CarMax (KMX) changed the used-car retail industry by offering customers a big-company experience in a market dominated by moms-and-pops, and the company is now resuming its store expansion plans after having remained profitable even during recession years, says François Rochon, President & Portfolio Manager at Giverny Capital.
“They offer consumers a very good deal, and a very good guarantee. They buy their cars at a very good rate. So for the consumer, I think it’s a much better experience owning used cars. And even though they have 119 large super stores, they still have less than 3% of the market. It’s very fragmented, it’s a very big market, and we think they really have a very big competitive advantage,” Rochon said.
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Rochon says CarMax plans to increase new stores by 50% to 60% in the next five years, and he expects a growth rate of 15% to 20% for many years. He says Thomas Folliard, the CEO, has been implementing the right culture, and his growth plans are promising.
“We just thought that CarMax could continue to grow 15% a year for many years, and it has doubled since we bought it. So far we’ve been right on that. The stock had a little correction, down 67%, during the 2008 downturn, but it came back and it is about double what we paid, simply because earnings per share have doubled during that time frame. We think they will do that in the next five years also,” Rochon said.
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