Sep. 23--A stagnating economy kept customers away from CarMax Inc.'s dealerships across the country this summer, the Goochland County-based automobile dealer reported yesterday.

During the three months ending Aug. 31, the used-car company saw a 17 percent dip in traffic, compared with last year, according to its second-quarter earnings report.

Fewer people coming in the door, combined with declining sales and continued problems at CarMax Auto Finance, dragged earnings for the quarter down 78 percent.

CarMax second-quarter earnings fell to $14 million, or 6 cents per share, down from $65 million, or 29 cents per share, during the same time period last year.

Same-store sales -- sales at stores open at least a year -- were down 17 percent during that time.

And the number of used cars sold during the second quarter dropped 13 percent to 89,664. While sales were dropping, per-vehicle gross profits dropped by $112 to $1,870.

CarMax also saw a 9 percent decline in wholesale sales as fewer people came in to sell or trade in cars.

CarMax's financing arm saw a nearly $40 million swing. While CarMax Auto Finance reported $33.4 million in income for the second quarter last year, it lost $7.1 million during the most recent quarter.

Tom Folliard, president and chief executive of CarMax, blamed the drops on the continuing malaise in the economy.

"The slowdown in the economy and reductions in consumer spending power resulting from higher gasoline and food costs continued to create a difficult environment for our business," he said.

To address the downturn, CarMax said it has cut its used-car inventory by 13,300 vehicles, saving the company $200 million. It has also reduced hours worked at dealerships and is allowing attrition to reduce staffing.

CarMax also has instituted a hiring freeze at its Goochland headquarters.

During a conference call with investors and analysts yesterday morning, Folliard repeatedly said the bleeding will not stop until "we see consumers come back and spend money."

However, things aren't all bad for CarMax, according to one expert.

George Hoffer, an economics professor at Virginia Commonwealth University who studies the automobile industry, said although CarMax saw a 13 percent drop in same-store sales, overall sales, including existing and new stores, were down only 6.7 percent. New-car sales during the same three months decreased 14.3 percent.

That silver lining didn't soothe weary investors.

The earnings report sent shares of CarMax down 6.9 percent. It closed at $15.36, down $1.14 from Friday.

In a note to investors, RBC Capital Markets analyst Scot Ciccarelli said the company is in a difficult environment but will be fine in the long run.

"We still think the company has a better mouse trap than others and should be able to gain market share over time," he wrote.

Despite that, he remained bearish on the stock.

"On balance, we continue to believe that it will take a long time for the negative equity issue to work itself through the system and credit market turmoil will continue to impact the business," he wrote. "We continue to avoid the stock." Contact Louis Llovio at (804) 649-6348 or LLLovio@timesdispatch.com.

-----

To see more of the Richmond Times-Dispatch, or to subscribe to the newspaper, go to http://www.timesdispatch.com.

Copyright (c) 2008, Richmond Times-Dispatch, Va.

Distributed by McClatchy-Tribune Information Services.

For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.

NYSE:KMX,