CarMax Announces Growth Plan Details
RICHMOND, Va., March 26 The CarMax Group today
announced details of its growth plan and provided updated store economics for
its used-car superstore prototypes to help investors assess the impact of new-
store growth on CarMax profitability.
"Assuming that our used-car business continues to meet our expectations,
we intend to gradually ramp up store growth over the next several years," said
W. Austin Ligon, president of CarMax. "We believe the store growth
expectations we are releasing today could result in a 15 percent to 20 percent
annual growth rate on our installed base, allowing us to double sales to
approximately $5 billion over the next five years and, with leverage from
sales growth, increase our operating margins."
For the next several years, the company plans to focus its geographic
growth on single-store markets and satellite fill-in stores in its existing
multi-store markets. "We believe the approximately 35 single-store markets
that we have not yet entered provide the most attractive near-term expansion
opportunity for us," said Ligon. "We also believe that we can add 10
satellite stores in our existing multi-store markets." CarMax currently
operates in the multi-store markets Washington/Baltimore, Chicago, Atlanta,
Dallas, Houston, Miami and Tampa.
* For the fiscal year ending February 28, 2002, CarMax plans to resume
geographic growth late in the year by opening two used-car superstores
in the single-store markets of Sacramento, Calif., and Greensboro, N.C.
* CarMax plans to open in fiscal 2003 four to six used-car superstores,
including stores in new single-store markets and satellite stores in
CarMax's existing multi-store markets.
* Management hopes to open six to eight superstores per year in fiscal
2004 through fiscal 2006, depending upon market opportunities and
management's comfort with the consistency of operational execution as
growth ramps up. The used-car superstores added in these years also
would be single-store market openings or satellite additions in
existing multi-store markets.
Store Profitability: During the growth period fiscal 2002 through 2006,
CarMax expects to use two superstore prototypes: a standard "A" prototype for
single-store markets and a satellite superstore prototype. At maturity -- the
fifth year of operation -- target sales for a single-store market standard "A"
superstore range from an estimated $50 million to $100 million with store
operating profit estimated between 5.2 percent and 9.8 percent of sales. At
maturity, target sales for a satellite superstore prototype range from $36
million to $72 million with store operating profit estimated between 5.0
percent and 9.3 percent of sales. These store operating profit projections
are pre-tax profits before non-store overhead. Non-store overhead includes
all field operating expenses outside the store as well as corporate overhead
and currently is approximately 2.4 percent of sales. At a $5 billion sales
level, CarMax estimates non-store overhead of 1.7 percent of sales.
Average New-Store Investment: CarMax expects that the total investment in
a standard "A" prototype will typically range from approximately $23 million
to $30 million, including the investment in the land and building; furniture,
fixtures and equipment; inventory; and a seller's interest in the installment
loan receivables of CarMax Auto Finance. If CarMax takes full advantage of
building and land sale-leaseback and inventory financing, the net CarMax cash
investment in a standard "A" store is estimated to be in the $4 million to $6
million range. For a satellite prototype superstore, CarMax expects that the
total investment typically will range from approximately $11 million to $18
million. If CarMax takes full advantage of sale-leaseback and inventory
financing, the net CarMax cash investment in a satellite store is estimated to
be in the $2 million to $3 million range.
Return on Investment: The average age of CarMax's seven existing single-
store-market superstores is 50 months, and their unleveraged return on net
assets employed (RONA) is 17.4 percent. RONA equals profit plus interest and
rent, after-tax, divided by the yearly average of net working capital plus
fixed assets including real estate. The average age of all 19 existing
standard "A" and satellite prototype stores is 38 months, and their
unleveraged return on net assets employed is 14.1 percent. These returns
compare favorably with leading specialty retailers and explain the company's
enthusiasm about a growth program focused on the standard "A" and satellite
To provide investors additional details, CarMax is posting a background
paper, "CarMax Growth Plan and Prototypical Economics," in the press release
section of its investor Web site, investor.CarMax.com, as well as on the
Circuit City investor Web site, investor.CircuitCity.com.
CarMax also will host a conference call for investors today, March 26,
2001, at 10:00 a.m. Eastern time to discuss the growth plan. Domestic
investors may access the call at 800-857-1849 (access code: CarMax).
International investors should dial 312-470-0177 (access code: CarMax). A
replay of the conference call will be available beginning today, March 26,
2001, at approximately 2:00 p.m. Eastern and will run through midnight, April
1, 2001. Domestic investors may access the recording at 800-597-8362 (no
access code required) and international investors at 402-220-0221 (no access
code required). A replay of the call also will be available on the Web sites
noted above or at streetevents.com.
CarMax is the nation's leading retailer of used cars. With headquarters
in Richmond, Va., the company operates 40 retail units, including 33 used-car
superstores. CarMax also operates 22 new-car franchises, most of which are
integrated or co-located with its used-car superstores. For more information,
access the company's Web site, CarMax.com.
CarMax is a subsidiary of Circuit City Stores, Inc. Circuit City Stores,
Inc. has two series of common stock, one of which is the CarMax Group stock,
which tracks the performance of the CarMax operations, and the other of which
is the Circuit City Group stock, which tracks the performance of
the Circuit City Group operations and the retained interest in the CarMax
Group. A portion of the earnings of the CarMax Group is attributed to the
CarMax Group stock; the balance is attributed to the Circuit City Group stock.
This release contains forward-looking statements, including statements
about CarMax's geographic growth plans, sales and earnings expectations and
anticipated store investments. These statements are subject to risks and
uncertainties. Additional discussion of factors that could cause actual
results to differ materially from management's projections, forecasts,
estimates and expectations is contained in the Circuit City Stores, Inc. SEC