Wednesday, January 21, 2015

CarMax Is Positioned For Long-Term Growth Due To These 2 Factors

This article was first published by Seeking Alpha on January 4, 2015. 

By Sarfaraz A. Khan

CarMax (NYSE:KMX), the biggest seller of used cars in the U.S, has recently delivered an impressive quarterly performance, and it looks like the company is positioned to benefit from two macro trends.

Earlier in December, CarMax announced its third quarter results. The company posted double-digit growth in car sales, in terms of units, which led to 15.8% increase in sales and operating revenues to $3.4 billion and 27.7% increase in earnings to $0.60 a share. This was better than Wall Street's earnings estimate of $0.54 a share.

During the quarter, the company's revenues and EPS benefited from higher sales at its stores driven by sixth consecutive quarter of growth in customer traffic, new store openings and a robust share repurchase program.

Lower Gasoline Prices

Surprisingly, one factor which did not make any major contribution was lower gasoline prices. Crude oil prices have fallen by nearly 50% in the last six months which translated into lowest gasoline prices in over five years at the pumping stations to less than $2.30 a gallon. This could have lifted the used car sales, particularly of trucks and SUVs that consume greater quantities of gasoline than smaller cars.

In an email interview, Katharine Kenny, CarMax's VP of investor relations said that the company's mix of trucks and SUVs versus other cars did not change significantly year-over-year in the third quarter. However, if gasoline prices stay low, then the company "might expect an increase in truck and SUV sales in the future."

Early indicators have shown ... read full article on Seeking Alpha