Used car retailer CarMax has again raised fourth quarter expectations citing a seasonal sub-prime sales increase.
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For the fourth quarter ending February 28, the dealer group has raised comparable store used unit sales expectations to growth of 11% or 12%, and raised earnings per share expectations to 26 cents or 27 cents.
On February 3, 2005, CarMax raised fourth quarter expectations of comparable store used unit sales growth to a range of 7% to 9%, from earlier expectations in a range of 2% to 7%, and earnings per share to a range of 23 cents to 25 cents, from earlier expectations in a range of 19 cents to 23 cents.
“At the end of January, we began to experience a dramatic increase in sales financed by our sub-prime lender Drive,” said Austin Ligon, CarMax chief executive officer.
“Based on industry patterns, we understand that sub-prime transactions can see a two-to-threefold increase during tax refund season, and we have seen such an increase since the end of last month.
“We now believe that Drive-financed sales will contribute approximately [5%] incrementally to our fourth quarter used unit comp sales. We had been reluctant to forecast such an increase in our sub-prime business based solely on the few superstores that were testing Drive in last year’s fourth quarter.”
CarMax rolled out sub-prime lending to all its superstores in August 2004.
“Industry patterns suggest that we should expect the seasonally stronger sub-prime traffic to continue in March, and then moderate somewhat in April before returning in May to levels in line with those we had been seeing before tax refund season,” added Ligon.
“Of course, because such a spike in sub-prime sales occurs seasonally, it will not add incrementally to future years’ sales and will simply be built into our annual sales performance.”
CarMax has said previously that Drive-financed sales have generally comprised approximately 3% of used unit sales.
The retailer will announce fourth quarter and fiscal full year comparable store earnings on March 30.
