As of this writing, used-car superstore CarMax (NYSE: KMX) has gone three straight quarters without beating earnings estimates once. Unlike its downmarket brother, America's Car-Mart (Nasdaq: CRMT), which has beaten estimates in each of the past two quarters, CarMax missed last quarter. Can the company pull out of its tailspin in the final lap? We'll soon find out, when CarMax reports its fiscal-fourth-quarter 2008 earnings tomorrow morning.

What analysts say:

  • Buy, sell, or waffle? One more analyst has abandoned CarMax since last quarter, but the stock is still clown-car-stuffed with 13 analysts. Only three of them agree with Warren Buffett and Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B), me, and Motley Fool Inside Value that the stock's worth owning. Nine more say you can hold it, and one would rather sell.
  • Revenues. On average, analysts expect to see quarterly sales rise 7.1% to $2.02 billion.
  • Earnings. Profits, in contrast, are predicted to fall 11% to $0.17 per share.

What management says:
Things were not looking good for CarMax when last we checked. Although sales rose from new stores continuing to open, same-store sales at the old stores were flat. Higher financing costs hit earnings hard -- down 34% in the third quarter. Looking forward, management promised somewhat better news by year's end. Same-store-sales growth should remain positive at around 2% for the year, and management hopes to earn between $0.87 and $0.93 for the year.  

What management does:
Given what we've seen so far this year, you'll find few surprises. Rolling gross margins turned down again in Q3; so did operating and net margins. On the plus side, things are even worse on neighboring used-car lots -- each of AutoNation (NYSE: AN), Penske Automotive (NYSE: PAG), and Lithia Motors (NYSE: LAD) earns worse operating margins than does CarMax.

Margins

5/06

8/06

11/06

2/07

5/07

8/07

Gross

14.4%

14.5%

14.5%

14.5%

14.6%

14.4%

Operating

4%

4.3%

4.4%

4.4%

4.5%

4.2%

Net

2.4%

2.6%

2.6%

2.6%

2.7%

2.5%

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:
Now, I mentioned a few paragraphs above that the folks at Motley Fool Inside Value like CarMax -- and why shouldn't they? The stock has outperformed the market by 35% since they recommended it two years ago. But the real question is, now that the stock is up so much, and troubled times seem in store for it, do our deep value seekers still think you should own it?

Turns out, they do. In an update on the company that tailgated last quarter's earnings release, Inside Value staffer Michael Olsen reassured investors: "[O]ur long-term outlook on CarMax shares remains unchanged. We believe the company still possesses enormous untapped expansion potential, superior information advantages, and significant potential to expand margins as its store base matures."

To which I'd add that the stock doesn't look quite as cheap today as it was back then. But it's still within spitting distance -- 21 times trailing earnings, versus long-term earnings growth that even the pessimistic analysts I mentioned above believe will reach 18% per year. I'd like to see the shares fall a bit more before increasing my own stake in CarMax. If things keep going the way it appears they will, I -- and you -- just might get that chance this week.

What did we expect out of CarMax when last we checked under the hood? Find out in:

Fool contributor Rich Smith owns shares of CarMax. He can't take advantage of any price drop on Wednesday, since he has to wait 10 days after this column posts before trading in any of the securities discussed -- and then 10 more days after he writes about the earnings news later this week. ( Sigh.) Berkshire Hathaway B shares have been recommended by Stock Advisor and Inside Value, and the Fool owns shares, too. The Motley Fool's disclosure policy requires Rich to tell you all of this.