The year 2008 (fiscal, that is) was not kind to CarMax (NYSE:KMX). In the first half, this historic outperformer struggled to meet Wall Street's expectations. In the second half, it fell decidedly short -- 0 for 2. As we head into tomorrow's quarterly report (the first of a new fiscal year), let's hope CarMax's 2009 model year packs a bit more horsepower.

What analysts say:

  • Buy, sell, or waffle? A dozen analysts follow CarMax. Only two of them agree with Warren Buffett (and Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B), and me, and Motley Fool Inside Value) that the stock is worth owning. Nine more are idling in neutral, and one wants to trade CarMax in.
  • Revenue. On average, analysts expect to see sales rise 6% to $2.27 billion.
  • Earnings. Profits, in contrast, seem fated to fall 27% to $0.22 per share.

What management says:
Investors weren't at all upset with CarMax's tailspin results from last quarter. Perhaps that's because CEO Tom Folliard paired weak Q4 earnings with reassuring words as to how sales were "stronger than we anticipated," and how consumer traffic was "healthy." Or it could have been the stronger-than-expected sales that did the trick, or the fact that CarMax continues to steal market share from rivals such as AutoNation (NYSE:AN), Penske Automotive (NYSE:PAG), and Lithia Motors (NYSE:LAD).

What management does:
It certainly wasn't the profit margins that had investors enthused. While management has made it crystal clear that it's ready, willing, and able to sacrifice profit margins in an effort to grab market share (and although this plan does indeed appear to be working), the damage that this strategy wreaks on the income statement is none too pretty to look at:

Margins

11/06

2/07

5/07

8/07

11/07

2/08

Gross

14.5%

14.5%

14.5%

14.6%

14.4%

14.0%

Operating

4.3%

4.4%

4.4%

4.5%

4.2%

3.6%

Net

2.6%

2.6%

2.6%

2.7%

2.5%

2.2%

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:
One bit of news that may have been overlooked is the fact that CarMax managed to securitize much of its loan portfolio last month. Don't be scared by the big word, though. Basically, what this means is that CarMax had a lot of car loans on its books, which it had had difficulty passing on in recent quarters. In May, after Moody's (NYSE:MCO) and S&P signed off on the quality of the loans, the company managed to sell a bunch of its highest-quality debt, raising nearly $720 million in the process.

But is that good news or bad news? And least one noted value investor thinks the former. Read our Inside Value team's report by taking a free trial of the newsletter to find out all the details.

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