Circuit City Stores Inc. has given its CarMax Group subsidiary some breathing room by lowering its expectations for the new fiscal year.
In a March 4 statement, Circuit City Chairman Richard Sharp said he expected CarMax, a chain of 29 used- and two new-car dealerships, to 'produce only a modest loss or reach break-even in the new fiscal year.'
Some who are following Circuit City's CarMax project believe Sharp's conservative forecast, combined with CarMax's postponement of its entry into the Los Angeles market, takes pressure off of CarMax and gives it a chance to regroup.
'(Sharp is) putting the worst foot forward to get some positive surprises,' said George Hoffer, an economics professor at Virginia Commonwealth University in Richmond, Va.
That represents a big change over last year when CarMax President Austin Ligon predicted CarMax would turn a profit for the 1999 fiscal year that ended Feb. 28. Instead, CarMax lost money again.
Circuit City, based in Richmond, Va., expects CarMax to post a net loss of 25 to 26 cents a share for the 1999 fiscal year.
Kenneth Gassman, a retail analyst with Davenport & Co. in Richmond, sees CarMax as a typical Circuit City project. Circuit City tends to experiment in new retail markets by slowly building an infrastructure.
Gassman is encouraged that Circuit City has stuck with CarMax. 'If it's going to fail, they usually get out quickly,' he said. 'I'd be delighted to see them break even' this year, Gassman added.
Val Brown, spokesman for CarMax, said CarMax's ongoing strategy is to examine where it is and to 'adjust in the interest of succeeding.'
The company's biggest adjustments so far have been the addition of new-car franchises to its used-car superstores and the scaling down of future superstores. Last month, CarMax also said it would postpone its entry into the Los Angeles market until next year. It originally planned to open at least six stores there in 1999.
CarMax and Circuit City officials would not say whether Sharp's statement takes pressure off CarMax.
Said Ann Collier, spokeswoman for Circuit City: 'We're going to focus on improving profitability in the existing markets, and that's one of the reasons for delaying expansion in L.A.'
Although CarMax's sales for fiscal 1999 rose 68 percent from the year before to $1.47 billion, same-store sales - sales from its stores that were open in both fiscal 1999 and 1998 - dropped 2 percent.