Used car hawker CarMax (NYSE:KMX) will report its fiscal second-quarter 2008 earnings results Wednesday morning. Want to know what Wall Street expects to see? Want to know what really matters? Read on.

What analysts say:

  • Buy, sell, or waffle? 12 analysts follow CarMax, giving it three buy ratings to nine holds.
  • Revenues. On average, analysts expect to see sales rise 14% to $2.2 billion.
  • Earnings. Profits are predicted to rise 16% to $0.29 per share.

What management says:
The most recent statement out of CarMax came at the Goldman Sachs 14th Annual Global Retailing Conference earlier this month. We covered the news in detail last week, but the dime tour goes like this: Left alone in the used car superstore space since AutoNation (NYSE:AN) exited it, CarMax now has an imitator in the form of Lithia Motors (NYSE:LAD), which has opened a superstore of its own. Meanwhile, CarMax continues to steal market share from its other rivals, such as Penske Auto Group (NYSE:PAG) and America's Car-Mart (NASDAQ:CRMT), and to create its own new markets -- for example, standalone car-buying centers. 

Big picture, the game here is grabbing market share. While analysts look to Ford (NYSE:F) and GM (NYSE:GM) to wring profits out of any costs they can get the UAW to cut for them, CEO Tom Folliard promised to eschew profit margin boosting, and use any costs he can wring from his business to pass on lower prices to customers. Not, perhaps, what investors want to hear, but the strategy is calculated to put further pressure on high-cost competitors and steal their customers. 

What management does:
Knowing that this is the plan gains significance as we turn our attention to CarMax's margin trends. As you can see below, rolling gross margins haven't improved a whit in half a year, and operating and net margins have basically been stuck in neutral for a year. But if that's the plan, then perhaps it's not such a bad thing.

Margin

2/06

5/06

8/06

11/06

2/07

5/07

Gross

14.1%

14.2%

14.4%

14.5%

14.5%

14.5%

Operating

3.5%

3.8%

4.4%

4.6%

4.4%

4.4%

Net

2.1%

2.3%

2.6%

2.8%

2.6%

2.6%

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:
The gents at Motley Fool Inside Value updated us on their thoughts about Inside Value recommendation CarMax. As analyst Michael Olsen put it, the team's bullishness stems from CarMax's information system -- the company's competitive advantage. It allows CarMax quickly to determine demand, recent selling prices, and prospective margins on cars all over the nation. "The obvious and important result is that CarMax sells the right cars -- at the right price -- at any given point in time."

CarMax is up 57% compared to the S&P since we recommended it. Find more updates on the company and a plethora of discounted stocks by taking a free, 30-day test drive with the Inside Value team.

Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy that observes the speed limit.