Sept. 19 (Bloomberg) -- CarMax Inc., the biggest used-car dealer in the U.S., fell the most in almost four years in New York trading after reducing its full-year profit forecast because of slowing sales and higher credit costs.

Annual earnings will be 92 cents to 98 cents a share, CarMax said, a cut of as much as 14 percent from a forecast made in June. Analysts had estimated earnings of $1.07 a share.

CarMax's sales are suffering as U.S. consumers cut back on spending amid slowing economic growth and the worst U.S. housing slump in 16 years, which is making it harder for buyers to take out home-equity loans. Higher interest rates are also making it more expensive for CarMax to finance its operations.

``CarMax is a retailer at the end of the day, and a wide variety of retailers have had disappointing results this year,'' Sharon Zackfia, analyst at William Blair & Co. in Chicago, said today in an interview. She rates the stock ``outperform'' and her company owns shares in CarMax.

The auto dealer dropped $3.77, or 15 percent, to $21.29 at 4:04 p.m. in New York Stock Exchange composite trading, the biggest decline since Oct. 15 2003. Before today, the stock had fallen 6.5 percent this year.

CarMax also reported a 20 percent increase in second- quarter profit today. It earned $65 million or 29 cents a share in the three months through Aug. 31, compared with $54.3 million, or 25 cents, a year earlier.

The retailer gets about 80 percent of its revenue from used cars. Sales at dealerships open at least a year rose 3 percent last quarter, compared with 7 percent growth a year earlier.

Used-Vehicle Sales

For the year, Richmond, Virginia-based CarMax expects used- vehicle sales will increase 1 percent to 3 percent on a comparable store basis, down from 9 percent last year.

Higher interest rates will reduce third-quarter profit by $4 million, CarMax said.

Stagnant home prices and a slowdown in sales have made it more difficult for borrowers to tap their home equity for loans to purchase cars. The number of Americans who may lose their homes to foreclosure more than doubled last month from a year earlier, RealtyTrac Inc. said yesterday.

To contact the reporter on this story: Gopal Ratnam in Washington at gratnam1@bloomberg.net

Last Updated: September 19, 2007 16:14 EDT