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 Shares of the company, which also increased its share buyback
program by $1 billion, fell as much as 5 percent on Friday.
CarMax, which gets about a fifth of its business from customers with
weak credit profiles, said sales financed by third-party subprime
providers remained flat at 17 percent of used vehicle sales in the
fourth quarter.
The first three quarters saw increases of 5 percent, 3 percent and 3
percent, driven by a revival in lending to subprime borrowers last
year.
The increase in lending, which had dried up in the aftermath of the
credit crisis in 2008, drove auto sales and much of car dealerships'
profit in 2013.
"We are unlikely to see significant further improvements in credit
availability and that really showed up in their results today,"
Wedbush Securities analyst Seth Basham said.
CarMax had indicated in December that it would start lending to
subprime borrowers — those with weak credit profiles — in an effort
to reduce its reliance on third-party car-loan providers that were
beginning to tighten their lending norms.
The company said it had originated $9.1 million of the planned $70
million it had set aside to offer financing to customers with weak
credit profiles.
CarMax's shares have fallen about 10 percent since its December
announcement, with investors wary of the company's decision to take
on increased risk by lending to subprime borrowers.
"We believe that the credit-fueled growth that the company has
experienced over the last few quarters has now slowed," RBC Capital
Markets analyst Scot Ciccarelli said in a note to clients.
Used-unit comparable growth, which is determined by traffic at its
stores and buying conversion levels, rose 7 percent in the fourth
quarter ended February 28, down from an increase of 10 percent in
the third quarter.
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CarMax, which also sells new cars, said used car sales rose 12
percent to 132,856 in the fourth quarter. New car sales also rose 7
percent to 1,807 units.
The company's net income fell to $99.2 million, or 44 cents per
share, in the quarter, from $107.2 million, or 46 cents per share, a
year earlier. Its profit included 8 cents per share related to an
accounting correction driven by an increase in its cancellation
reserves.
Revenue rose 9 percent to $3.08 billion in the quarter.
Analysts on average expected a profit of 53 cents per share on
revenue of $3.18 billion, according to Thomson Reuters I/B/E/S.
The company's shares were trading down 4 percent at $45.52 on the
New York Stock Exchange.
(Additional reporting by Abinaya Vijayaraghavan in Bangalore;
editing by Saumyadeb Chakrabarty and Simon Jennings)
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