Analysts expect CarMax will meet fourth-quarter EPS estimate of $0.50, up 8% and below consensus of $0.53. CarMax will report fourth-quarter earnings before the markets open on Friday, April 4.
We believe sales trends at CarMax held up well during the February quarter, although trends seemed to soften somewhat in the latter half of February, perhaps reflecting weather conditions, later tax refunds, and/or curtailed subprime lending availability (or a combination of any or all of the above). We project a 9% used unit comp in the quarter against a 6% year-ago comparison, modestly above consensus of 8% but reflecting a slowdown in two-year stacked used unit comps to 15% from 22% in the third quarter.
We project overall sales growth of 12%, to $3.15 billion (below consensus of $3.18 billion), with roughly flat wholesale sales (down from the third quarter’s 2% increase against a 10% comparison).
Notwithstanding sales estimates roughly in line with consensus, we remain concerned that fourth-quarter EPS expectations may prove aggressive at $0.53, versus our estimate of $0.50 and year-ago EPS of $0.46. We attribute the difference in our estimate to three factors: 1) a penny penalty related to preopening expenses associated with five new stores in the quarter versus two in the year-ago period, 2) comparisons related to an unusual $9 million sequential decline in corporate G&A in the year-ago quarter that benefited EPS by roughly $0.02, and 3) a penny penalty associated with our projection for an approximate $20 sequential decrease in gross profit per used car, in keeping with historical seasonal patterns.
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