Please see my original post on KMX from earlier this month…

Carmax reported yesterday morning and met most analysts expectations. Sales were $2.15b up 14% and comparable stores sold 6% more units than last year. Total unit sales were up 15% representing new store volumes as well. Net Income was up 15% but EPS was not up nearly as much (30cents versus 27) due to dilution from options exercised.

In regard to financing, the company said they continue to see stable credit availability both through CAF (Carmax Auto Finance) as well as through third party lenders. However, it was a bit alarming for me to hear that CAF delinquencies were higher but the company does not expect this to translate to higher losses. This way the company doesn’t have to book any additional expense in “provisions for loan losses” which makes their numbers look a little better. Banks have been known to play with this particular accounting measure to make earnings look better.

New stores are on schedule with the company opening 3 new locations this quarter as well as an additional pure car buying store (for customers to bring in cars they want to sell). The company affirmed their goal to open 13 stores this year and it looks like the majority of these stores will be opened in the second half (November and February quarters)

Surprisingly, the stock is up today on the announcement. I’m never one to argue that the market is wrong so I had discipline and covered a part of my short position to manage risk. CSFB had an interesting report that contends the stock is experiencing a relief rally that includes a good bit of short covering (yes that would be me). They are still uncomfortable with the stock as it may not fully discount the danger of a potentially weakening consumer, and the effects of a more difficult financing environment. I continue to be short a smaller position but will not stick around if the stock continues to show strength.

updated KMX notes

FD: Author has short position in KMX