 2004. "With this seasonal increase in DRIVE-financed sales, as well as the continuing strength in our used unit sales overall, we now expect fourth quarter comp store used unit sales growth of 11 or 12% and earnings per share of 26 or 27 cents," Ligon said. "The subprime sales' incremental contribution of about 5 percent to fourth quarter used unit comp sales includes a run rate of approximately 8 percentage points in February. Industry patterns suggest that we should expect the seasonally stronger subprime traffic to continue in March, and then moderate somewhat in April before returning in May to levels in line with those we had been seeing before tax refund season. Of course, because such a spike in subprime sales occurs seasonally, it will not add incrementally to future years' sales and will simply be built into our annual sales performance."
CarMax has said previously that DRIVE-financed sales have generally comprised approximately 3 percent of used unit sales. CarMax plans to issue fourth quarter and fiscal year-end comparable store sales on Fri., March 4, and fourth-quarter and fiscal year-end earnings results on Wed., March 30, both before the opening of the New York Stock Exchange.