CarMax’s earnings nearly double; sales of luxury cars, light trucks rise

CarMax Inc., the largest used-car dealer in the U.S., said Wednesday that its fiscal third-quarter profit almost doubled and raised its full-year forecast for the second time in three months as customers bought more luxury cars and light trucks.

The shares jumped 8.5%, the biggest one-day gain in nine months and closed at a record. Net income rose to $45.4 million, or 42 cents a share, from $22.9 million, or 22 cents, in the same period a year earlier.

The Richmond, Va.-based retailer was expected to earn 25 cents a share, the average estimate of nine analysts surveyed by Bloomberg.

The company, spun off from consumer electronics retailer Circuit City Stores Inc. in 2002, said in a filing that sales in the quarter ended Nov. 30 increased 24% to $1.77 billion.

CarMax boosted its forecast for fiscal 2007 to a range of $1.75 to $1.85 a share. On Sept. 20, when it reported a 44% increase in second-quarter profit, the company projected earnings of $1.55 to $1.65 a share.

“They’ve been beating estimates all year,” said Sharon Zackfia, an analyst with William Blair & Co. in Chicago, who has the lone buy recommendation among 14 analysts on CarMax. “The lion’s share of the credit goes to sheer nuts-and-bolts operational improvement.”

CarMax said that it increased sales of luxury cars and light trucks as gasoline prices fell 21% during the quarter. The company brought in more buyers from its website after a shift in advertising from newspaper classifieds to the Internet.

“This is a company that had a complete lack of consistency a few years ago, and that has changed,” said Stacey Widlitz, managing director of Pali Capital in New York, who rates the shares “hold” and doesn’t own any. “They have figured out how to tread through difficult times.”

Shares of CarMax gained $4.14 to $52.77. They have risen 91% this year. About 5.48 million shares traded, the most since August 2005.

Stable interest rates and declining gasoline prices have contributed to steady improvement in 2007, CarMax Chief Executive Tom Folliard said in a conference call.

The CarMax gains come as overall U.S. used-car sales have fallen 3.4% in the first 11 months of this year, said Tom Kontos, chief economist at Adesa Inc., the second-largest U.S. auction company, in Carmel, Ind.