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CarMax Puts Brakes On Expansion Plans

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The Associated Press

Published: August 7, 2008

RICHMOND, Va. - Used-vehicle retailer CarMax said Wednesday that it is reducing staffing levels and will temporarily slow its store growth after seeing a sharp drop in car and truck sales because of high gas prices.
CarMax originally withdrew its fiscal-year sales and earnings guidance in June after sales dropped beginning Memorial Day weekend. From the Memorial Day weekend through the end of May, CarMax said its same-store sales - or sales at stores open at least a year - fell 5 percent.

Those sales continued to fall in June and July, resulting in an average drop of 17 percent for the two months, the company said Wednesday.

As a result, CarMax said it reduced its used-vehicle inventory by about 9,500 units during those two months and adjusted the vehicle mix to reflect changes in consumer preferences.

As gas prices have climbed, people have been abandoning once-popular trucks and sport utility vehicles in favor of fuel-efficient small cars. That has driven used truck and SUV values lower.

"Falling vehicle prices and the negative equity it is creating continues to pressure sales trends," RBC Capital Markets analyst Scot Ciccarelli wrote in a note to investors. "Unfortunately for CarMax, we don't see any reason for a quick turnaround in those trends."

The company, which has more than 16,000 employees, said it has worked to lower its variable store staffing levels, mainly through scheduling and attrition. It also is re-evaluating open positions and is continuing to focus on controlling overhead expenses.

Layoffs "obviously are our last choice," said spokeswoman Elia Imler.

The company said it expects to open one additional store in the fiscal year that began March 1, bringing it to 10 openings in the current fiscal year. Four originally planned store openings will be pushed back to the following year, when the company plans to open five to 10 stores.

"While this is clearly a difficult environment for us, we remain confident in our superior consumer offer and our long-term growth opportunity," chief executive Tom Folliard said in a news release.

The company said at its annual meeting in June that it planned to open new stores and expand even amid the difficult economic environment. At the time, CarMax said it expected to increase its number of stores to between 200 and 300 within 10 years and expand outside its current markets. The company operates 98 locations.

The company is committed to resuming its long-term plan of growing its store base at annual rate of about 15 percent, Imler said.

In June, the company said its first-quarter profit plummeted 55 percent on tumbling sales and the fastest drop in used-vehicle values in company history. In the three months ended May 31, CarMax profit fell to $29.6 million compared with $65.4 million for the same period the previous year.

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