CarMax Q2 results above expectations; shares up

BANGALORE (Reuters) - CarMax Inc (KMX.N), the largest U.S. retailer of used cars, posted better-than-expected quarterly results, as customer traffic trends improved with the help of the cash-for-clunkers program and its finance unit recorded a one-time gain.

Shares of the company were up as much as 11 percent, making them one of the top percentage gainers Tuesday on the New York Stock Exchange.

CarMax, which saw traffic spike in late July and August, is an indirect beneficiary of the clunkers program that the government introduced earlier this year to boost new car sales.

The $3 billion program offered payments of up to $4,500 to people who traded in old gas guzzlers for fuel-efficient vehicles, helping companies reduce a glut of unsold cars and trucks.

"Though used cars were not included in the program, it seemed like they (CarMax) benefited from a situation where people went to new car dealers and found out they didn't qualify for the government program," said BGB Securities analyst Sam Yake.

"So they probably went to CarMax and maybe looked at used cars," Yake, who has a "buy" rating on the stock, said.

Oppenheimer & Co analyst Brian Nagel said CarMax was a major indirect beneficiary of cash for clunkers.

"We are concerned with the sustainability of recent sales trends at the chain now that these efforts have ended," Nagel wrote in a note.

The company noted that the traffic improvement was partially due to this program.

"Traffic had trended higher since late last winter," Chief Executive Tom Folliard said on a conference call with analysts.

Comparable store used-unit sales rose 8 percent during the quarter, a sequential improvement from the first-quarter decline of 17 percent.

However, CarMax said it was still sticking to its temporary suspension on new store openings.

"The light at the end of the tunnel is still dim," Folliard said.

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CarMax Auto Finance posted income of $72.1 million compared with a loss of $7.1 million, helped by certain adjustments that increased income by $36.2 million.

CAF's gain on loans originated and sold was 4.2 percent, versus 1.8 percent in the prior year quarter.

For the second quarter ended August 31, CarMax's net income rose more than seven-fold to $103.0 million, or 46 cents a share. Sales rose 13 percent to $2.08 billion.

Analysts were expecting earnings of 18 cents a share, before special items, on revenue of $1.77 billion, according to Reuters Estimates.

CarMax, which operates 100 used-car superstores in the United States, said total used-unit sales rose 10 percent in the second quarter. Wholesale unit sales increased 5 percent.

"CarMax benefited from appreciation in wholesale used car values and a better sales environment," analyst Nagel said.

Shares of the Richmond, Virginia-based company were up $1.78 at $21.11. They touched a high of $21.44 earlier in the day.

(Editing by Vinu Pilakkott and Maju Samuel)