Used-car dealer CarMax (NYSE:KMX) reported continued earnings growth this morning, with fourth-quarter profits up 32% over Q4 2003. The strong close to fiscal 2004 brings the company to just a 3% decline in profits for the year, with sales rising more than 14%.

And while that's a lovely story, there are actually two stories that are more interesting in the company's fiscal 2004 earnings report. Story one is about growth: The company continues to burn very large piles of cash as it builds out its store count. The second story is one of the used-car market turnaround that wasn't -- or at least hasn't quite taken hold just yet.

In story one, we turn to CarMax's cash flow statement, where we see that free cash flow has again gone missing. The company generated $104 million less cash from operations in 2004 than it did in 2005 yet spent nearly $50 million more on property and equipment, yielding a year-on-year increase in cash outflow of 465%.

Ouch. If you're new to CarMax, that number alone might suffice to scare you off. But to put things in perspective, over the past six years, CarMax has generated positive free cash flow in just two, and burned cash in the four other years. But that does not necessarily mean that business is bad. On the contrary, in four of those years, CarMax generated positive cash from operations. It just spent all the moola on building new stores, including nine new superstores in 2004 alone. Call it a bricks-and-mortar version of the dot-com goal to "get big quick."

Story two from CarMax's report concerns the long-anticipated revival of the used-car market, which should appear some time after the Big Three automakers, and in particular, Ford (NYSE:F) and GM (NYSE:GM), make good on their promises to cut production. Long story short, the revival has been delayed. CarMax's sales growth notwithstanding, the company saw its inventories continue to rise faster than sales: up 24% year-on-year. In fact, the company is so flooded with inventory that its biggest revenue-grower in fiscal 2004 was not in retail sales of new cars (which declined 4%) or of used cars (up 15%) but in offloading its unneeded inventory to wholesalers to deal with. That business segment saw sales skyrocket 34%.

Long-term, I've got a hunch that CarMax is going to be a real winner. But for the time being, with construction of new stores siphoning off its cash and the used-car market stubbornly refusing to turn around, you can't really blame Mr. Market for selling the company off by 5% this morning.

While we're waiting for the used-car market to turn, why not spend the time reading up on the company?

Fool contributor Rich Smith has no position, short or long, in any of the companies mentioned in this article.