CarMax beats estimates on surge in used-car demand

CarMax Inc. reported a 8.2% increase in profit during the fourth quarter amid a surge in used-vehicle demand. But, the dealer chain signaled a continued decline in pricing as more pre-owned vehicle supply hits the market and raises concern about the health of the U.S. automobile market. The Richmond, Va.-based retailer said profit grew to $152.6 million, or 81 cents per diluted share in the fourth quarter on $4.05 billion in revenue. The 9% revenue gain compared to the same period in the prior year came as the company sold 176,000 used vehicles during the period -- same-store unit sales increased 8.7% over the period. –– ADVERTISEMENT –– Analysts had forecast 79 cents per share in profit for the quarter and $3.9 billion in revenue, according to FactSet. CarMax shares were up 2.4% at $58 in recent premarket trading. CarMax is working to offset a recent decline in used-car values that is following a long run of strong pricing. The average price of a used vehicle fell 1.6% to $19,435 in the fourth quarter, and decreased by 1.7% to $19,586 in 2016 compared to 2015. As off-lease cars begin to flood the lightly-used-car market, auto makers are offering record high incentives on new vehicles, potentially narrowing the gap in pricing between a new and used vehicle. While the margins on used-car sales are higher than new-car sales, CarMax could be under pressure if a pricing war among auto makers accelerates. The company, which has 173 stores across the U.S., plans to open 15 stores this fiscal year and more than a dozen in the following fiscal year. Write to Adrienne Roberts at Adrienne.Roberts@wsj.com