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CarMax Inc. (NYSE: KMX) rallied to a new 52-week high Tuesday after topping analysts' second-quarter earnings expectations. The used-car retailer reported a quarterly profit of $103 million, or 46 cents per share, while net sales jumped 13% to $2.1 billion. By contrast, analysts were expecting net income of just 18 cents per share on $1.77 billion in revenue.
"The government's CARS, or 'cash for clunkers,' program resulted in a spike in traffic in late July and August," explained CEO Tom Folliard. Same-store used-unit sales for the quarter climbed 8%, bouncing back from a 17% drop in the first quarter.
KMX soared to $21.45 following the stronger-than-expected report, tagging its highest price since May 2008. The stock has racked up a gain of 145% in 2009, and it's perched above solid support at its 10-day and 10-week moving averages. Meanwhile, the $20 level could also become a technical backstop; this round-number region marked the site of KMX's bullish gap higher.
The stock's post-earnings pop could be exacerbated by a short-squeeze situation. Short interest accounts for a noteworthy 12.3% of KMX's float, or 14.3 times its average daily trading volume. If these bears are spooked into hitting the exits by Tuesday's rally, a wave of short-covering support should contribute to additional post-earnings upside.
Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.
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