Tags: Subprime Lending | Used-car Retailer | CarMax | Earnings

Tighter Subprime Lending Hurts Used-car Retailer CarMax

Tuesday, 23 Sep 2014 03:54 PM

CarMax Inc., the largest U.S. used-car retailer, reported a lower-than-expected quarterly profit as growth in comparable unit sales at its used-car lots slowed to a near halt, hurt by tighter lending norms that kept subprime customers at bay.

Shares of the company, which also sells new cars, fell as much as 10 percent in early trading on Tuesday.

CarMax's comparable unit sales growth at used-car stores open for at least a year slowed to 0.2 percent in the second quarter ended Aug. 31 from 15.9 percent, a year earlier.

"Significant increases of subprime sales have been a major driver of same-store sales growth for the company over the last few years," RBC Capital Markets analyst Scot Ciccarelli wrote in a note. "As the growth from this customer base ebbs, it should have a negative impact on (comparable sales)."

CarMax said 13.8 percent of the cars it sold to customers in the quarter were financed by third-party subprime loan providers, down from 18.5 percent, a year earlier.

Sales of cars to subprime customers - buyers with a weak credit history - fell about 5,200 from a year earlier as lenders tightened credit terms, the company said.

CarMax's used-car sales rose 6.3 percent to 143,325 units in the quarter, while new car sales rose 18 percent to 2,581.

Chief Executive Tom Folliard said the traffic at CarMax's stores was high, but the number of people making purchases was relatively low, mainly due to "less compelling offers" by subprime lenders.

The second quarter also had one less Saturday compared with the year-earlier quarter, which hurt comparable unit sales growth at used-car lots by 1 percentage point, the company said.

Net income rose to $154.5 million, or 70 cents per share, in the quarter from $140.3 million, or 62 cents per share, a year earlier.

Excluding the proceeds of a lawsuit settlement, CarMax earned 64 cents per share.

Revenue rose 11 percent to $3.60 billion.

Analysts on average had expected a profit of 67 cents per share and revenue of $3.57 billion, according to Thomson Reuters I/B/E/S.

The Richmond, Virginia-based company's shares fell  $5.01, or 9.5 percent, to close at $47.80 on the New York Stock Exchange.

Up to Monday's close, the stock had risen 5.6 percent this year, while the S&P 500 Index rose about 17 percent.

© 2017 Thomson/Reuters. All rights reserved.

   
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CarMax Inc., the largest U.S. used-car retailer, reported a lower-than-expected quarterly profit as growth in comparable unit sales at its used-car lots slowed to a near halt, hurt by tighter lending norms that kept subprime customers at bay.
Subprime Lending, Used-car Retailer, CarMax, Earnings
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2014-54-23
Tuesday, 23 Sep 2014 03:54 PM
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