CarMax posts first quarterly loss in 8 years

CarMax Inc. yesterday reported a $21.9 million loss in the third quarter as it took a $23.8 million write-down on bonds. It was the chain's first loss since the fourth quarter of 2000.

The Goochland County-based automobile retailer was also hurt as sales sagged.

"These are extremely challenging marketplace conditions," Tom Folliard, president and chief executive officer of CarMax, said in a conference call with investors yesterday. He said the company was in three industries feeling the effects of recent economic turmoil: retailing, automobile sales and credit.

The loss of $21.9 million, or 10 cent per share, in the three months that ended Nov. 30 compares with earnings of $29.8 million, or 14 cents per share, in the year-earlier period.

The swing to a net loss was driven by a pre-tax $15.4 million loss at CarMax Auto Finance, or 12 cents a share. During the same period last year, the unit had income of $16.3 million.

Revenue declined nearly 23 percent to $1.46 billion.

CarMax also reported that fees from outside lenders, which finance some of the vehicles it sells, plummeted 58 percent for the quarter, compared with the same period a year ago.

Unit sales at stores open at least a year, a key indicator of a retailer's performance, were down 25 percent during the third quarter. Traffic at stores was down more than 24 percent, but the company would not give a specific number.

While sales were down, the news wasn't all bad for the retailer.

Its average gross profit per used vehicle dropped only $32 despite the average selling price falling almost $1,300.

Asked if he was sacrificing sales to maintain the profit margin, Folliard told investors that he didn't believe "a couple of hundred bucks is going to entice [customers] to come out" if they weren't already in the market for a vehicle.

He pointed to new-vehicle dealers and manufacturers who are offering thousands of dollars off and still having problems attracting customers.

To try to stem the losses, the company said it would halt expansion. Of four stores under construction, only one, in Washington, D.C., will open. Construction will continue at two stores in Ohio and one in Georgia, but those will not open until the market improves.

Folliard also said that CarMax reduced its inventory by about 8,300 vehicles to save nearly $140 million.

Shares of CarMax closed yesterday at $7.30, down 9 cents.
Contact Louis Llovio at (804) 649-6348 or .