By Nathan Gomes

(Reuters) -CarMax on Thursday posted its first quarterly sales increase in greater than two years that also topped Street expectations, signaling a rebound within the used-car market and sending the retailer’s shares up as much as 12%.

A post-pandemic trend of shoppers choosing higher deals on recent vehicles equipped with improved features and limited used offerings from dealers within the $20,000 range had weighed on demand at used-car retailers.

“If you happen to have a look at our under $20,000 vehicles, we have done an excellent job bumping that number up year-over-year,” CarMax CEO Bill Nash said on a post-earnings call.

About 30% of CarMax’s sales within the quarter were from vehicles costing lower than $20,000, including the Toyota RAV4 and a few variants of the Ford Mustang.

Nash said consumers were still “pinched from an inflationary standpoint,” which led them to contemplate alternatives or used cars.

CFRA Research analyst Garrett Nelson said improving affordability and lower rates of interest are key tailwinds for auto dealerships.

“We expect CarMax is especially well-positioned to learn from a sales volume perspective as a near-pure play on used vehicles,” Nelson added.

The Richmond, Virginia-based retailer reported a profit of 81 cents per share for the quarter through Nov. 30, compared with the typical analyst expectation of 61 cents, in response to data compiled by LSEG.

Revenue increased 1.2% to $6.22 billion, compared with estimates of $6.04 billion.

CarMax shares, which have gained about 6% this 12 months through their last close, were up about 5% in afternoon trading.

(Reporting by Nathan Gomes in Bengaluru; Editing by Shilpi Majumdar and Sriraj Kalluvila)