When a company preannounces sales and earnings a few times and the story keeps getting more clouded, it's time to duck and cover. CarMax (NYSE:KMX), which gave more warnings than meteorologists watching the path of recent hurricanes, is fighting through a difficult internal and external operating period.
The company's used car sales, which make up about 75% of its total net sales, "continued to experience widespread volatility and softness" in the second quarter. CarMax also blamed economic factors such as higher gas prices and the severe weather in Florida and the Southeast as negative drivers. The company also cited the widespread incentive offerings by new car manufacturers as hurting new car sales, which represent about 10% of net sales.
The news doesn't get much better for the third quarter; CarMax expects comparable-stores sales to decline in the range of 2% to 8% and sees earnings of $0.12 to $0.17 per share (below previous analysts' consensus estimate of $0.18 per share). This period is, according to CarMax, "both our lowest volume period seasonally and our most difficult quarter to predict." Stay tuned for continued sales volatility and a challenging second half of the year as CarMax appears to be caught in the equivalent of rush-hour traffic.
It has been quite a struggle in the specialty retail car market recently, with companies such as CarMax, AutoNation (NYSE:AH), and Sonic Automotive (NYSE:SAH) producing less than stellar results. The lone, shining star had been America's Car-Mart (NASDAQ:CRMT), which operates outside of the regions affected by recent hurricanes. With interest rates expected to start inching up, the industry seems to be driving in the wrong direction.
The company's shares, which are trading at 18 times next year's earnings forecast of $1.17 per share, appear to be fairly valued relative to its similar expected growth rate. However, if recent patterns are any indication, CarMax's earnings forecasts might be as solid as an ice cube in a heat wave.
Put on your seat belt, start the ignition, and drive over to these other takes:
Fool contributor Phil Wohl spent more than 12 years on Wall Street and has no stake in any firm mentioned above.
