CarMax Inc. posted a significant increase in profit for the third quarter ended Nov. 30, 2012, logging $94.7 million in net income, or 41 cents per share, for the period. The largest used-car retailer in the United States logged $82.1 million in net earnings, or 36 cents per share, in the third fiscal quarter of 2011. CarMax attributed its strong third-quarter profit to a rise in supply, more attractive financing options and improved customer sentiment.
According to the retailer, used-car supplies have improved, following a shortage in the previous quarters, as customers disposed their old cars to acquire more recent used models and new ones.
In a conference call, CarMax chief executive Thomas Folliard said that consumer sentiment has improved, which may be resulting in more engaged customers in their stores. CarMax Chief Financial Officer Thomas Reedy remarked that customers have become more responsive to low interest rates, resulting to higher sales and fewer "payoffs," in which customers sell their vehicles to CarMax but do not purchase a replacement.
The company’s wholesale business, which sells cars that don't meet its retail standards to licensed dealers, posted an increase in sales for the first time in three quarters. The company posted a 17-percent increase in used vehicle sales to retail customers to $2.07 billion in the third fiscal quarter and a 10-percent increase in wholesale sales to $427.7 million.
CarMax logged a 15-percent hike in total sales to $2.60 billion. According to Oppenheimer & Co. analyst Brian Nagel, CarMax’s results represented the beginning of a long-awaited sales recovery for the retailer. The positive third quarter results at CarMax sent its shares to soar almost 9 percent on the New York Stock Exchange, closing at $37.97, which is its highest price since the retailer’s 1997 initial public offering, according to Bloomberg.
Headquartered in Richmond, Virginia, CarMax is considered as the largest used-car retailer in the United States. CarMax started as a concept proposed by a consultant tapped to assess possible business opportunities beyond Circuit City’s scope. It was then developed under the code name "Project X" by Circuit City executives under Richard Sharp. The company was eventually established in 1993 as a subsidiary of Circuit City.
The first CarMax store opened its doors in September 1993, which is less than two miles away from the corporate offices of Circuit City in Richmond, Virginia. In 1996, CarMax acquired its first new car franchise with Chrysler Corp. in 1996. By 1999, its new vehicle franchises already include those for Toyota, Mitsubishi Motors and Nissan.
In February 1997, Circuit City issued the first CarMax stock, when the retailer just had seven locations. Te stock was initially a tracking stock still under the umbrella of the Circuit City. In October 2002, CarMax officially split from Circuit City, when it was spun off as a stock dividend for Circuit City shareholders. In 2010, CarMax was a Fortune 500 company, ranking 323rd.