Market Overview

CarMax Reports Quarterly Results

RICHMOND, Va.--(BUSINESS WIRE)--

CarMax, Inc. (NYSE: KMX) today reported results for the third quarter ended November 30, 2011.

  • Net sales and operating revenues increased 7% to $2.26 billion from $2.12 billion in the third quarter of last year.
  • Comparable store used unit sales declined 3% in the third quarter compared with a 16% increase in the prior year period.
  • Total used unit sales decreased 1%.
  • Total wholesale unit sales increased 13%.
  • CarMax Auto Finance (CAF) income rose 12% to $62.6 million.
  • Net income was $82.8 million, or $0.36 per diluted share, compared with $82.4 million, or $0.36 per diluted share, earned in the third quarter of fiscal 2011.

Third Quarter Business Performance Review

“We are pleased to report another quarter of strong profits, despite a difficult sales comparison and the continued sluggish economy,” said Tom Folliard, president and chief executive officer. “We remain committed to investing in our long-term growth strategy. We now plan to open 10 stores in fiscal 2013 and are pleased to announce our plan to open between 10 and 15 stores per year during each of the following three fiscal years.”

Sales. We believe the 3% decline in comparable store used units resulted from several factors, including our toughest sales comparison in many quarters and the continuation of weak economic conditions and low consumer confidence for much of the third quarter. Our average used vehicle selling price remained higher than the prior year, reflecting the continuing effect of the tight supply of late-model used vehicles on our acquisition costs. However, average retails have begun to moderate from earlier this year due to shifts in mix, as well as recent declines in industry wholesale pricing.

Wholesale unit sales increased 13% compared with the third quarter of fiscal 2011. Similar to the last several quarters, our wholesale volumes benefited from a strong increase in appraisal traffic.

Other sales and revenues declined 8% compared with the prior year's third quarter, primarily due to a decrease in third-party finance fees. This decrease resulted from the decision made earlier this year by CAF to retain an increased portion of the loans that third-party providers had been temporarily purchasing. In addition, it reflects an increase in the percentage of sales financed by our subprime finance providers, who purchase subprime financings from us at a discount.

Gross Profit. Total gross profit increased to $303.2 million from $297.9 million in the third quarter of fiscal 2011, reflecting higher gross profit on our retail and wholesale vehicle sales, partly offset by reduced other gross profit.

Used vehicle gross profit increased 2% to $197.5 million from $193.2 million in the prior year period. The improvement resulted from a 3% increase in gross profit per unit, to $2,171 from $2,103 in the prior year quarter, partly offset by the 1% decline in total used unit volumes. We have been able to manage to a relatively consistent gross profit per unit over the last three years.

Wholesale gross profit increased 18% to $66.5 million compared with $56.5 million in the third quarter of the prior year, driven by the 13% increase in wholesale unit sales and an improvement in gross profit per unit to $914 from $878 in the prior year quarter. The strength of our wholesale profit per unit was fueled by the continued strong demand and pricing at our auctions.

Other gross profit declined 20% to $37.2 million from $46.7 million in the prior year period. The decrease included the effects of the reduction in third-party finance fees and a decrease in service department profits.

CarMax Auto Finance. CAF income increased 12% to $62.6 million compared with $55.7 million in last year's third quarter primarily due to the interest margin, which rose to $88.7 million from $73.8 million. The increase in interest margin was driven by increases in both average managed receivables and the spread between the interest charged to consumers and our related funding costs.

CAF net loans originated increased 34% compared with the prior year quarter. The increase reflected our previously reported decision to retain an increased portion of the loans that third-party providers had been temporarily purchasing. The provision for loan losses increased to $15.1 million from $8.6 million in last year's third quarter, primarily reflecting the cumulative effect of the origination and retention of loans with greater credit risk.

SG&A. Selling, general and administrative expenses increased 6% to $232.3 million from $219.7 million in the prior year's third quarter as we continued to ramp store growth and fund initiatives to support the long-term growth of the company. The SG&A ratio was 10.3% compared with 10.4% in the prior year quarter. The change was primarily due to the effect of higher average selling prices.

Superstore Openings. During the third quarter of fiscal 2012, we entered the Providence, Rhode Island market, opening a store in North Attleborough, Massachusetts.

Supplemental Financial Information

           

Sales Components

 

(In millions)

Three Months Ended

November 30 (1)

Nine Months Ended

November 30 (1)

2011

2010

Change

2011

2010

Change

Used vehicle sales $ 1,766.7 $ 1,688.5 4.6 % $ 5,853.2 $ 5,410.1 8.2 %
New vehicle sales 46.0 47.7 (3.5 )% 154.7 149.6 3.4 %
Wholesale vehicle sales 390.3 320.1 21.9 % 1,325.9 966.5 37.2 %
Other sales and revenues:
Extended service plan revenues 39.8 39.7 0.2 % 131.0 126.6 3.5 %
Service department sales 23.5 23.9 (1.9 )% 74.6 77.3 (3.5 )%
Third-party finance fees, net   (5.6 )     (0.7 )   (695.6 )%   (11.8 )     (7.2 )   (63.8 )%
Total other sales and revenues   57.6       62.9     (8.4 )%   193.9       196.7     (1.4 )%
Net sales and operating revenues $ 2,260.5     $ 2,119.1     6.7 % $ 7,527.8     $ 6,722.9     12.0 %
 

(1)

 

Percent calculations and amounts shown are based on amounts presented on the attached consolidated statements of earnings and may not sum due to rounding.

 
       

Retail Vehicle Sales Changes

 
Three Months Ended

November 30

Nine Months Ended

November 30

2011

2010

2011

2010

Comparable store vehicle sales:
Used vehicle units (3 )% 16 % 0 % 9 %
New vehicle units (3 )% 24 % 2 % (1 )%
Total units (3 )% 16 % 0 % 9 %
 
Used vehicle dollars 3 % 18 % 7 % 15 %
New vehicle dollars 8 % 25 % 11 % 0 %
Total dollars 3 % 19 % 7 % 15 %
 
Total vehicle sales:
Used vehicle units (1 )% 18 % 2 % 10 %
New vehicle units (13 )% 24 % (5 )% (1 )%
Total units (1 )% 18 % 2 % 10 %
 
Used vehicle dollars 5 % 20 % 8 % 16 %
New vehicle dollars (4 )% 25 % 3 % 0 %
Total dollars 4 % 20 % 8 % 16 %
 
       

Unit Sales

 
Three Months Ended

November 30

Nine Months Ended

November 30

2011

2010

2011

2010

Used vehicles 90,975 91,854 302,311 296,212
New vehicles 1,719 1,976 5,952 6,278
Wholesale vehicles 72,805 64,333 242,752 197,832
 
       

Average Selling Prices

 
Three Months Ended

November 30

Nine Months Ended

November 30

2011

2010

2011

2010

Used vehicles $ 19,221 $ 18,177 $ 19,170 $ 18,072
New vehicles $ 26,611 $ 23,994 $ 25,863 $ 23,702
Wholesale vehicles $ 5,215 $ 4,844 $ 5,316 $ 4,754
 
               

Selected Operating Ratios

 

(In millions)

Three Months Ended

November 30

Nine Months Ended

November 30

2011

% (1)

2010

% (1)

2011

% (1)

2010

% (1)

 
Net sales and operating revenues $ 2,260.5 100.0 % $ 2,119.1 100.0 % $ 7,527.8 100.0 % $ 6,722.9 100.0 %
Gross profit $ 303.2 13.4 % $ 297.9 14.1 % $ 1,040.6 13.8 % $ 980.6 14.6 %
CarMax Auto Finance income $ 62.6 2.8 % $ 55.7 2.6 % $ 196.1 2.6 % $ 165.8 2.5 %

Selling, general, and administrative expenses

$ 232.3 10.3 % $ 219.7 10.4 % $ 716.9 9.5 % $ 671.6 10.0 %
Earnings before income taxes $ 132.7 5.9 % $ 133.3 6.3 % $ 517.5 6.9 % $ 472.9 7.0 %
Net earnings $ 82.8 3.7 % $ 82.4 3.9 % $ 321.0 4.3 % $ 291.4 4.3 %
 

(1)

 

Calculated as the ratio of the applicable amount to net sales and operating revenues.

 
           

Gross Profit

 

(In millions)

Three Months Ended

November 30

Nine Months Ended

November 30

2011

2010

Change

2011

2010

Change

Used vehicle gross profit $ 197.5 $ 193.2 2.2 % $ 662.7 $ 644.5 2.8 %
New vehicle gross profit 2.0 1.6 25.5 % 5.1 4.3 19.9 %
Wholesale vehicle gross profit 66.5 56.5 17.8 % 231.6 176.5 31.2 %
Other gross profit   37.2     46.7   (20.3 )%   141.2     155.3   (9.1 )%
Total gross profit $ 303.2   $ 297.9   1.8 % $ 1,040.6   $ 980.6   6.1 %
 
               

Gross Profit per Unit

 
Three Months Ended

November 30

Nine Months Ended

November 30

2011

2010

2011

2010

$/unit (1)

% (2)

$/unit (1)

% (2)

$/unit (1)

% (2)

$/unit (1)

% (2)
Used vehicle gross profit $ 2,171 11.2 % $ 2,103 11.4 % $ 2,192 11.3 % $ 2,176 11.9 %
New vehicle gross profit $ 1,164 4.4 % $ 807 3.3 % $ 865 3.3 % $ 684 2.9 %
Wholesale vehicle gross profit $ 914 17.0 % $ 878 17.6 % $ 954 17.5 % $ 892 18.3 %
Other gross profit $ 401 64.6 % $ 497 74.2 % $ 458 72.8 % $ 514 79.0 %
Total gross profit $ 3,271 13.4 % $ 3,175 14.1 % $ 3,376 13.8 % $ 3,242 14.6 %
 

(1)

 

Calculated as category gross profit divided by its respective units sold, except the other and total categories, which are divided by total retail units sold.

(2)

Calculated as a percentage of its respective sales or revenue.

 
               

Components of CAF Income and Other CAF Information

 

(In millions)

Three Months Ended

November 30

Nine Months Ended

November 30

2011

2010

2011

2010

$

% (1)

$

% (1)

$

% (1)

$

% (1)

Interest and fee income $ 114.3 9.6 $ 106.8 10.0 $ 334.0 9.7 $ 314.1 10.0
Interest expense   (25.6 )   (2.2 )     (33.0 )   (3.1 )     (80.3 )   (2.3 )     (103.4 )   (3.3 )
Interest margin 88.7 7.4 73.8 6.9 253.7 7.4 210.7 6.7
Provision for loan losses   (15.1 )   (1.3 )     (8.6 )   (0.8 )     (24.9 )   (0.7 )     (18.5 )   (0.6 )

Interest margin after provision for loan losses

73.6 6.2 65.2 6.1 228.8 6.7 192.2 6.1
Other gain (loss) (2) 0.3 -- 1.8 0.2 1.4 -- 6.8 0.2
Direct CAF expenses   (11.3 )   (0.9 )     (11.3 )   (1.1 )     (34.1 )   (1.0 )     (33.2 )   (1.1 )
CarMax Auto Finance income $ 62.6     5.3     $ 55.7     5.2     $ 196.1     5.7     $ 165.8     5.3  
 
Total average managed receivables (3) $ 4,770.9 $ 4,285.3 $ 4,585.1 $ 4,204.6
Net loans originated $ 664.0 $ 495.2 $ 2,125.2 $ 1,620.3
 
Ending allowance for loan losses $ 41.4 $ 42.2 $ 41.4 $ 42.2
 
Warehouse facility information:
Ending funded receivables $ 876.0 $ 542.0 $ 876.0 $ 542.0
Ending unused capacity $ 724.0 $ 1,058.0 $ 724.0 $ 1,058.0
 

(1)

 

Annualized percent of total average managed receivables.

(2)

The amount for the nine months ended November 30, 2010, includes $2.5 million of servicing fee income and interest income on retained interest in securitized receivables that previously was reported separately.

(3)

Principal balance only.

 
           

Earnings Highlights

 

(In millions except per share data)

Three Months Ended

November 30

Nine Months Ended

November 30

2011

2010

Change

2011

2010

Change

Net earnings $ 82.8 $ 82.4 0.5 % $ 321.0 $ 291.4 10.2 %
Diluted weighted average shares outstanding

230.6

228.5

0.9

%

230.5

226.9

1.6

%

Net earnings per share $ 0.36 $ 0.36 -- $ 1.39 $ 1.28 8.6 %
 

Store Opening Plan

We currently plan to open the following superstores within 12 months from November 30, 2011:

     

Location

  Television

Market

  Market

Status

  Planned

Opening Date

Chattanooga, Tennessee Chattanooga New Q4 Fiscal 2012
Lancaster, Pennsylvania Harrisburg New Q1 Fiscal 2013
Bakersfield, California Bakersfield New Q1 Fiscal 2013
Nashville, Tennessee Nashville Existing Q2 Fiscal 2013
Fort Myers, Florida Fort Myers New Q2 Fiscal 2013
Oxnard, California Los Angeles Existing Q2 Fiscal 2013
Naples, Florida Fort Myers New Q2 Fiscal 2013
Des Moines, Iowa Des Moines New Q3 Fiscal 2013
Denver, Colorado (2 stores) Denver New Q3 Fiscal 2013
 

We expect to open a total of 10 superstores in the fiscal year ending February 28, 2013, and between 10 and 15 superstores in each of the following three fiscal years.

Conference Call Information

We will host a conference call for investors at 9:00 a.m. ET today, December 21, 2011. Domestic investors may access the call at 1-888-298-3261 (international callers dial 1-706-679-7457). The conference I.D. for both domestic and international callers is 97139403. A live webcast of the call will be available on our investor information home page at investor.carmax.com and at www.streetevents.com.

A webcast replay of the call will be available at investor.carmax.com beginning at approximately 1:00 p.m. ET on December 21, 2011, through April 4, 2012. A telephone replay also will be available through December 31, 2011, and may be accessed by dialing 1-800-642-1687 (international callers dial 1-706-645-9291). The conference I.D. for both domestic and international callers is 97139403.

Fourth Quarter and Fiscal Year 2012 Earnings Release Date

We currently plan to release fourth quarter and fiscal 2012 sales and earnings on Thursday, April 5, 2012, before the opening of the New York Stock Exchange. We will host a conference call for investors at 9:00 a.m. ET on that date. Information on this conference call will be available on our investor information home page at investor.carmax.com in March 2012.

About CarMax

CarMax, a member of the Fortune 500 and the S&P 500, and one of the Fortune 2011 “100 Best Companies to Work For,” is the nation's largest retailer of used cars. Headquartered in Richmond, Va., CarMax currently operates 107 used car superstores in 52 markets. The CarMax consumer offer is structured around four customer benefits: low, no-haggle prices; a broad selection; high quality vehicles; and customer-friendly service. During the twelve months ended February 28, 2011, the company retailed 396,181 used cars and sold 263,061 wholesale vehicles at our in-store auctions. For more information, access the CarMax website at www.carmax.com.

Forward-Looking Statements

We caution readers that the statements contained in this release about our future business plans, operations, opportunities or prospects, including without limitation any statements or factors regarding expected sales, margins or earnings, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based upon management's current knowledge and assumptions about future events and involve risks and uncertainties that could cause actual results to differ materially from anticipated results. Among the factors that could cause actual results and outcomes to differ materially from those contained in the forward-looking statements are the following:

  • Changes in general or regional U.S. economic conditions.
  • Changes in the availability or cost of capital and working capital financing, including changes related to the asset-backed securitization market.
  • Changes in consumer credit availability related to our third-party financing providers.
  • Changes in the competitive landscape within our industry.
  • Significant changes in retail prices for used and new vehicles.
  • A reduction in the availability of or access to sources of inventory.
  • Factors related to the regulatory and legislative environment in which we operate.
  • Factors related to geographic growth, including the inability to acquire or lease suitable real estate at favorable terms or to effectively manage our growth.
  • The loss of key employees from our store, regional or corporate management teams.
  • The failure of key information systems.
  • The effect of new accounting requirements or changes to U.S. generally accepted accounting principles.
  • Security breaches or other events that result in the misappropriation, loss or other unauthorized disclosure of confidential customer information.
  • The effect of various litigation matters.
  • Adverse conditions affecting one or more automotive manufacturers.
  • The occurrence of severe weather events.
  • Factors related to the seasonal fluctuations in our business.
  • Factors related to the geographic concentration of our superstores.
  • The occurrence of certain other material events.

For more details on factors that could affect expectations, see our Annual Report on Form 10-K for the fiscal year ended February 28, 2011, and our quarterly or current reports as filed with or furnished to the Securities and Exchange Commission. Our filings are publicly available on our investor information home page at investor.carmax.com. Requests for information may also be made to the Investor Relations Department by email to investor_relations@carmax.com or by calling 1-804-747-0422 ext. 4287. We disclaim any intent or obligation to update our forward-looking statements.

                 

CARMAX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(UNAUDITED)

(In thousands except per share data)

 

Three Months Ended November 30     Nine Months Ended November 30
2011  

% (1)

  2010  

% (1)

    2011  

% (1)

  2010  

% (1)

 
Sales and operating revenues:
Used vehicle sales $ 1,766,690 78.2 $ 1,688,469 79.7 $ 5,853,213 77.8 $ 5,410,133 80.5
New vehicle sales 45,997 2.0 47,671 2.2 154,736 2.1 149,626 2.2
Wholesale vehicle sales 390,262 17.3 320,117 15.1 1,325,926 17.6 966,495 14.4
Other sales and revenues   57,565     2.5     62,872   3.0       193,875   2.6     196,667   2.9
Net sales and operating revenues 2,260,514 100.0 2,119,129 100.0 7,527,750 100.0 6,722,921 100.0
Cost of sales   1,957,295     86.6     1,821,219   85.9       6,487,161   86.2     5,742,345   85.4
Gross profit 303,219 13.4 297,910 14.1 1,040,589 13.8 980,576 14.6
CarMax Auto Finance income 62,625 2.8 55,745 2.6 196,112 2.6 165,844 2.5

Selling, general and administrative expenses

232,304 10.3 219,707 10.4 716,944 9.5 671,635 10.0
Interest expense 780 -- 801 -- 2,358 -- 2,286 --
Other income (expense)   (94 )   --     198   --       119   --     380   --
Earnings before income taxes 132,666 5.9 133,345 6.3 517,518 6.9 472,879 7.0
Income tax provision   49,872     2.2     50,981   2.4       196,541   2.6     181,511   2.7
Net earnings $ 82,794     3.7   $ 82,364   3.9     $ 320,977   4.3   $ 291,368   4.3
 
Weighted average common shares:
Basic 226,446 223,953 226,104 223,007
Diluted 230,632 228,471 230,529 226,924
 
Net earnings per share:
Basic $ 0.37 $ 0.37 $ 1.42 $ 1.30
Diluted $ 0.36 $ 0.36 $ 1.39 $ 1.28
 

(1)

 

Percents are calculated as a percentage of net sales and operating revenues and may not equal totals due to rounding.

 
     

CARMAX, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In thousands)
 
November 30

2011

  November 30

2010

  February 28

2011

ASSETS

Current assets:
Cash and cash equivalents $ 383,411 $ 74,391 $ 41,121
Restricted cash from collections on auto loan receivables 174,392 165,785 161,052
Accounts receivable, net 54,522 66,045 119,597
Inventory 1,013,183 1,002,982 1,049,477
Deferred income taxes 13,085 8,266 5,191
Other current assets   9,806     20,031     33,660
 
Total current assets 1,648,399 1,337,500 1,410,098
 
Auto loan receivables, net 4,807,804 4,274,572 4,320,575
Property and equipment, net 988,300 893,421 920,045
Deferred income taxes 87,705 95,100 92,278
Other assets   101,193     94,799     96,913
 
TOTAL ASSETS $ 7,633,401   $ 6,695,392   $ 6,839,909
 

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable $ 246,393 $ 218,037 $ 269,763
Accrued expenses and other current liabilities 123,074 110,436 103,389
Accrued income taxes 13,069 524 772
Short-term debt 759 677 1,002
Current portion of long-term debt 838 751 772
Current portion of non-recourse notes payable   147,183     138,829     132,519
 
Total current liabilities 531,316 469,254 508,217
 
Long-term debt, excluding current portion 27,713 28,525 28,350
Non-recourse notes payable, excluding current portion 4,318,046 3,886,871 3,881,142
Other liabilities   119,474     127,257     130,570
 
TOTAL LIABILITIES 4,996,549 4,511,907 4,548,279
 
TOTAL SHAREHOLDERS' EQUITY   2,636,852     2,183,485     2,291,630
 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,633,401   $ 6,695,392   $ 6,839,909
 
   

CARMAX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)
 
Nine Months Ended November 30
2011   2010

Operating Activities:

Net earnings $ 320,977 $ 291,368

Adjustments to reconcile net earnings to net cash used in operating activities:

Depreciation and amortization 48,021 43,657
Share-based compensation expense 37,148 33,600
Provision for loan losses 24,878 18,450
Loss on disposition of assets 1,331 443
Deferred income tax (benefit) provision (3,858 ) 14,352
Net decrease (increase) in:
Accounts receivable, net 65,075 13,014
Retained interest in securitized receivables -- 43,746
Inventory 36,294 (159,849 )
Other current assets 24,038 (15,879 )
Auto loan receivables, net (512,107 ) (249,427 )
Other assets (5,075 ) (5,984 )
Net decrease in:

Accounts payable, accrued expenses and other current liabilities and accrued income taxes

(21,673 ) (48,602 )
Other liabilities   (17,476 )     (1,377 )
Net cash used in operating activities   (2,427 )     (22,488 )
 

Investing Activities:

Capital expenditures (105,990 ) (38,536 )
Proceeds from sales of assets -- 8

Increase in restricted cash from collections on auto loan receivables

(13,340 ) (3,177 )
Increase in restricted cash in reserve accounts (8,573 ) (11,310 )
Release of restricted cash from reserve accounts 12,088 11,421
(Purchases) sales of money market securities, net (520 ) 4,001
Purchase of investments available-for-sale (2,252 ) --
Sales of investments available-for-sale   52       --  
Net cash used in investing activities   (118,535 )     (37,593 )
 

Financing Activities:

Decrease in short-term debt, net (243 ) (206 )
Issuances of long-term debt -- 243,300
Payments on long-term debt (571 ) (365,451 )
Issuances of non-recourse notes payable 3,633,000 2,947,000
Payments on non-recourse notes payable (3,181,432 ) (2,747,710 )
Equity issuances, net 5,039 31,945
Excess tax benefits from share-based payment arrangements   7,459       7,316  
Net cash provided by financing activities   463,252       116,194  
 
Increase in cash and cash equivalents 342,290 56,113
Cash and cash equivalents at beginning of year   41,121       18,278  
Cash and cash equivalents at end of period $ 383,411     $ 74,391  
 

CarMax, Inc.
Investors and Financial Media:
Katharine Kenny, Vice President, Investor Relations, (804) 935-4591
Celeste Gunter, Manager, Investor Relations, (804) 935-4597
or
General Media:
Laura Donahue, Vice President, Public Affairs, (804) 747-0422, ext. 4434
Trina Lee, Director, Public Relations (804) 747-0422, ext. 4197

 

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