CarMax Lags Earnings & Revenues in Q4 - Analyst Blog

CarMax Inc. KMX posted adjusted earnings per share of 52 cents in the fourth quarter of fiscal 2014 ended Feb 28, 2014, increasing 13% from 46 cents a year ago. Earnings however lagged the Zacks Consensus Estimate of 53 cents.

Including the impact of increase in cancellation reserves of 8 cents per share, net earnings on a reported basis fell to $99.2 million or 44 cents per share from $107.2 million or 46 cents a year ago.

Net sales and operating revenues in the quarter rose 8.8% to $3.08 billion, but lagged the Zacks Consensus Estimate of $3.19 billion. The year-over-year improvement in revenues was mainly due to increases in used vehicle sales, new vehicle sales and higher revenues from service department sales.

Used vehicle revenues appreciated 11.8% to $2.57 billion in the quarter, driven by higher unit sales. Unit sales of used vehicles increased 12% to 132,856 vehicles, while their average selling price decreased marginally to $19,193 from $19,287. Comparable store used-vehicle unit sales rose 7% in the quarter. The improvement was attributable to better execution and improved footfall in stores.

However, new vehicle revenues improved 9.6% to $49.5 million due to higher unit sales. Unit sales of new vehicles increased 6.9% to 1,807 vehicles while average selling price increased 2.7% to $27,302.

Wholesale vehicle revenues dipped 3.6% to $420.6 million. Unit sales increased 2% to 80,234 vehicles. Average selling price of wholesale vehicles decreased 3.6% year over year to $5,079.

Other sales and revenues declined 34.8% to $38 million, due to correction of the accounting related to extended service plan ESP and guaranteed asset protection (GAP) cancellation reserves, which offset higher ESP revenues from increase in used unit sales and a higher ESP penetration rate.

Gross profit increased 4% to $384.1 million from $369.2 million in the year-ago quarter.

Fiscal 2014 Results

CarMax recorded adjusted earnings of $2.24 per share in fiscal 2014, increasing from $1.87 per share in fiscal 2013. Net income (on a reported basis) amounted to $492.6 million or $2.16 per share, compared with $434.3 million or $1.87 per share in fiscal 2013.

Net sales and operating revenues increased 14.7% to $12.57 billion in fiscal 2014.

CarMax Auto Finance CAF

CAF reported a 6% increase in income to $80.8 million from $76 million in last year's quarter. The improvement was primarily driven by an increase in auto loan receivables, partly offset by a decline in total interest margin rate.

Store Openings

During the fourth quarter of fiscal 2014, CarMax opened 5 stores. Two of the stores were in Philadelphia, while one store each was opened in St. Louis, Baltimore/Washington, D.C. and Sacramento markets. During fiscal 2014, the company opened 13 stores, taking the total store count to 131 as of Feb 28, 2014. CarMax also opened stores in Rochester, NY, and Dothan, AL, after the end of the quarter. The company intends to open 13 used car superstores in fiscal 2015 and 10–15 superstores in each of the next two fiscal years.

Share Repurchase Program

During the fourth quarter of fiscal 2014, CarMax spent $117.9 million to repurchase 2.6 million shares under its existing share repurchase program. During fiscal 2014, the company spent $306 million to buy 6.9 million shares.

CarMax also increased its share repurchase authorization by $1 billion. As of Aug 31, 2013, the company had remaining authorization of $282.1 million under its old repurchase program.

Financial Position

CarMax had cash and cash equivalents of $627.9 million as of Feb 28, 2014, up from $449.4 million as of Feb 28, 2013. Total debt (including financing and capital lease obligations, and non-recourse notes payable) rose to $7.58 billion as of Feb 28, 2014 from $6.21 billion as of Feb 28, 2013.

In fiscal 2014, CarMax had a cash outflow of $613.2 million from operations compared with $778.4 million in the prior year. Capital expenditures increased to $310.3 million from $235.7 million in fiscal 2013. The company estimates capital expenditure in fiscal 2015 to be around $325 million.

CarMax currently retains a Zacks Rank #3 (Hold). Stocks from the broader industry that warrant a look include AutoZone, Inc. AZO, Advance Auto Parts Inc. AAP and O'Reilly Automotive Inc. ORLY. Advance Auto Parts carries a Zacks Rank #1 (Strong Buy), while AutoZone and O'Reilly carry a Zacks Rank #2 (Buy).