(Reuters) - CarMax Inc (KMX.N), the largest U.S. used-car retailer, reported a stronger-than-expected third-quarter profit as a rise in supply, more attractive financing options and improved customer sentiment helped it sell more vehicles to retail clients.
CarMax's shares were up 8 percent in morning trading on the New York Stock Exchange. The stock has gained more than 40 percent since touching a year-low in June.
Used-car supplies have improved after a shortage over the previous few quarters as customers ditch their old cars in favor of more recent used models and new ones, the company said.
"We believe consumer sentiment has improved somewhat, which may be resulting in more engaged customers in our stores," Chief Executive Thomas Folliard said on a conference call.
Chief Financial Officer Thomas Reedy said customers have also become more responsive to low interest rates, leading to increased sales as well as fewer "payoffs", in which customers sell their car to CarMax but don't buy a replacement.
Sales in the company's wholesale business rose for the first time in three quarters. The business sells cars that don't meet its retail standards to licensed dealers.
Used vehicle sales to retail customers rose 17 percent to $2.07 billion in the quarter, while wholesale sales rose 10 percent to $427.7 million. Total sales rose 15 percent to $2.60 billion.
Net income rose to $94.7 million, or 41 cents per share, in the third quarter from $82.1 million, or 36 cents per share, a year earlier.
Oppenheimer & Co analyst Brian Nagel said he believed the results represented the start of a long-awaited sales recovery for the company.
Analysts on average expected earnings of 39 cents per share, excluding items, on revenue of $2.47 billion, according to Thomson Reuters I/B/E/S.