CarMax Falls Most in S&P 500 on Increasing Expenses, Swelling of Inventory

CarMax Inc., the largest U.S. seller of used cars, declined the most in the Standard & Poor’s 500 Index after expenses and inventories climbed.

CarMax fell $2.73, or 7.6 percent, to $33.17 at 4 p.m. in New York Stock Exchange composite trading. The shares, which fell earlier as much as 10.3 percent, declined the most since June 2009.

Selling, general and administrative expenses increased 14 percent from a year earlier to $219.7 million, CarMax said today in a statement. The Richmond, Virginia-based company also ended the quarter with “significantly higher” inventory, Chief Financial Officer Thomas Reedy said on a conference call.

“SG&A should’ve been lower than where it came in, probably by about $5 million or so,” said Matt Nemer, a San Francisco- based analyst at Wells Fargo Securities, who rates the shares “overweight” and doesn’t own them. “People are concerned that SG&A is going to start to be a headwind.”

Chief Executive Officer Tom Folliard has announced plans to open three stores this fiscal year and five more in fiscal 2012.

“Investors are fearful that next year, growth in expenses could get somewhat out of control,” said John Tomlinson, an analyst at ITG Investment Research in New York, which doesn’t give ratings on companies it covers.

Photographer: Chris Rank/ Bloomberg

Vehicles sit outside a CarMax dealership in Norcross, Georgia. Close

Vehicles sit outside a CarMax dealership in Norcross, Georgia.

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Photographer: Chris Rank/ Bloomberg

Vehicles sit outside a CarMax dealership in Norcross, Georgia.

CarMax’s inventory, which rose 34 percent from a year earlier to more than 1 million units, also probably “spooked people,” Tomlinson said. “There could be margin pressure in coming quarters if sales are slow.”

Net income for the quarter rose to $82.4 million, or 36 cents a share, from $74.6 million, or 33 cents, a year earlier, CarMax said. The average estimate of 15 analysts surveyed by Bloomberg was for a profit of 34 cents. Sales rose 23 percent to $2.12 billion.

CarMax shares rose 48 percent this year through yesterday as used vehicle prices have rebounded to the highest in 15 years, according to Manheim Consulting. The group’s Used Vehicle Value Index climbed to 124.3 for November, the highest since the index began in 1995.

To contact the reporter on this story: Craig Trudell in Southfield at +1-248-827-7130 or ctrudell1@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at +1-248-827-2944 or jbutters@bloomberg.net.

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