The expression "blown out of the water" has been so overused that I hesitate to employ it now -- but it's true. In each of the last three quarters, CarMax (NYSE:KMX) has utterly annihilated analysts' predictions for its success. On Thursday, the used-car superseller tries to make it one full year of trumping Wall Street's expectations, as it reports its fourth-quarter and full-year 2006 results.

What analysts say:

  • Buy, sell, or waffle? Twelve analysts follow CarMax, which gets two buy ratings and 10 holds.
  • Revenues. On average, analysts expect CarMax to report $1.9 billion in quarterly sales, up 17% from last year.
  • Earnings. EPS are predicted to rise 10.5% to $0.42 per share.

What management says:
What's the big news at CarMax this quarter, from a management-thinks-shareholders-are-easily distracted-with-bright-shiny-objects perspective? As you read this, CarMax's shares are undergoing corporate mitosis: splitting in two. I mention this only because from time to time (as I discovered while penning a Foolish Forecast for GameStop (NYSE:GME) last week), these non-events throw off the earnings-per-share estimates shown by financial data providers such as Yahoo! Finance. If you woke up this morning to find the price of your shares cut in half, or read on Thursday that CarMax's earnings per share declined rather than rose, this is the likely culprit.

From a Foolish perspective, of course, share splits are distractions. They affect the value of the business not one whit, and simply divide the corporate pie into apparently more appealing, bite-sized slices. More interestingly to serious investors, I suspect, was the news that effective Jan. 30, CarMax terminated its consulting agreement with former CEO Austin Ligon.

What management does:
Management says Ligon's services have not in fact been required, and judging from CarMax's recent performance, I'd have to say I agree. "New" CEO Thomas Folliard seems to be handling things quite nicely all on his own, with sales and gross, operating, and net margins all shaping up smartly.

Margins

8/05

11/05

2/06

5/06

8/06

11/06

Gross

13.8%

14%

14.1%

14.2%

14.4%

14.5%

Operating

3.6%

3.7%

3.8%

4.2%

4.5%

4.8%

Net

2.1%

2.1%

2.3%

2.5%

2.6%

2.8%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Did I say "smartly?" Perhaps that's a tad understated. Inside Value lead analyst Philip Durell goes a bit further, calling CarMax's results "awe-inspiring and way beyond my initial expectations" after the stock price rose more than 101% since his recommendation last year. Philip attributes this success to "the operating leverage inherent in the company's structure."

Although Philip acknowledges the temptation to sell out of a stock that's nearly doubled in just 14 months, for those willing to exercise a bit of patience, he remains confident in the firm's future, arguing that "continued store expansion (on a national scale), associated synergies across SG&A expenditures, and broader brand recognition will lead to continued outperformance." (To learn what price Philip thinks is nice for adding new shares, click here and try out Inside Value for yourself for 30 days, free of charge.)

For a different point of view, though, consider reading my own thoughts on why CarMax's numbers turned out so fantabulously last quarter. Emerging from the back-loaded winter we all just endured, I think you'll agree that the conditions for a repeat (at least of last quarter's magnitude) aren't quite as propitious this time around.

What did we expect from CarMax last year, and what did we see when we popped the hood? Find out in:

CarMax is an Inside Value recommendation, and GameStop and Yahoo! are Stock Advisor selections.

Fool contributor Rich Smith has no interest, short or long, in any company named above. Check out the Fool's Rules here.