CarMax (KMX 58.30, +1.64) has climbed 2.9% in pre-market after beating fourth quarter expectations.
The used car dealer reported above-consensus fourth quarter earnings of $0.81 per share on a 9.3% year-over-year increase in revenue to $4.05 billion, which also exceeded expectations.
Used unit sales in comparable stores grew 8.7% year-over-year, ahead of the full-year growth rate of 4.3%. Total used unit sales increased 13.4% year-over-year during the fourth quarter, which was also better than the full-year growth rate (8.3%). Total wholesale unit sales fell 1.2% year-over-year, which was worse than the full-year rate of contraction (-0.7%).
The increase in total unit sales and comparable store sales was driven by an increase in conversion and an uptick in store traffic. The Tier 3 sales mix declined to 9.4% of total sales from 14.5% one year ago. Tier 3 is comprised of sales that are financed by third-party providers who receive a fee from CarMax. Tighter credit standards and a reduction in credit applications from customers at the low end of the credit spectrum contributed to the decline.
CarMax Auto Finance income declined 10.2% year-over-year to $82.90 million. Recently, there have been growing worries that a glut of vehicles coming off-lease in unison would put pressure on prices of used vehicles and the overall auto market. CarMax is preparing for headwinds on that front, considering the company ended the year with a $123.60 million allowance for loan losses, up 30.2% from $94.90 million one year ago.
Other sales and revenues grew 19.2% year-over-year to $133.80 million, due to improvements in extended protection plan revenue and net third-party finance fees.
The company opened four stores during the quarter, bringing its total store count to 173. Two new stores were opened in March with one more opening planned for the first quarter of fiscal 2018.
Shares of CarMax have faced selling pressure since notching a 19-month high in February. Including today's pre-market advance, the stock is down 9.5% so far in 2017.