CarMax Reverses in 'Asinine' Selloff (Update 1)

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CarMax story updated with comments from Stifel analyst Jamie Albertine

NEW YORK (TheStreet) -- CarMax shares burnt rubber out of the gate on Friday after the nation's largest used car retailer reported first-quarter earnings, but shares quickly erased those gains in a move that had analysts scratching their heads.

CarMax shares opened 6.8% higher at $47.60 on enthusiasm Oppenheimer analyst Brian Nagel attributed to strong unit sales comparisons. CarMax sold 17% more used cars in the first quarter vs. the first quarter of 2012.

They drove downhill almost immediately, however, and were down more than 3% at $43.06 late Friday morning. They recovered some of those losses, however, and were down 1.62% shortly before 2 pm.

Oppenheimer's Nagel said he heard nothing on the 9 a.m. conference call to explain the sharp reversal. Instead, he expects investors simply became concerned about what the company's next act would be since it would now face more difficult year-over-year comparisons.

CarMax also lowered the rate at which it lends to its customers, and Nagel said it isn't clear how much that contributed to the sales surge, as opposed to economic improvement.

Stifel analyst Jamie Albertine called the reversal "asinine." He said concerns over the negative effect of rising interest rates on CarMax's finance business may be a contributor, though that would be a mistake as they are well known and are not reflective of the health of CarMax's core business. As for the difficulty of future comparisons, he said this happens all the time in recoveries.

"With the growth and the returns that they continue to generate for 20 years and with revamping growth I find it very hard to believe that people aren't looking at this quarter with more positivity," Albertine said.

As far as what the CarMax numbers say about the broader economy, Parsec Financial chief economist Jim Smith said it is hard to know without more information.

"Consumers are very sensitive to interest rates when using credit to buy a vehicle," he wrote in an email. "If CarMax has dropped rates below most of their competitors (or if consumers think they have because of good advertising), then the impact could be widespread. Lower rates should move more vehicles and if more used cars are sold, at least some of the previous owners will be buying new cars, which make a much larger contribution to economic growth."

Consumer demand for houses and vehicles is what usually leads the U.S. economy out of a recession, according to Smith. He said they were "very slow to fulfill that role this time, but are now making large contributions to real GDP growth."

-- Written by Dan Freed in New York.