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NEW YORK, Oct 15 (Reuters) - Auto retailer CarMax Inc. on Wednesday cut its quarterly earnings forecast as its used cars business was pressured by heavy year-end discounts on new vehicles.
The warning sent CarMax's stock plummeting as much as 19 percent, making it the biggest percentage loser on the New York Stock Exchange, and pulled down shares in other auto dealers.
Third-quarter earnings will range from 16 cents to 18 cents per share, the company said. Its earlier forecast was 19 cents to 21 cents, with Wall Street expectations at the higher end of that range, according to Reuters Research, a unit of Reuters Group Plc.
CarMax, which said sales were hurt by Hurricane Isabel, now expects comparable-store used unit sales to range from unchanged to up 2 percent, compared with a previous estimate of up 4 percent to 6 percent for the fiscal third quarter.
The company, which also sells new cars, previously said Isabel, which last month struck parts of the U.S. East Coast where Carmax's operations are heavily concentrated, had disrupted sales.
While sales recovered later in the month and firmed even more in October, they have remained consistently below the company's expectations, it said.
"We believe the major reason for this trend has been that wholesale used car prices have remained flatter than we normally expect to see through mid-October," CarMax President and Chief Executive Austin Ligon said in a statement. "Consequently, we believe retail used car prices are likely less competitive with new car close-out models than usual."
Consumer incentives on new 2003 cars and trucks are at or near all-time highs as automakers close out the model year and roll out 2004 offerings.
But John Devine, chief financial officer of General Motors Corp. , said Wednesday that average retail incentives had actually decreased slightly in the third quarter from profit-eroding highs reached earlier.
Shares of Richmond, Virginia-based CarMax were down $6.18 at $33.07 in afternoon trade, after falling as low as $31.75. The stock was one of the most actively traded on the NYSE.
UnitedAuto Group Inc. was down $1.78, or more than 6 percent, at $26.57, and AutoNation Inc. , the largest U.S. dealer group, fell 58 cents, or more than 3 percent, to $18.29.
UnitedAuto Group issued a statement after the CarMax announcement, saying its third-quarter earnings would be in line with analysts' previous estimates.