Austin Ligon, Co-Founder and Former CEO of CarMax, Inc., addresses delegates during the second session of the Democratic National Convention in Charlotte, North Carolina (Photo : Reuters)
CarMax shares fell 8 percent to $29.43 in the morning trade on the New York Stock Exchange today.
CarMax is known as the largest used car retailer in the United States and sells cars to retail and wholesale customers. The company greatly benefited the past five years from consumers who chose to purchase used cars during the recession instead of buying new cars.
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While this strategy worked in 2008, due to people not buying new cars there have been less used cars available on the market for the company to sell. Analysts predicted the company would earn 52 cents per share for the second quarter, but earned 48 cents per share. This is the same number CarMax earned in the second quarter of the last fiscal year.
"Their bread and butter is 0-to-4 year old cars and there's fewer of them" out there, Stephens Inc analyst Rick Nelson told Reuters.
While the company was hoping to get back on track this quarter after a disappointing first quarter, this has to be considered a significant setback for the company. Net income rose 3.7% in the second quarter of the last fiscal year, and continued to rise throughout the year. CarMax saw a bump of 0.5% in the third quarter of last year and 3.7 percent in the fourth quarter. Then things started to decline.
The company has purchased cars from 28 percent of prospective sellers in the quarter ending on August 31, which is down from the buy rate number of 30 percent a year earlier. CarMax began as a unit of the now-bankrupt Circuit City Stores.
This news of the stock fall comes shortly after the company announced that they plan to open five more stores this year.
Rival America's Car-Mart also declined 1.5 percent and Penske Automotive Group fell to 0.5 percent.