As CarMax enters the second year of its national rollout, new cars will play an increasingly significant role in the company's expansion.
When CarMax opens used-car superstores, the company will add new-car franchises wherever possible, said Val Brown, CarMax spokesman. And wherever possible, new stores will include space that can be used for new cars.
That is a more aggressive strategy than the company had disclosed previously. In November 1996, CarMax said it was looking for about 25 underperforming new-car dealerships that it can incorporate into its used-car superstores during the next few years.
Analysts say new cars could help CarMax reach profitability more quickly as the company expands. CarMax is a unit of home electronics retailing giant Circuit City Stores Inc.
Last week, the CarMax Group posted a first-quarter loss of $1.2 million, or one cent per share, slightly better than some Wall Street analysts had expected.
8TH STORE OPENS IN GEORGIA
In other developments, CarMax opened its eighth superstore last week. The store, in Southlake, Ga., is the third CarMax has opened in the Atlanta metropolitan area. In addition to late-model used cars, the new store also will sell new Chrysler, Plymouth, Jeep and Eagle products. CarMax acquired Bob Maddox Chrysler-Plymouth-Jeep-Eagle in April, closed the dealership, and moved it into the Southlake location. CarMax also sells new Chrysler, Plymouth, Jeep and Eagle products at its store in Norcross, Ga., on the northeast side of Atlanta.
Analysts said CarMax losses, reported to shareholders last week at the Circuit City annual meeting in Richmond, Va., were about on target or slightly less than they expected.
In an investment research report published this month, Mark Mandel, senior vice president for ABN AMRO Chicago Corp., predicted CarMax would lose $11.1 million this year, but show a profit of $4.7 million in 1998 and $35 million in 1999.
Gross profit margin was 9.4 percent of sales, compared with 9.7 percent during the same period last year, according to Richard Sharp, Circuit City CEO.
CarMax will open another nine stores before the end of this year, Sharp said. Two of those have new-car franchises, both Chrysler-Plymouth- Jeep-Eagle. CarMax is also looking to acquire franchises for other brands.
CarMax had earlier reported sales rose 42 percent for the quarter, to $177.6 million, and sales rose 14 percent on a store-by-store basis.
Ursula Moran, a research analyst for Sanford C. Bernstein & Co. in New York, said Circuit City officials admitted to analysts in a conference call last week the performance of the two Florida CarMax stores had not lived up to predictions.
Moran said CarMax officials were still gauging selling patterns in Florida to determine the appropriate sizes and locations for future stores. Because CarMax has three different store prototypes, the company can react to different market conditions, she said. The three prototypes call for inventories of 600, 800 and or 1,000 used cars. Display space for new cars would be in addition to those numbers, Brown said.
CarMax is 'very good' at executing its retail strategy in its stores, and will learn from its mistakes, she predicted.
Meanwhile, the Richmond Times-Dispatch reported Circuit City may be about to jump into another industry.
The paper reported Circuit City may be considering entering the furniture retailing business.