Market Overview

CarMax Reports Fourth Quarter Results

Share:

CarMax, Inc. (NYSE:KMX) today reported results for the fourth quarter
and fiscal year ended February 28, 2018. Year-over-year highlights
include:

     

Net sales and operating revenues increased 0.8% to $4.08 billion in
the fourth quarter. For the fiscal year, net sales and operating
revenues increased 7.8% to $17.12 billion.
 

Used unit sales in comparable stores declined 8.0% in the fourth
quarter, while they increased 2.0% for the fiscal year.
 

Total used unit sales fell 3.1% in the fourth quarter, while they
rose 7.5% for the fiscal year.
 

Total wholesale unit sales increased 8.9% in the fourth quarter and
4.3% for the fiscal year.
 

CarMax Auto Finance (CAF) income increased 21.9% to $101.1 million
in the fourth quarter. For the fiscal year, CAF income increased
14.1% to $421.2 million.
 

In the fourth quarter, net earnings declined 20.0% to $122.1 million
and net earnings per diluted share declined 17.3% to $0.67.
 
* In connection with the Tax Cuts and Jobs Act of 2017 ("2017 Tax
Act"), net earnings for the current year's fourth quarter were
reduced by $32.7 million, or $0.18 per diluted share, for the
revaluation of our net deferred tax asset. Net earnings were also
increased by $20.8 million, or $0.11 per diluted share, primarily
due to the reduction in the statutory federal tax rate.
 
* Net earnings for the current year's quarter were reduced by a
one-time discretionary bonus of $8.0 million, or $0.03 per diluted
share net of taxes, paid to eligible associates.
 

For the fiscal year, net earnings increased 5.9% to $664.1 million
and net earnings per diluted share increased 10.4% to $3.60. Net
earnings for the full fiscal year were reduced by the fourth quarter
items noted above.
 

Fourth Quarter Business Performance Review

Sales. Total used vehicle unit sales
declined 3.1% and comparable store used unit sales fell 8.0% versus the
prior year's fourth quarter. The comparable store sales performance
primarily reflected lower store traffic and relatively flat conversion,
as well as a tough comparison as we lapped our strongest prior year
performance. "We're disappointed in our fourth quarter comparable store
unit sales performance, which we believe was partly affected by macro
pricing factors resulting in a softer sales environment," said Bill
Nash, president and chief executive officer.

Total wholesale vehicle unit sales increased 8.9% compared with the
fourth quarter of fiscal 2017, largely driven by the growth in our store
base and an increase in our appraisal buy rate.

Other sales and revenues decreased 4.5% compared with the fourth quarter
of fiscal 2017. Extended protection plan (EPP) revenues declined 2.4%,
primarily due to the decline in used unit sales. The $5.0 million
reduction in third-party finance fees reflected shifts in our sales mix
by finance channel, including a decline in our Tier 2 and an increase in
our Tier 3 sales.

Gross Profit. Total gross profit
decreased 4.5% versus last year's fourth quarter, to $536.7 million.
Used vehicle gross profit fell 2.5%, largely the result of the 3.1%
decline in total used unit sales. Used vehicle gross profit per unit was
similar at $2,147 compared with $2,134 in the prior year period.
Wholesale vehicle gross profit increased 9.8% versus the prior year's
quarter, primarily driven by the 8.9% increase in wholesale unit sales.
Wholesale vehicle gross profit per unit was comparable at $946 versus
$938 in the prior year period. Other gross profit declined 24.2%,
reflecting a decrease in service profits, together with the noted
changes in EPP revenues and net third-party finance fees. Service
profits were affected by the reduced leverage of service department
costs resulting from the decrease in comparable store used unit sales.
In addition, approximately half of the total one-time discretionary
bonus was paid to service department associates.

SG&A. Compared with the fourth
quarter of fiscal 2017, SG&A expenses increased 6.1% to $408.8 million.
Factors contributing to the increase included the 11% increase in our
store base since the beginning of last year's fourth quarter
(representing the addition of 19 stores), partially offset by a decrease
of $8.6 million in stock-based compensation expense. In addition,
approximately half of the total one-time discretionary bonus was
included in the current quarter's SG&A. SG&A per used unit was $2,397 in
the current quarter, up $207 year-over-year, largely reflecting the
deleverage associated with the decline in comparable store used unit
sales. The decrease in stock-based compensation expense reduced SG&A per
unit by $47.

CarMax Auto Finance.(1)
Compared with last year's fourth quarter, CAF income increased 21.9% to
$101.1 million. The increase resulted from the combined effects of a
decline in the provision for loan losses and the growth in average
managed receivables, partially offset by a lower total interest margin
percentage. The provision for loan losses declined 16.7% to $38.6
million, compared with $46.4 million in the prior year quarter. The
prior year's provision was affected by rising loss experience during
fiscal 2017 and an update in our assumptions used in determining the
loan loss allowance, while losses in the current year's quarter were
generally consistent with expectations. The allowance for loan losses as
a percentage of ending managed receivables was 1.11% as of February 28,
2018, flat with the allowance percentage as of November 30, 2017, and
down from 1.16% as of February 28, 2017. Average managed receivables
grew 9.4% to $11.54 billion. The total interest margin percentage, which
reflects the spread between interest and fees charged to consumers and
our funding costs, was 5.6% of average managed receivables compared with
5.7% in last year's fourth quarter.

Interest Expense. Interest expense
rose to $19.7 million in the fourth quarter of fiscal 2018 from
$16.4 million in the prior year's fourth quarter. The increase
principally reflected a reduction in capitalized interest and higher
interest rates in fiscal 2018.

 

(1)

Although CAF benefits from certain indirect overhead
expenditures, we have not allocated indirect costs to CAF to avoid
making subjective allocation decisions.

 

Income Taxes. The effective tax rate
increased to 41.9% in the fourth quarter of fiscal 2018 from 37.0% in
the prior year's fourth quarter. The current year's fourth quarter
effective tax rate was affected by an $11.9 million increase in tax
expense as a result of the 2017 Tax Act, including:

   

The $32.7 million increase in tax expense associated with the
revaluation of our net deferred tax asset, which increased the
fourth quarter effective tax rate by 15.6 percentage points.
 

The $20.8 million decrease in tax expense primarily resulting from
the reduction in the statutory federal tax rate, which reduced the
fourth quarter effective tax rate by 9.9 percentage points.
 

In future quarters, we anticipate that our effective tax rate will
generally be around 25%.

Store Openings. During the fourth
quarter of fiscal 2018, we opened four stores. We entered two new
television markets (Myrtle Beach, South Carolina and Portland, Maine)
and we added two stores in existing television markets (Boston,
Massachusetts and Denver, Colorado).

Share Repurchase Activity. During
the fourth quarter of fiscal 2018, we repurchased 1.9 million shares of
common stock for $127.8 million pursuant to our share repurchase
program. As of February 28, 2018, we had $1.02 billion remaining
available for repurchase under the current authorization.

Fiscal 2019 Capital Spending Plan

We currently plan to open 15 stores in fiscal 2019 and between 13 and 16
stores in fiscal 2020. Of the 15 stores we plan to open in fiscal 2019,
10 are in metropolitan statistical areas having populations of 600,000
or less, which we define as small markets. This is an increase from
fiscal 2018, when 6 out of our 15 store openings were in small markets.
We estimate capital expenditures will increase to approximately $340
million in fiscal 2019.

Supplemental Financial Information

Amounts and percentage calculations may not total due to rounding.

Sales Components

   
Three Months Ended February 28 Years Ended February 28
(In millions)

 

2018   2017   Change   2018   2017   Change
Used vehicle sales $ 3,429.2   $ 3,450.3   (0.6 )% $ 14,392.4   $ 13,270.7   8.5 %
Wholesale vehicle sales 527.2 465.9 13.2 % 2,181.2 2,082.5 4.7 %
Other sales and revenues:
View Comments and Join the Discussion!
 
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com