CarMax, Inc (KMX): Is This Car Dealer Offering a Good Deal?

It seems to be a party time for the American auto industry. Many people who couldn’t afford to buy a car immediately after the severe 2008 recession are finally replacing their cars with new cars. And buyers who couldn’t finance a new car are fulfilling their requirements with less expensive used models.

As a result of this, sales of both new and used cars have increased remarkably over the past few months. Almost all of the companies across the industry topped expectations in the present quarter. One such company is the used car-dealership chain CarMax, Inc (NYSE:KMX). It reported first-quarter earnings beating Street estimates.

Quick look at the quarter

CarMax, Inc (NYSE:KMX), which runs more than 120 stores in 61 markets mainly selling used cars and trucks, reported a 23.1% surge in its fiscal 2014 first-quarter earnings. Earnings rose to $146.7 million, or $0.64 per share, from $120.7 million, or $0.52 per share a year ago. Its revenue rose 19.3% to $3.3 billion.

What went right?

The rising numbers were backed by the higher sales of used cars. CarMax, Inc (NYSE:KMX) reported that 81.6% of its sales this quarter were in used cars, where used-vehicle sales increased 23.4% to $2.7 billion in the quarter over the same period last year. The higher used-car revenue was driven by both higher unit sales, which increased 22.1% to 137,154 vehicles, and higher average selling prices, which increased 1.3% to $19,540. Sales at stores open at least one year rose 17%, which is a remarkable achievement as performance was flat last year.

Apart from the current used car sales boom in the auto industry, a better consumer-credit environment also helped CarMax, Inc (NYSE:KMX) reach those rising numbers. About 9% of its customers received financing offer from one of its lenders. Income from CarMax’s auto-financing arm rose nearly 16% to $87 million in the quarter.

As I have mentioned before, it’s not just CarMax, Inc (NYSE:KMX) that has performed such brilliantly in the current quarter. Many companies across the industry have performed equally as well over the past few months.

Penske Automotive Group, Inc. (NYSE:PAG), an international automotive retailer, reported the highest income and earnings per share in company history in its last quarter. The company’s total retail unit sales increased 9.9% to 85,821. Performance was driven by an increase of nearly 10% in new-unit retail sales and more than a 10.2% rise in used-unit retail sales. Its total revenue increased 7.7% to $3.4 billion.

The company also has plans to increase its geographical presence in the market. Penske Automotive Group, Inc. (NYSE:PAG) has recently entered North Ireland and Italian markets. Penske’s international expansion can help the company to drive some outstanding results in the coming quarters. Even analysts expect this company to grow at an annual rate of 17% to 18% over the next five years.